Sally Herigstad's 3 rules of credit

Don't co-sign; don't finance expensive toys; don't quit making payments

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
My husband is about $20,000 in debt because he bought a motorcycle and then he co-signed for my brother to get one, too. Soon after they got the motorcycles, my brother's motorcycle got stolen. He didn't have full coverage on it, so he just stopped making the payments.

Not much later, my husband lost his job and couldn't make the payments on his motorcycle. Since his credit was already messed up by my brother's motorcycle loan, he didn't seem to care.

Well, now he has decided to consolidate his debt and pay it off, but someone told us to not even waste our time or money. This person said the payment each month is going to be really high and would take us eight years to pay it off. She said by that time it would be cleared off his credit anyway. Is that true? If he doesn't pay anything on it for seven years, it will just disappear off his credit? It sounded kind of fishy to me, but she said one time she ended up having to turn back in a car she had and couldn't pay for, and after seven years it went away. -- Brittany

Answer for the expert

Dear Brittany,
Fixing a problem like this is like giving advice after someone's car (or motorcycle) is already rolling down the hill without the emergency brakes on. The brakes that could have prevented this situation are as follows:

  • Never finance toys. Save your money until you can pay cash.
  • Never co-sign. According to the Federal Trade Commission, as many as three out of four co-signers end up having to make the payments for their friends or relatives.
  • Never throw up your hands and quit making payments because your credit is messed up already. It can get worse!

Your friend is talking about the statute of limitations, which varies by state. These laws are meant to stop creditors from popping up at any time and saying you owe money from the distant past -- perhaps from so far back you can't remember the details or find records to defend yourself. The statute of limitations is not intended as a way to let debtors ignore debts until they go away. As you say, that sounds fishy! Here's why this plan is not a good idea:

  • Ignoring a debt will hurt your credit -- and for much longer than seven years. You'll pay higher interest on other debts, which makes it harder for you to get out of debt and reach long-term financial goals. That, in turn, won't help your score. You might not even be able to buy or rent a house, and you could be turned down for a job or a promotion. Once your credit starts rolling downhill, it's hard to stop.
  • The creditor has every right to keep trying to collect. You'll be stressed whenever you answer the phone or open the mail. Plus, creditors can use other ways to collect. Depending on your state law, they may place liens, take you to court, and garnish your wages.
  • Even after the statute of limitations takes effect, the debt remains on your credit history for some time.
  • Your husband and brother bought the motorcycles. They should pay for them.

Tell your brother to get busy and start making his own motorcycle payments. It's not your fault he didn't have it fully insured. I hope  your husband can find work quickly and start paying off his debts. If they both work hard, they can pay $20,000 off in short order.

One more piece of advice for your husband: Next time, tell him not to make any major purchase, sign a contract or quit making payments without first listening to the common sense advice of his wife!

See related: State statutes of limitations for credit card debt; Ignoring credit card debt can lead to garnished wage

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Updated: 01-19-2018