Most parents would do anything to help their kids succeed. But by co-signing loans for young adults, many families are unintentionally making things more difficult.
Despite everything Americans have learned in recent years about having too much debt, we are putting our kids under immense pressure to borrow money.
With tuition rising rapidly, most students don't believe they can achieve an education without taking out student loans. With the cost-of-living high and the number of job positions low, young adults are making ends meet with credit cards. And when it comes time to buy a car or home, many young people can't gain approval without assistance.
As a result, more students are asking for help from moms, dads, grandmas, grandpas, aunts, and uncles, say Tennessee bankruptcy lawyers. By co-signing loans, these adults believe they can help their young relatives attain financing and establish a credit history.
But the benefits of borrowing are quickly erased when the primary borrower - the person you co-signed for - cannot afford to pay back the money.
According to a recent Business Insider story, as many as three-quarters of all co-signers are left to foot the bill after the primary borrower fails to make payments. Many must file for Tennessee bankruptcy in order to regain control over finances.
Not all young people who default on loans are recklessly irresponsible. In fact, many are intelligent and motivated young adults who simply haven't been able to achieve the income necessary to keep up with their bills in today's economy.
When your name is attached to their credit card debt or loan, you are liable for making any payments they cannot afford. In the case of a default, your credit score, home, and life savings will be at risk. In fact, a growing number of parents are facing foreclosure as a result of providing financial help to their children.
Not only can co-signing loans have negative consequences for parents, but it also causes trouble for young borrowers.
Many young people learn to use credit before they learn to use cash, making it impossible to understand important concepts such as budgeting and saving.
With poor credit scores from the get-go, young adults are unable to qualify for loans or forced to accept ridiculously high interest rates.
If you can afford to part with the money, making a personal loan is a lower-risk option because, unlike with co-signing, a default won't be reflected on your credit score. If the damage has already been done and you're suffering the consequences of a co-signing gone bad, bankruptcy may be able to help.
Chapter 13 bankruptcy can allow the primary borrower to make payments over a period of time, preventing default and protecting the co-signer. If lenders agree to release you from liability, you may be able to file for bankruptcy yourself.
While Tennessee bankruptcy can't be used to discharge student loans, it can free up money by reducing or eliminating credit card debt and other unsecured debts.
More Blog Entries:
Why Co-Signing For Your Kids Is a Terrible Idea, by Tara Struyk, Business Insider