Chicago Bankruptcy Lawyers Warn Against Cosigning Loans
With Christmas shoppers strapped for cash, some folks are looking into how they can help friends and family at the smallest possible cost.
At its best, a more frugal holiday brings out our creative sides - I know folks who are making homemade gifts, finding small but thoughtful presents or just performing simple acts of kindness. At its worst, though, seemingly inexpensive gifts can drag us into debt - I'm talking about loan co-signing.
At first, it might seem like the perfect present. Let's say you're short on cash and your best friend is in need of a new car. Rather than buy her a Christmas gift, you offer to co-sign her car loan. You're helping her out at no expense to yourself, right? Not always. Unfortunately, it can turn into the most expensive present you've ever bestowed.
Your friend might mean well, but neither of you can predict the future. What if she gets laid off from her job? What if she has an unexpected medical emergency? What if she gets behind on the mortgage and has to prioritize catching up - or she loses her house? If anything happens that makes it hard for her to make on-time payments or causes her to default on the loan, you can kiss your credit - and probably your friendship - goodbye.
Even if your friend does manage to stay current on the loan, it will still affect your credit. Maybe you need to take out your own loan for a car, a home or a project. Your bank is going to see that you already owe money on a car. It's called debt-to-income ratio - the lender compares the amount you owe to the amount you make. Even though your friend - not you - is making car payments, the bank is going to count that as your debt, and they may decide that you can't afford to owe any more money at your current income level.
I'm not saying you should be a Scrooge - I'm just pointing out that some gifts aren't worth the cost. If you're like most Americans, you already have your own debt burden to tend to - you don't need someone else's. But if you ever do find that too much debt is dragging you down (be it your own or someone else's), consider bankruptcy. It's a time-tested way to manageably pay off your balance, garnering you a fresh financial start. Find out if a bankruptcy plan can help you escape debt when you sign up for our free personal debt analysis. Consider it a no-cost gift - to yourself.