Q: I have a niece that is about $30,000 in debt, primarily for credit cards. She is paying for a car as well (included in the $30K). She wants to consolidate the loans and start paying them off. She says that she has stopped using the credit cards. Her income is about $1,600 a month. My niece lives in a trailer, located on land that is paid for and owned by her.
She went to her local bank to try to consolidate the loans, but they will not loan her the money unless she has a co-signer. She has asked me to co-sign. I would prefer to help her to do it all herself rather than co-signing for her. Where is the best place for her to go for help (nonprofit place preferably)?
Most of her paycheck is either going for her car note, food or paying off her credit cards.
A: You are a good aunt to want to help your niece. But, so that you don’t miss my point right away, I will say, DO NOT CO-SIGN.
And the caps aren’t meant to scream at you, but to emphasis my point. No matter how much you want to help, do not bind yourself with your niece’s financial troubles, and that is what you would be doing if you co-signed for the loan.
Many people don’t really understand what it means to co-sign. And as the recession continues and people look to friends and relatives to help bail them out, many people will learn the hard way the dangers of co-signing.
When you co-sign, you are not agreeing to be a backup if the primary borrower defaults. You are agreeing to be equally and wholly responsible to pay back the loan. In fact, in many cases, even if one payment is missed, the lender can come after you.
Additionally, even if the primary borrower pays the loan, his/her payment history will appear on your credit reports. So, let’s say in this case, the niece makes payments, but they are always or often late. That information will appear on your credit reports and damage your credit history.
The loan will be counted toward how much debt you owe, which can also bring down your credit scores.
The thing is, your niece may have every intention of paying off the consolidation loan. But what if she gets laid off? What if she becomes ill and can’t pay her bills? There’s just too much you can’t control when you co-sign.
If you choose to ignore my advice—to NEVER co-sign unless the person is your spouse—then, please read this informational release by the Federal Trade Commission.
But, it sounds as if you are already wary of co-signing. So, you are right; your niece should seek help from a nonprofit consumer credit counseling agency. To find an agency near her, she should go to the National Foundation for Credit Counseling Web site.
A legitimate credit counseling agency may charge her a small fee, if anything, to help her get on a debt repayment plan.
Actually, rather than try to get a consolidation loan, I would rather she seek help from an agency, including learning how to budget. If she hasn’t gotten a good handle on how to manage her money, she could get a consolidation loan, clear off the credit card debt and then get right back into trouble.