The truth is that “it’s stupid to guarantee someone else’s loan.” That’s Proverbs 17:18 right there, baby.
As we covered in this post, debt is shoved down our throats and aggressively thrown in our faces in our culture. And yet everyday, all over the country, people are cosigning as the savior for someone they know… that someone whom this aggressive industry already turned down.
The industry turned them down because they know, statistically, that that person most likely wouldn’t be able to pay.
And then you come in (if you’re the cosigner). And now, the statistics are high that that person won’t pay, when you don’t, guess what?
That’s right. You have to pay it.
This can damage your credit, or ruin it.
And why do we make this decision? Is it the logical thing to do?
No. It’s the emotional thing to do.
We believe that, because we know the person, we know they’ll make their payments.
So… when a parent co-signs for a car for their teenage son, they’re not actually teaching him to be responsible. What they’re actually teaching him is that if you’re unable to pay for something, purchase it anyway!
When you co-sign for something — say a car or a house — you don’t actually own it. But you’re on the hook for its payments. And, as you can see and as common sense dictates, this can ruin you. All because you chose to take responsibility for someone you know who is less responsible than you.
Not only can this destroy your credit, it can also destroy relationships. We talked a bit about damaged and destroyed relationships in Myth 2 and how to avoid them or fix them.
Well, you can avoid damaged relationships by avoiding the responsibility of taking on someone else’s payments! Simple as that!
If you really want to help, then give money. Don’t co-sign and don’t loan. We talked about that in Myth 2, as well. But if you don’t have money to give, again don’t sign up for someone else’s (likely) debt.
Doing so can come back to bite you hard — and even haunt you — years down the road. We’re talking a decade or two!
Ramsey, in his book The Total Money Makeover, tells of a young man who emailed him. He had co-signed for his girlfriend’s car. But she took off and stopped making payments and now he’s stuck either making the payments or with a sinking credit score.
“That sums up co-signing: broken hearts and broken wallets.”
— Dave Ramsey
Unless you want either of those, don’t co-sign for someone. That’s one simple way to avoid debt.