Understanding the Consequences of Co-signing a Debt

When a family member or close friend comes to you and asks that you co-sign a debt for them, it can be difficult to say no. It’s kind of an awkward position. If you say no you are basically telling them that you don’t believe they can be trusted to repay the debt. At least that is the way they may interpret your response. Even if you believe they are completely responsible and will make every effort to repay the debt, sometimes life doesn’t cooperate with their best intentions. What happens if they lose their job, get sick and become unable to pay, or die?

If you say yes you are risking having your credit destroyed by someone else’s failure to pay and having to pay back someone else’s debt. If they don’t repay the debt not only are your credit and your finances hurt but so is the relationship you have with your family member or friend. They will know that they have caused you financial harm and will probably avoid being around you so that they don’t have to deal with the shame.

The only thing you can do in this position is to make an informed decision. Understand that if the debt isn’t repaid you may be sued, your bank accounts levied, your credit damaged, and harassed by creditors. If you have the funds to repay the debt yourself in case of default, then you can avoid most of these troubles, but you will be poorer nonetheless. Co-signing a debt is not something that should be done lightly. Understand what you are getting into and don’t agree to sign unless you can handle the consequences of a default.