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Mon March 24, 2008

Co-signing similar to Russian roulette

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By Dave Ramsey
DEAR DAVE

  • I just found out that my mother co-signed the loan for my son’s new car. He defaulted, and now she’s making the payments. Does this mean she owns the car that was financed with the loan? If not, how do I go about taking over the car? I want to sell it.

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    Patty

    DEAR PATTY

  • No, this doesn’t make your mom the owner of the car unless she signed as an owner. But the first thing you do is call your son and tell him to bring you the car. Just make sure he hands it over voluntarily, otherwise you’re looking at another problem called grand theft auto! When you co-sign a loan for a friend or a family member, it’s like playing Russian roulette. There’s a chance the gun’s going to go off, and you’ll end up blowing your financial brains out. Debt is the most aggressively marketed product in our culture today. And if some banker wants a co-signer on a loan, it means he doesn’t think the person asking for the loan will pay it back.

    Before all this started, I’m pretty sure Grandma didn’t have a space on her to-do list marked “go thousands of dollars into debt.”

    Co-signing is bad idea. If you insist on doing it, you’d better make sure you have the ability to write a check and hand over the money. Chances are — one way or another — that’s exactly what you’re going to end up doing.

    DEAR DAVE

  • We’ve managed to become debt-free, thanks in part to the fact that the little house we’ve been renting is just $500 a month.

    We’ve also been able to save up a few thousand dollars to buy a new home.

    We’d like to move into a better place of our own soon — especially since a skunk just moved in under the floor — but that will mean doubling what we now pay for a better way of life in a nicer neighborhood. What do you think?

    Rachel

    DEAR RACHEL

  • Congratulations on becoming debt-free! Feels great, doesn’t it?

    Renting should be a time of wisely having patience until you reach the point at which you can buy properly. It shouldn’t be a way of life, but it’s kind of like paying patience tax until you can save for a big down payment.

    I imagine it’s pretty hard to have tons of patience when a skunk moves in with you.

    So, maybe the big question now is: How much longer are you willing to hold your nose while you save money for a nice home?

    I can see three options for you in this case.

  • Get the animal control people to trap that critter and continue to live in Skunk Manor for a couple of years longer while you save more money.

  • You could go ahead and make the move to a nicer place of your own that costs twice as much before you’re truly ready. But this option is not the one I’d recommend.

  • Take a couple of months to look around for another bargain rental deal — something that’s between where you are now and the really nice neighborhood you’ve got your hearts set on — that would allow you to save up a fat, 20 percent down payment on the place you really want.

    God bless and good luck to you, Rachel!

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