Just How Smart is Co-signing a Debt? (Part 2)

“My child, if you have put up security for a friend’s debt, or agreed to guarantee the debt of a stranger; if you have trapped yourself by your agreement and are caught by what you said— follow my advice and save yourself, for you have placed yourself at your friend’s mercy. Now swallow your pride; go and beg to have your name erased. Don’t put it off; do it now! Do not rest until you do. Save yourself like agazelle escaping from a hunter, like a bird fleeing from a net.” (Pr 6:1-5)(NLT)

By definition, a co-signer is obligated to pay when the other person defaults on their obligation. A promise to pay another person’s debt is an entrapment by one’s own words. So when the borrower fails to make the payments, the creditor can come after the other person that has signed and agreed to be responsible for re-payment of the loan. In such cases, the borrower receives the benefit and the pleasure, and the co-signer receives the obligation and the burden to re-pay the debt.

Even if the borrower pays on time, the full amount of the unpaid loan will negatively count against the co-signer’s debt-to-income ratios (DTI). This DTI formula is used to help determine if a person has more debt than they can handle. So, since the co-signer is also responsible for paying off the loan, that debt may hamper their ability to get a mortgage, other financing or other benefits that depend on a good credit score.

The scripture indicates an urgency to correct this financial trap. If you have made a pledge of surety (co-signed a debt), or pledged to pay if someone else fails to pay; go and quickly negotiate a settlement or pay it off. Then it would be wise for you to develop a strong dislike for the thought of co-signing for anyone.

In our last article, we discussed other consequences of co-signing. It was made clear this can be a very difficult decision to make if the person needing a co-signer is a family member or close friend with serious needs. In conclusion, no matter how compelling the reason, or how great the need to co-sign, if you can’t afford (or not willing) to, pay off the entire debt without any regrets, don’t sign the note. “Just say NO!”

Let’s explore a couple of ways to help a person who may have desperate needs with little or no financial means or collateral:

#1 Determine what amount you can afford to give.

The simplest and often the best way of helping someone who has a monetary need is to give what you can. This approach preserves friendships, protects against unintended negative consequences of damaged credit, and expresses a genuine concern. When helping in this way, make it plain that no repayment is expected from the person that is helped. If that person chooses to pay back the money, then fine. If not, there should be no love lost between parties and no busted relationships.

#2 Offer to help in other ways.

Offer to assist by first listening carefully to their needs and give whatever wise advice that you may have.  For example, you may be able to give of your time to transport them, or allow them to use your transportation. Or perhaps you can offer temporary living quarters, food, clothing or other resources needed that may be generating the desperate need for finances. Consider introducing them to someone or some organization you may know that can help or have additional resources.

Thoughts to Ponder

1. Are you willing to use God’s wisdom to address co-signing?
2. Would you consider a student loan an exception to this rule?
1. If so, why? 
2. If not, why not?
3. Have you thought about other resources that may help someone in need?