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How to get out of a Co-Signed Loan

July 8, 2012 by  
Filed under Blogs, Credit Cards

By Dana Dratch

Consumer advocates and financial advisers are unanimous on the subject of co-signing: Don’t do it.

Escaping co-signing: How to get out of a co-signed load, credit card

When you co-sign, you’re not vouching for the person’s good name or character. You’re not promising to tell the creditor where to find the cardholder if those payments stop coming. You’re agreeing to foot the bill. All of it. Along with fees and interest.

“That is the main role,” says Nessa Feddis, vice president and senior counsel for the American Bankers Association. “They are not a co-applicant or joint borrower.”

“Just put the pen down and walk away,” says Catherine Williams, vice president of financial literacy for Money Management International, a Houston-based nonprofit credit counseling program.

“Please, don’t co-sign for anybody,” says Bruce McClary, spokesman for ClearPoint Credit Counseling Solutions, a nonprofit service based in Richmond, Va. “Because it’s a gamble. I may be jaded, but I haven’t seen any really great outcomes.”

But if you did co-sign ….

Yet, you went ahead and did it.

Maybe only now do you realize that any black marks associated with the account can go on your credit report, too. And, since you’ve stepped up to accept full responsibility for the debt, you could have (depending on how the issuer reports the debt), that much less credit available to you when you need it for a house, car or credit card of your own.

“I’ve seen hundreds of cases where people’s credit is destroyed,” says David Jones, who heads up the Association of Independent Consumer Credit Counseling Agencies, a national network of nonprofit credit counseling services based in Fairfax, Va. Co-signers “have all of the responsibilities with none of the benefits.”

Of the 10 largest credit card issuers, eight — Chase, Citi, American Express, Capital One, Discover, Wells Fargo, HSBC and USAA Savings — say they don’t currently allow co-signers

“It’s a long-term commitment,” says Todd Mark, vice president of education for the Consumer Credit Counseling Service of Greater Dallas. Too often, he says, co-signer responsibilities outlive the relationships that prompted the arrangements in the first place.

Co-signing exit strategy

So now that you’ve wised up and want to get out of co-signing, what do you do?

It’s not nearly as easy to exit a co-signing deal as it was to enter one.

Exiting the role of co-signer can be tricky. If the cardholder still doesn’t have the credit to qualify for an account without you, the company may refuse to remove you as a co-signer unless the balance is paid. That leaves you two options:

  • Finding a replacement co-signer (if the company allows the practice).
  • Closing the account yourself. You may have to specifically request an account be closed; if you ask to be “taken off” the loan, they may refuse. Again, the loan must be paid off, or small enough so that the other party can qualify for a loan in that amount.

Policies on ending co-signing agreements vary with the issuer, and the best time to ask how it works is before you sign. That way, if the potential cardholder or the issuer can’t or won’t answer all your questions, or if it seems too difficult to exit the arrangement, you can decline the arrangement.

And even after you manage to quit as co-signer or close the account, “you are still liable for any transactions made up to that point,” says Feddis.

In some situations, if the cardholder converts the card to a solo account (without a co-signer) or gets a replacement co-signer, the issuer might not hold you responsible for earlier charges. Ask the issuer how that works in advance.

Another problem for co-signers: keeping an eye on the account balance and payment history may be difficult. Before you sign, find out from the issuer whether you can request and receive statements on the account. Typically, an issuer will require your permission to raise the credit limit on the card, but ask about that, too.

And if you’re ever tempted again, , and remember what the experts say.

Co-signing situations, which mix a volatile combination of close personal relationships and money, are a prescription for problems, says Williams. “In 28 years of counseling, I’ve only seen one of those situations work out,” she says.

Source: CreditCards.com
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9 Comments on "How to get out of a Co-Signed Loan"

  1. Amy on Tue, 31st Jul 2012 7:11 PM 

    I really hopes this works, I need to get my name off my sisters
    credit card, she’s missing payments, going over the limit,
    It’s a nightmare!

  2. Omron on Thu, 2nd Aug 2012 4:39 PM 

    I know how you feel Amy, I was in a similar situation a while back. Good Luck.

  3. Corse on Sat, 4th Aug 2012 12:35 AM 

    Never ever ever co-sign for anyone! My parents completely
    destroyed my credit and now I can’t even get a student loan!

  4. Esco on Sat, 4th Aug 2012 1:19 AM 

    I agree with most of you here, I would never
    co-sign for anyone… except my kids.

  5. Cris on Mon, 13th Aug 2012 5:42 PM 

    Just seeing the term co-sign makes me grind my teeth.
    I can’t believe how irresponsible people are,
    especially when they are related to you.

  6. The Rewarding Muscle Behind backlink builder on Sun, 19th Aug 2012 8:52 AM 

    If you’re reading this and considering cosigning a loan,
    please listen to me. Stop, take a deep breath, and slap
    yourself accross the face because you are considering
    on making a huge mistake. Don’t cosing for anyone,
    they will just ruin your credit.

  7. Lussier on Fri, 24th Aug 2012 3:55 AM 

    This is a painful topic for me, I wish I had read all of the
    horror stories before co-signing for my friends cell phone.
    Now he’s ruined my credit and I can’t buy a house.

  8. Gallacher on Mon, 3rd Sep 2012 12:14 AM 

    Good thing I found this blog before I
    agreed to co-sign for my girlfriend’s car loan.
    I love her, but I’m not gonna let her ruin my credit.

  9. Melly on Wed, 5th Sep 2012 5:22 AM 

    Gallacher, you are making the smart decision…trust me.

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