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Ask Dave

Co-Signing Is Dumb

Esperanza co-signed for a private student loan when she was young, and it's now a month away from default. She isn't able to pay for it and isn't sure what her options are.

QUESTION: Esperanza in Cincinnati co-signed for a private student loan when she was young, and it’s now a month away from default. She isn’t able to pay for it and isn’t sure what her options are. Dave suggests working closely with her sister to get this debt resolved.

ANSWER: They’ll work with you on payments after it defaults—believe me. They’re not going to go away that easily. The thing you just need to understand is since your sister’s not paying it, you will. They’re going to treat you just like it was your loan. That is what a co-sign is. You are a co-maker on the loan. Both of you borrowed the money. That’s what the law says about that. I think it’s just going to be real important that you start to work with your sister very closely on what her plan is to pay this bill because morally, it’s her bill. Legally, it’s both of yours, and they’ll come after you because you’re going to be the one with the master’s in counseling that’s working. I hope you don’t end up having to pay this whole thing because she bails completely, but you may have to.

Once it goes into default, what I would do is get your job and just start piling up some cash, and when you get $5,000 or $10,000 saved, I would call the people and say, “I want to settle with you for my portion of the loan. I know I owe the whole loan. I understand that now. When I signed this, I was 19 years old. I had no idea what I was signing, but I understand that still makes me liable. You need to understand that I had no idea what I was getting into here. You’re welcome to chase my sister for the rest of it. Here’s her address and phone number, but I want to settle my portion. Would you take $5,000 to take my name off of this?” If they agree to, then give them the money after you have that in writing from them. That’s probably going to take you six, eight, nine months to get to that point from now, and you may have to talk to some nasty human beings in the meantime.

Folks, this is why we tell you never co-sign. I didn’t say sometimes. I said never, under any circumstances, ever co-sign. “Well, I want to help my child get a car.” So give them some money. “I don’t have the money.” That’s my point. Don’t co-sign for a loan. You know why? Because you don’t have any money. The reason that the bank wants a co-signer is they know the person borrowing the money is not going to pay the bill.

Co-signing is one of the dumbest financial things you can do, and I’ve done it. I used to violate every one of these things that we teach. I have a Ph.D. in D.U.M.B. I know what stupid looks like because I used to look at him in the mirror. You have to decide what’s working in your life. Never—there is no reason ever to co-sign.

Considering I never borrow money, it would be really super dumb for me to help somebody else borrow money. That’d be like two dumb things combined—double dumb. Proverbs 17:18 says it. It says it in the Bible. Go figure. The Contemporary English Version says it this way: “One who co-signs for another is stupid.” That’s exactly how it reads. That’s what the Bible says. If you want to go to the New King James, it’s a little gentler. It says, “One signing surety for another is lacking in sense.” Either way, I think you just got called stupid.

I’m stupid. I’ve done it. I know what stupid looks like, so I’m not picking on Esperanza. She was 19 years old. She was stupid, and it’s a stupid thing to do. A lot of us have done stupid things. This little discussion right here is for some of you that are just about to put your finger on the pen and just about to press it on the paper and about to engage in stupid called co-signing. Don’t do it. Don’t co-sign for your kids to get student loans. Don’t co-sign for your kids to get car loans. Don’t co-sign for your mom to get a house. Don’t co-sign, because you’re going to end up paying it, and it’s stupid. Don’t co-sign ever.

Some of you think you’re the exception. Your little baby’s a twerp and is not going to pay the bill. That’s why they need a co-signer. Don’t co-sign. Never co-sign. Have I been unclear here? I really don’t want to leave this open to interpretation where anybody thinks that I stand on this. One hundred percent of the time you co-sign, it’s stupid. There are no exceptions. You’re not the exception. Don’t do it. It’s stupid. Co-signing is stupid.

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