No Strings Attached

Pat co-signed for a stepdaughter on a condo. Pat is willing to co-sign for her again. Dave recommends making sure Pat isn't enabling her stepdaughter with money.

QUESTION: Pat in Los Angeles co-signed for a stepdaughter on a condo five years ago and then again three years ago. The property is underwater, and Pat is willing to co-sign for her again because she has millions. Dave recommends making sure Pat isn't giving a drunk a drink by enabling her stepdaughter with money.

ANSWER: Her problem is ongoing. Last time you did the debt consolidation, it didn't fix it. We keep trying to borrow our way out of this mess.

Here's what I would do. I'm in a good financial position like you are. If I had a daughter or stepdaughter in this situation, the first thing I want to do is make really sure I'm not giving a drunk a drink—that I'm not enabling her incompetence of handling money. I think there's something here going on. I can't tell what it is. It doesn't sound like it's real extreme like she's a crazy spender or something, but I think at a minimum, she's not on a budget, she's not well- organized, and she's impulsing some things, which keeps her right on the edge. It's that or we got her in a condo she cannot afford and it's not been a blessing for her.

To make sure I'm not causing her to be soft, to make sure I'm not participating in her screwing up by helping her screw up, I'm going to insist she go through a class to learn how to handle money. Here's my idea: If I were in your shoes, I would make sure she could fly on her own, because I don't want to cause her to not be able to win by helping her so much. I'm going to teach her how to handle money, and if she'll agree to go through this class and will scrape and pay off $2,000 of the second mortgage, I will pay off the rest as a gift—no strings attached. We set her free on the first mortgage.

As soon as the value comes back up on the condo, she's got to refinance the first mortgage to get you out. You quit co-signing. She has to live on her own two feet so she has dignity and has a future.