Debt Smarts: Co-signing -- good deeds that don't go unpunished


This is the first of a new weekly column by WalletPop's resident debt expert, Lita Epstein.

Two readers wrote in recently about situations where they tried to help out relatives. One was a mother who co-signed a student loan so her son could go to college. The second was a woman who took out an equity line for a relative so he could start a business.

In both cases the people who wanted the loan balked on making the payments and the women who thought they were doing a good deed are now screwed. They will have to pay off the debt if they want to keep their good credit rating and in one case, her home.

I hear this story over and over again from people thinking they are trying to help a friend or relative and instead end up with a mound of debt and often destroyed credit history. Don't co-sign on a loan or agree to take a loan for someone else who isn't able to qualify for that loan on their own. Often the reason is that they've already got a low credit score because they haven't been paying their bills.

There is one exception to that rule. If parents want to help their child get a start in life and assist them with getting their first loan, whether it be a car loan, a student loan or a credit card, then they should do so. But if you do decide to help, be sure that your child has the both the emotional and financial stability to make the payments. Be ready to make the payments if he or she doesn't, or your credit will be ruined.