||Ask Dr. Don
Co-signer ends credit crunch
Dear Dr. Don,
I have terrible credit and want to take
a personal loan to pay off some debt. I have a co-signer with superb
credit. What are my chances of getting this loan? I have a good
paying job that I've had for a long time, and also have a truck
loan with this same co-signer.
Getting the loan shouldn't be a problem with a strong co-signer.
You need to recognize that taking out a personal loan to pay off
some debts doesn't pay off the debt, it just changes the lender
and the loan terms. Restructuring your debts can make sense if you
can get a lower interest rate or extend the loan term to make your
monthly payments more affordable.
Having a co-signer helps you get better loan terms
because the co-signer is making the same commitment that you are
to make the loan payments. The Federal Trade Commission's (FTC)
electronic pamphlet, Co-signing
A Loan, provides more information about the co-signer's responsibilities.
To my thinking, the best line in the pamphlet is, "When you're
asked to co-sign, you're being asked to take a risk that a professional
lender won't take."
Your co-signer has already stepped up to the plate
for you once. Asking him/her to do it again shows that you continue
to have problems with managing credit. Don't take this step lightly.
If you restructure your debts through a personal loan with a co-signer,
then commit to the additional steps of putting together a household
budget and closing out your old credit card accounts.
Staying current on the truck and personal loan payments
will help you, with time, regain a stronger credit history. Negative
information on your credit report drops off after seven years, but
your credit score will start moving higher over time even while
the negative information remains on your credit report.
If you've got a good paying job, then the problem
isn't really the debt, it's spending more than you make in income.
Taking 10 years to pay off last year's vacation just doesn't make
sense. Your goal should be to stop committing future income to paying
prior years' spending. It won't happen overnight, but when it does
you can work toward your future instead of paying for your past.
-- Posted: July 29, 2003