debt

How do I get out of a co-signed loan?

Steve BucciDear Debt Adviser,
My husband always had beautiful credit, but I'm worried that it's about to drop. He recently co-signed a private loan for my daughter -- his stepdaughter -- that she's now unable to pay. The payment is $360 a month. Is there a way for my husband to get this loan transferred completely to my daughter? We would like his name removed if possible.
-- Weezie

Dear Weezie,
It's unlikely that a lender will release someone with "beautiful" credit from a defaulted loan, especially if that requires the lender to rely on someone else who's unreliable.

I know of only one way to get your husband's name off a co-signed loan: You must refinance the loan in your daughter's name only. In other words, the original loan must be paid in full with another loan that has only your daughter's name on it. Your daughter, however, is currently unable to make payments. That, combined with the fact that she needed a co-signer in the first place, suggests to me that it's unlikely your daughter will qualify for a refinancing plan like that.

To add insult to injury, if payments were missed on the loan, the damage to your husband's credit has already occurred and cannot be undone. However, you can lessen the negative impact of any missed payments by catching up on missed payments to bring the account current. Once any missed payments have been made, the more time that elapses, the less impact the account will have on your husband's credit score.

My take is that you and your husband will need to live with this co-signed loan. I suggest that you continue to push your daughter to find ways to pay. It's a good idea to have a serious conversation with her about what you expect. Let her know that she must take over the payments again as soon as she is able.

Also, keep track of the payments that you are making for your daughter and get her to agree that she will repay that money when she can. I suggest that you draw up a formal family loan document to make sure everyone's on the same page. Make sure the document includes details like the interest rate and payment amount so there are no miscommunications.

Hopefully the loan was not for a large amount of money. Consider this a lesson learned and refrain from co-signing for anyone in the future.

Good luck!

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