Default can foil your financial dreams
If your friend or family member defaults on the debt, you, as the co-signer, will not only suffer bad credit ramifications, but you also will be obligated to pay the money back.
"If the person you are co-signing the loan with defaults, you run the risk of possibly having your bank account frozen, wages garnished and credit score lowered," says Tayne.
Reeta Wolfsohn, president of the Center for Financial Social Work in Asheville, North Carolina, recalls many instances of clients' lives being forever altered because of co-signing gone wrong.
For example, a wife who co-signed her (now) ex-husband's school loans had her paycheck garnished years later in order to pay the debts. A woman who co-signed her sister's mortgage couldn't buy a house for herself because her FICO credit score had plummeted after the sister stopped paying the mortgage.
"Co-signing isn't meant to be a thoughtful gesture; it is meant to be a responsible decision," says Wolfsohn. "It is a serious long-term commitment to take on someone else's financial obligation if they stop doing so, which happens very frequently."