You are enabling bad behavior
If your pal or a family member does come to you with a sob story fit for a song that only your signature on a loan can fix, don't let your emotions and fondness for the person dictate your decision.
Instead, politely decline and say you don't want to spoil the relationship, advises Coleen Pantalone, a personal finance expert and an associate dean of the College of Business Administration at Northeastern University in Boston.
Ultimately, she says, by saying "no" you are doing the other person a favor.
"If someone is having trouble managing their money, you are abetting that bad habit by helping them," says Pantalone.
If, for whatever reason, you ultimately agree to be a co-signer on a loan, chalk it up as a gift -- you'll be less disappointed if things go bad, says Pantalone. Better yet, assume right from the moment you co-sign that you will have to pay the loan back yourself. "Make sure you can afford to lose the whole amount without affecting your financial well-being," she says.