Dear Debt Adviser,
My daughter wants me to co-sign on a credit card. She and her husband want to transfer a balance on a credit card with a higher interest rate to a card with zero percent interest for 18 months.
I am reluctant to do so because I will be responsible for their debt. My daughter said they would not be late on the payments, but they have a lot of debt — my daughter’s husband is doing his internship as a doctor and has another year before he will make more money. What do you advise?
Your question is one of four I recently discussed with a colleague while preparing to address a large gathering of women. So, before I answer your letter, let me share with you and my other female readers four things that women in particular should be aware of when it comes to credit:
1. Credit and the glass ceiling are invisible barriers. With invisible barriers like the “glass ceiling” still all too real for many professional women, you don’t want to give employers any unnecessary reasons to pass you over for promotions. Credit report reviews are now a typical hurdle for people seeking employment and promotions. Know the contents of your credit reports and have incorrect and outdated information removed as quickly as possible. Twenty-five percent of reports contain errors.
2. Nurturing makes you vulnerable. Women tend to be the more nurturing gender and often want to help. They are particularly likely to put their own good credit rating at risk by co-signing for their children, the men in their lives and even their parents.
However, this is often a mistake. Just as people are urged to secure their own oxygen masks during an airplane disaster before helping others, you should protect your own credit first.
My advice? Don’t co-sign! I constantly hear disaster stories of co-signers paying and having their credit damaged, only to be blamed for not doing more to prevent the eventual default. If you can’t bring yourself to use the word “no,” hand your daughter a copy of this column.
3. Knowledge is power. Like the mechanic who preys on your lack of car expertise by recommending unnecessary repair work, some lenders or brokers may not offer the terms you deserve. They figure you don’t know any better and try to take advantage of the fact.
Knowledge is power, and knowing what interest rate you should be offered (based on your credit score) will keep others from trying to take advantage of you. Obtain your credit score and the corresponding interest rate for which you should qualify before signing on the bottom line. To learn more about how a good credit score can save you money, check out the “Credit Scores” chapter of Bankrate’s Financial Literacy series.
4. Circumstances can change fast. Just as many women are nurturing, they also are especially likely to go the extra mile to help. Help a child or friend, or be a caregiver to a parent in need. But do not take on any other person’s debts.
Many women will offer to take on a loved one’s debt as their own. For example, a woman may take out a home equity loan to help pay down her parents’ credit card debt.
Why is this a bad idea? Because your financial situation can change dramatically without warning. A serious illness, job layoff, divorce or other major life event can eat through your savings very quickly. You need to remain financially strong to be a real help to those you love.
I will address this topic in more detail in next week’s column.
Susan, your reluctance to co-sign for a credit card for your daughter and her husband is a good sign. You know in some part of your heart that it is not a good idea, and I think you are right.
Your daughter and husband need to work out their debt repayment without your financial help. You can, however, offer support and give them advice to help with their finances.
The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of “Credit Repair Kit for Dummies.” Visit MMI for additional debt advice or to ask a question of the Debt Adviser go to the “Ask the Experts” page.