Being a Co-signer on a Personal Loan

Being a co-signer on a personal loan for a friend or family member is a very generous offer as it will likely mean the difference between them being able to qualify for such a loan and not being eligible. However, the decision of being a co-signer for a personal loan should not be made lightly. It is the responsibility of potential co-signers to educate themselves about how this situation affects them, especially with regard to their responsibility to the loan should the borrower default.

Most co-signers don’t realize that this loan is going to show up on their credit report. Keep in mind that this might affect your ability to get your own loan down the road as the personal loan you co-signed on will be used to calculate your debt to income ratio. It can also affect the interest rate you get on your own loans. If you feel it is a good idea to co-sign a personal loan for a friend or family member, do so with the understanding that after a set amount of making on time payments the borrower will attempt to redo the loan under their own name only. The more money you co-sign for, the longer you can expect to be a part of that loan.

Since the loan can both positively and negatively impact the credit rating of the co-signer it is important to set the loan up so that the co-signer can access the account information. This will allow you to find out what has been paid on the loan and what is still owed. Make sure the lender will inform you of any late payments or non-payment issues with the borrower as soon as they happen. Too often co-signers aren’t aware there was an issue with the loan until it has already impacted their credit.

While co-signing a loan for a friend or family member can be a big help to them, be aware of how it will affect not only your credit but your relationship as well. Nothing can sour relationships faster than money issues. It is important for a co-signer to look at the circumstances that lead to the individual needing a co-signer for a personal loan in the first place. If it comes down to simple money mismanagement, then you aren’t doing them or yourself any favors. However, if it is the result of circumstances they had no control over you may want to consider it.

To minimize your risk as a co-signer, don’t make it a habit of offering to do so for friends and family. The word will spread like wildfire with more requests heading your direction. If you don’t feel your own credit and finances can hold up if the borrower doesn’t repay the loan, then do not co-sign for a personal loan. It can be difficult to say no, but it is important to maintain your own credit rating as well.

You might consider having the borrower provide you with verification that payments are being made, including regular statements or cancelled checks. To further reduce your risk as a co-signer insist the borrower purchases personal loan insurance that can cover loan payments for a particular amount of time due to unemployment, illness, or death.

Co-signing a personal loan for someone is more than giving your signature. You are putting your financial history and worthiness on the line for that person. It is important that you carefully review the borrowers need for the money as well as their spending patterns. If they owe other people money or continually live beyond their means, walk away with a clear conscious. There are times that being a co-signer on a personal loan is the right thing to do. Only you can make that decision. If you decide to go forward with it make sure you can afford the cost of any missed payments, and that the lender is going to keep you informed on the payment status on the personal loan.

Back to School Savings: Special Report

Back to school time can be an expensive experience in these challenging economic times. We all want to do everything we can to ensure our kids have all that they need for a successful school year. There are many steps that you can take to see to it that your child(ren) have all that is needed.
In this month’s special report, we detail many ways to stretch your back to school funds.

How to Simplify Your Budget

Finances have a knack for becoming complicated. Therefore, making your budget as simple as possible will allow you to get a better handle on your finances so that you can focus on matters that are more important. Simplifying your budget can have positive effects on all aspects of your finances by helping you keep everything under control.

Stressing out over your finances is a waste of your time, so rein them in today with a simpler, easier to manage budget.

Follow these strategies to make your budget easy, workable, and effective:

  1. Start with a simple spreadsheet. Keeping things in a spreadsheet can simplify your budget significantly. Set it up however you like or download a free template for Excel or Google Docs; just choose something that works for you.
  2. Devote 60% to your expenses. The 60% Solution is a budget strategy that entails fitting your expenses into 60% of your gross income so that you can dedicate the remaining 40% to retirement, debt repayment, short-term and long-term savings, and fun or entertainment expenses.
  3. Devote 10% to your retirement. Put 10% of your gross income toward your retirement, such as in a 401(k) investment plan. Refrain from touching this money for any purpose unless the circumstances are dire.
  4. Devote 10% to debt repayment and longer-term savings. Invest in an index fund or stocks if these are your investment vehicles of choice. Otherwise, put the money away in a savings account and touch it only to repay debt or in financial emergencies.
  5. Devote 10% to your short-term savings. This money is for periodic expenses like medical expenses, auto maintenance and repairs, appliances, birthday gifts, Christmas gifts, and home maintenance costs. Spend this money when you need it, because that is precisely what you’re saving it for.
  6. Devote 10% to your “fun money.” You can spend this money in any manner that pleases you. This is guilt-free money that you can spend on movies, entertainment, eating out, comic books, junk food or anything else that you wish.
  7. Reduce the number of categories you use. Many budget software programs instruct you to use a million different categories or subcategories. If you want to simplify your budget, use as few as you can. Rather than having a category for every entry, combine some expenses into a larger category to keep it simple.
  8. Pay your bills online. Automate your bill payments as much as possible so that you don’t have to remember to pay your bills every month or buy stamps. Consider automatic bank withdrawals and pay bills online through automatic debit whenever you can.
  9. Automate your savings. Every time your paycheck is deposited into your account, have a transaction scheduled that will transfer a specific amount into your savings from your checking. Aim to find a high-yield savings account for this purpose.
  10. Keep your fun money in cash form. Take out your 10%, keep it in cash, and use it as you see fit. Watching the cash disappear from your wallet can actually teach you a lot about where the money goes.

If you investigate, you’ll find numerous techniques to simplify your budget. Do what works well for you and your family. Avoid struggling with a new budget plan because you think it must be better. If it isn’t actually helping you budget, then it’s not the “better” option for your needs. Sometimes simpler is more effective.