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Years after splitting from an ex-boyfriend, Annie finds herself dealing with debt collectors over a $10,000 motorcycle loan she cosigned. She hasn’t seen the bike in four or five years and doesn’t know where her ex is or if he is “alive or dead” (1).
“He hasn’t made a payment,” she told The Ramsey Show. “I don’t care about my credit, but they keep calling.”
Cohosts Jade Warshaw and George Kamel had “bad news” for Annie.
The harsh reality of cosigning
Even though she doesn’t have the motorcycle and is no longer with her ex, Annie is on the hook for the loan.
And that is the part many people don’t realize until it’s too late: cosigning means the debt is yours.
According to the Consumer Financial Protection Bureau (CFPB), cosigners are legally on the hook for the entire balance the moment the primary borrower stops paying (2). Lenders don’t have to track down the other person first. They can come straight to the cosigner, like what happened with Annie.
The motorcycle couldn’t be repossessed. The ex couldn’t be found. So, the lender did the only thing it could do, which was turn to the cosigner.
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When you cosign a loan, you’re agreeing to be responsible for someone else’s debt. Whether it’s for a car, motorcycle or some other consumer purchase, you get exposed to the financial risk. In this case, the asset is gone but the $10,000 balance remains. And that’s on top of $10,000 worth of debt Annie said she already had.
It’s a warning sign for those considering cosigning: be prepared for the worst-case scenario.
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How to deal with the problem
As Warshaw put it plainly to Annie, “You gotta stack up the money.”
“And If it doesn't get paid,” she added, “your credit's going to get destroyed.”
Experian explains that cosigned loans show up on both borrowers’ credit histories (3). Late payments, collections or defaults can damage the cosigner’s score just as much as the person who stopped paying.
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Annie is now married, living on a tight budget and going back to work after retirement to make ends meet. Legally, the debt may be hers alone but practically, it affects the entire household. Having unresolved debt can create stress, limit options and result in friction between couples.
Warshaw suggested that Annie sit down with her husband and go over their finances together so they can both have the full picture, and make a plan for moving forward.
As for how to tackle the problem, guidance from CFPB, Experian and the Federal Trade Commission (FTC) includes:
Take full responsibility immediately
The CFPB advises cosigners to treat the debt as their own the moment the primary borrower misses payments (2). Lenders are not required to pursue the other borrower first and delays can increase fees, penalties and credit damage.
Keep in contact with the lender or collector
If you are contacted by a collector, consumer regulators recommend responding quickly, asking for account details, and understanding your options. Ignoring calls or letters can just make the situation worse (4).
Check your credit reports
Experian recommends monitoring your credit reports to see how the cosigned loan is being reported. Late payments, charge-offs and collections hit the cosigner’s credit just as hard as the primary borrower’s (3)
Look into repayment or settlement options
The FTC notes that creditors might be open to negotiation, especially with older debt. In some cases, a lender or collection agency may accept a lump-sum settlement for less than the full balance, but be sure to get any agreement confirmed in writing before payment (5).
Build a household plan
Create a full budget, prioritizing the household nonnegotiables (mortgage/rent, utilities, health care, transportation, food) and see what can be trimmed in the short term. Also consider whether there are ways to increase your income, as Annie is doing by going back to work. This is a strategy to help keep the household stable, while still paying down debt.
Annie’s story is about more than just a missing motorcycle and her disappearing ex. The financial decision she made to cosign a loan means that even though she finds herself in a financial bind, she still has a legal responsibility to pay that debt.
When it comes to deciding to cosign, don’t sign on the dotted line unless you’re willing and able to tackle that full debt solo — because even if the relationship ends, the contract does not.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show Highlights/YouTube (1); Consumer Financial Protection Bureau (2), (4); Experian (3); Federal Trade Commission (5)
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Jessica is a freelance writer with a professional background in economic development and small business consulting. She has a Bachelor of Arts in Communications and Sociology and is completing her Publishing Certificate.
