When is it okay to cosign a loan? The simple answer is almost never. That even applies to cosigning loans for family members. The primary reason for this hard (the borrower may say heartless) stance is that a cosigner assumes a tremendous amount of risk for little or no reward. If the borrower falls behind on the payments, the lender will usually sue the cosigner first because the cosigner is deemed to have a better ability to make the payments. Perhaps more importantly, cosigning provides ample opportunity to impair, if not destroy a friendship or family relationship.
If the above caveats are insufficient to dissuade you from cosigning a loan, consider the following two matters before proceeding. First, has the borrower been trustworthy so far? After all, the need for a cosigner may be an indicator of past credit problems or the inability to convince the lender of one’s creditworthiness. Second, and most important, can you easily afford to repay the cosigned loan in its entirety without harming your future financial wellbeing? For example, if you want to cosign a $200,000 mortgage but have several times that amount sitting in a savings or investment account (not retirement accounts for which taxes would have to be paid for any withdrawals), you could probably make good on the loan if necessary. In that situation, however, you may want to simply loan the money to the borrower to eliminate any potential unpleasantries with a lending institution.
Smart Money Tips
- Your career is your best investment. With all my prattling about money matters, I don’t want you to lose sight of your best source of future financial security and that’s your career. Keeping up to date in your field, striving to advance, and, if necessary, changing careers will provide you with the wherewithal to achieve your financial aspirations. This is doubly important if you’re unemployed, underemployed, or worry that you might lose your job.
Younger persons who are not yet in the workforce need to take a dispassionate look at the long-term prospects for any career they’re considering. Times have changed – for the worse. When I was in school (my kids say that was so long ago that I must have taken classroom notes on cuneiform tablets), you could major in just about anything and get a job. But now, some courses of study are unlikely to land a newly minted graduate a promising job, much less a career.
Withdrawals from retirement accounts require careful planning. A lot of people are going to be retiring over the next several years, and the decisions they make when they retire can make a big difference in their future financial security. It’s crucial, therefore, for all pre-retirees to plan carefully how you’re going to handle your retirement account withdrawals. A general rule of thumb is that the amount of money you can safely withdraw from all your retirement-earmarked accounts in your first year of retirement is about 4% of your nest egg. Excessive spending is a lot harder to curtail for retirees since the die is cast in the first few years of retirement. Those who withdraw too much risk outliving their money and stories abound of those who have…or will.
Food for Thought
If ambition doesn’t hurt you, you haven’t got it.
-Kathleen Norris
Money Can Be Funny
Oh money, money, money! I often stop to wonder how thou canst go out so fast when thou comest in so slowly.
-Ogden Nash
Word of the Week
ultracrepidarianism – The act or habit of talking constantly about subjects of which you know little or nothing.
Origin: From the Latin phrase Sutor, ne ultra crepidam, attributed to Pliny and later altered by other Latin writers to Ne ultra crepidam judicaret, can be taken to mean that “A shoemaker ought not to judge beyond his own soles.”
The Pond family’s dinner conversation is the epitome of group ultracrepidarianism, with the exception of the patriarch, of course.