Everyday, I read a number of blogs to see what other financial blogs are talking about. Mary at Debt-Proof Living wrote a post about the new Credit Card Act of 2009 and the effect it might have on you and your college-age kids. In order for college students to get a credit card, they will now need to show proof of income or have a co-signer. Many kids will be running to their parents to become that co-signer.
I have a very firm belief that you should not co-sign on a loan or give a loan to a family member or friend. You can give out money, but you should not expect the money to be repaid. The majority of loans between friends and family members do not get paid (roughly 80%). If you do not have the money to GIVE, do not loan or co-sign since you will most likely be stuck with the balance. If you’ve ever listened to Dave Ramsey, Suzi Orman or any other financial radio or television show, there are always calls from people who have lent money to friends, family or co-workers and have not been repaid. If you can GIVE that person the money, do so with the peace that you are GIVING him the money. If you get some back, you can be pleasantly surprised.
In the interest of full disclosure, I had to borrow money from a family member when I was going through chemo. It was the hardest thing I ever had to do. I have been making monthly payments on this loan and have it almost paid off. I am also a huge believer that you honor your debts.
If your child comes to you asking to co-sign on any type of loan (credit card, car loan, etc), use the opportunity to teach them about debt. Show them the cost of borrowing for an item rather than saving for it. Show them how much wealthy they can accumulate by living without debt and saving for your future. If we do not teach our children these lessons, who will?