How Can You Get Out of Debt with Bad Credit?

  • Get Out of Debt

As many as 8 out of 10 American adults have some form of debt and the vast majority are stuck in a persistent cycle of interest, penalty fees, and escalating APRs. It’s not always something they accumulated through careless abandon or something they acquired as a means of paying for a lifestyle they otherwise can’t afford. 

In fact, close to a quarter are using debt to pay for necessities like food and utilities. 

Many of these persistent debtors feel trapped. They’re making monthly payments they can barely afford, dealing with creditors that penalize them for every setback, and struggling with credit scores so low they have no hope of acquiring additional loans or credit cards, let alone a mortgage.

So, what should you do if you’re in this position? How can you clear your debt if you have bad credit?

Challenges to Getting out of Debt with Bad Credit

A good credit score makes a massive difference when it comes to escaping debt. You have creditors at your mercy, because they see you as a trustworthy, reliable borrower. You can refinance, consolidate, and generally reduce the size and scale of your debts by using your credit score as leverage.

If your credit score is poor, you can still acquire new credit cards and personal loans, but the interest will be so high and the fees so severe that you’ll become trapped in an endless cycle of escalating repayments and penalty fees. 

The Difference a Good Credit Score Can Make

Let’s forget about consolidation loans for a moment and focus purely on credit cards. If you have an exceptional credit score, there’s no reason why you can’t get a rewards card with an APR as low as 15%. On a balance of $10,000 and with a minimum monthly payment of $300, it will take you 44 months to clear this debt. In that time, you’ll pay $3,017 in interest.

If you have a bad score, your options are a little more limited and you may be stuck with a rate of 26% APR. In this case, it will take you 60 months to clear the debt and cost you close to $8,000 in interest.

The debtor with bad credit clearly needs the money more, but over the course of several years, they’ll have $5,000 less and be forced to deal with the debt for 16 months more.

Statistics like this are why it’s so hard for individuals to escape the cycle of bad credit.

How Much Debt is too Much?

There is no such thing as “too much debt”. The United States has trillions worth of debt and Apple, one of the biggest companies in the world, has billions. You can be rich, have a positive cash flow, and still have a lot of debt. However, everyone has a ceiling point, and this is based on their income.

To estimate yours you can use something known as the debt-to-income ratio. This is calculated by combining your total monthly payments and comparing them to your gross income.

If, for instance, you earn $10,000 a month and have total monthly payments of $3,000 ($1,000 in credit cards; $1,000 in personal loans, and a $1,000 mortgage payment) then your debt-to-income ratio is 30%. 

This ratio doesn’t directly affect your credit score, but it is used by mortgage lenders to determine your creditworthiness. You can also use it yourself to assess your financial situation.

A debt-to-income ratio below 30% is optimal and anything below 20% is ideal. If it climbs above 43%, you’ll start being rejected for mortgages and other major loans and if it climbs above 50%, it’s time to seek help.

A 50% debt to income ratio means, for example, that your monthly payment is $2,500 and your income is $5,000. Once you add utility bills, food, and other essentials to the mix, you won’t have a lot of money to play with and you’ll be one medical disaster away from financial ruin.

What Qualifies as Bad Debt?

All debt can be considered bad as you’ll always pay interest and run the risk of receiving derogatory marks. But some debts are worse than others and these are known as “Bad Debts”.

Generally speaking, bad debt is any form of debt that doesn’t increase your net worth. A mortgage, therefore, is classed as good debt, because it gives you a sizable asset that will likely appreciate in value; a brand-new car is bad debt, because its value will plummet as soon as you drive it away.

Student loans are also considered to be good debts as they help you build towards your future.

Debt is a common part of modern life. If you want a good education, a home, and a clean bill of health in the United States of America, you need to accumulate debt. By focusing only on “good debt” and avoiding “bad debt” (store cards, credit cards, car loans, retail loans) you can increase your chances of turning your life around and greatly improving your financial situation.

Options for Clearing Debt with a Bad Credit Score

Now that we’ve established just how damaging bad credit can be, it’s time to look at your options. There are a few ways you can pay off debt with a Poor or Very Poor credit score, but they may not all be available to you.

Build Your Credit Score

If time is on your side then your first step should be to improve your credit score, thus increasing your chances of making the following options work. This is easier said than done, but in just 3 months you could add up to 200 points to your credit score, which is enough to move from Very Poor to Good or from Fair to Excellent.

Credit scores are calculated based on 5 criteria, each weighted differently. Improving your score is a simple case of understanding what these criteria are and knowing how to manipulate them in your favor:

  • 10% – New Credit Accounts: Avoid opening any new accounts or applying for anything unless it is absolutely necessary. If you do apply for new loans, make sure those applications occur within a 14- to 30-day period (depending on the credit scoring system) so that all inquiries merge into one.
  • 10% – Mixture of Credit: This can only be improved by adding a variety of credit accounts to your credit report. However, in the short-term, this will do more harm than good and is therefore not something you should do simply for the sake of improving your score. It’s worth keeping in mind for the future, though.
  • 15% – Age of Accounts: Age is key. The older the accounts are, the better. Don’t open anything new and keep all cleared accounts active where possible.
  • 30% – Credit Utilization: This aspect of your credit score compares your available credit (such as the combined limits of all credit cards) to the used credit (such as the balance on those cards). You can improve it by increasing the number of payments you make every month but also by requesting an increased credit limit. This won’t reduce your score and will simply add some much-needed percentage points to your utilization ratio. You can also add yourself as an authorized user to a friend’s or family member’s credit card and keep all cleared credit cards active.
  • 35% – Payment History: Dispute all errors on your report and do everything you can to remove them. Keep meeting your minimum monthly payment obligations and every month your payment history will improve and your credit score will improve with it.

If you’re in such dire straits that you can’t increase your limits, acquire any new credit or do anything else discussed below, then seek to build your credit score with the following:

  • A Secured Credit Card: Offered by many credit card companies, these cards are secured against a cash deposit. You get all the benefits (including the convenience of a secure credit card) without the risks that large, unsecured debts can bring.
  • Online Lending Circles: These services bring many debtors together. They essentially just move money around, but everything is reported to the credit bureaus and if you meet the terms of service you can slowly build your score.
  • Credit Counselor: An expert in finance, budgeting, and debt relief who can help you find a solution that is tailor made for your specific needs. They can’t improve your credit score directly, but they can show you how.

Get a Cosigner

A cosigner with good credit can help you acquire a personal loan, consolidation learn, or low-interest credit card. If your parents are homeowners, you can also consider home equity loans or reverse mortgages, swapping home equity for a cash sum that you can use to clear your debts.

It’s not an option for everyone, however, and you’ll need to find someone who trusts you and has a strong credit score or a home to use as collateral.

A Debt Management Plan

You can get a debt management plan through a credit counseling agency or credit union. They work with debtors suffering hardship and essentially consolidate and then manage debts on their behalf.

You can reduce all debts to a single monthly payment, eliminating the risk of penalty rates, extra fees, and escalating payments.

They often require that you cancel all your credit cards except for one, which should only be used in emergencies. This is really the only downside to debt management, as canceling cards and other credit accounts will reduce your credit utilization score. 

If you fail to make your monthly payment during any given month the agreement may be canceled, at which point your creditors will defer to the original terms of the loan/credit.

A Debt Consolidation Loan

Consolidation loans are somewhat misunderstood. The idea behind these loans is that you consolidate multiple high-interest debts into one low-interest personal loan. The problem is, you can’t acquire this personal loan yourself, because if you have bad credit then low-interest loans are not exactly easy to come by.

You have to go through a debt consolidation company. These companies work with all kinds of credit scores and provide a debt consolidation loan that is large enough to cover your debts and has an interest rate low enough to reduce your monthly payment.

But, of course, creditors are not there to do you any favors. While the interest rates and monthly repayments are lower, the loan term is extended, which means you’ll have the debts for longer and will repay more interest over the term.

This is something that few debtors take into consideration as they get too caught up in the APR and monthly payment. As an example, let’s imagine that you have three credit cards totaling $20,000 and charging an average of 25% interest. With a minimum payment of $800 a month, it will take you 3 years to clear the debt and cost you over $8,500 in total interest.

If you consolidate that debt with a 10% interest rate, you can reduce the monthly payment to $264.30, but in doing so you’ll have the debt for 10 years and will repay over $11,700 in total interest.

A Balance Transfer Credit Card

A balance transfer credit card is basically a debt consolidation loan, only you’re moving multiple credit card balances onto a single card. Balance transfer cards offer introductory 0% interest rates that last for up to 18 months. 

You’ll need to pay a transfer fee of between 3% and 5%, which means a $20,000 balance will grow to $21,000, but if you continue making that $800 monthly payment then you’ll reduce your balance to just $6,600 by the time that introductory period ends.

Your credit score will drop temporarily when you sign up for a new credit card, but the drop will be small and will diminish over time. 

Your credit score will also drop if you close all credit cards that you clear, so keep these open if you can.

Debt Settlement

Debt settlement companies work best when you have bad credit resulting from multiple missed payments, collections, and charge-offs. At this point, your creditors/collectors are desperate to cut their losses and get a return, even if it’s just a fraction of the original balance. They’re open for negotiations and a debt settlement specialist will use this to their advantage and try to settle for between 40% and 90% of the balance.

The problem is, they will also request that you stop making payments as soon as the debt settlement process begins. This deprives your creditors of interest payments and makes them more inclined to settle. It also gives you more money to use towards the settlements. 

At the same time, it destroys your credit score, or what’s left of it, and there’s a risk you’ll be sued. This process can also last for up to 4 or 5 years and it may take several more years to rebuild your credit score after this.

Staying out of Debt and Building Your Credit Score

Clearing your debts is just half the battle. If you think your credit score is low now, wait until you go through debt settlement, bankruptcy, and even debt management. These debt relief methods will clear your debts, but they’ll do so in a way that damages your credit score and leaves derogatory marks that may remain for years.

The good news is that you have a clean slate and can slowly rebuild your credit score and get back on your feet. Just keep the following tips in mind:

Spend What you Can Afford

Don’t deprive yourself of credit cards just because you spent years battling credit card debt. A credit card gives you a secure and convenient way to spend money. It can help you during an emergency and cover you several days before payday when money is tight and your options are limited. A credit card with a large and relatively untouched credit limit is also hugely beneficial for your credit score.

So, by all means, keep your credit cards active, but be careful how you use them in the future. Only spend the money that you’re 100% confident you can repay. In most cases, you should limit yourself to spending money that you already have in your bank and then transferring that money across every couple of weeks. 

Not only will this prevent your balance from growing, in which case you’re one financial disaster away from that balance rolling over, but it will also improve your credit score.

Credit cards are reported to the credit bureaus once every 30 days and your balance will show as credit card debt even if you have every intention of paying the balance in full and have done so for every previous month. By clearing that balance early or repaying large quantities of it, your debt will be much lower at the end of the month.

Give Yourself a Strict Budget

Set a strict spending budget every month based on incomings and outgoings. Don’t just calculate your debt-to-income ratio—include all outgoings, such as food, bills, and other essentials, and calculate your incomings after tax. The figure you arrive at is your disposable income, at which point you can reduce it by 70%. This is the amount of money that you can comfortably spend every month, with the rest going towards your savings.

As an example, let’s imagine that you earn $4,000 per month after tax and have all the following obligations:

  • Credit Card Debt: $500
  • Personal Loan Debt: $500
  • Other Creditors: $100
  • Utility Bills: $300
  • Food: $600
  • Subscriptions: $200
  • Other Payments: $300
  • Remaining Balance = $1,500 – 70% = $450

Every month you have $450 to spend on eating out, day trips, clothes, electronics, and other luxuries. This ensures that your debts are paid, and you don’t spend money you don’t have. It will also prioritize your savings, which can help you during a future emergency.

Reduce Housing Expenses

A growing number of Americans are spending up to 50% of their income on housing expenses, including rent and insurance. If you have a mortgage, 50% is still a huge amount to spend, but it’s excusable because every month you move one step close to owning your home.

But if you’re spending all that income on rent, then you’re not moving any closer to acquiring an asset and are just flushing money down the drain. Try to reduce your housing expenses by moving to cheaper accommodation. If you move out of the city you get better accommodation for less, albeit with the added expense of an extended commute.

Reduce Your Subscriptions

The average American household spends several thousand dollars on nonessential subscription services every year. These packages cost just $5 to $30 each and seem insignificant at first, but if you have 5 of them that’s between $25 and $150 a month or $300 and $1,800 a month.

Amazon Prime, Netflix, Hulu, Xbox Live, PlayStation Plus, Beauty Boxes, Music Streaming Services, Meal Delivery Services, Diet Clubs, Gift Boxes—it’s easy to accumulate thousands of dollars’ worth of annual debt without even realizing it. Get rid of the services that you don’t use and focus on the bare essentials.

Summary: Which Option is Right for you?

Your options are pretty limited if you have bad credit, but there are still a few things that you can do. If you have trusting parents who own their own home, begin by asking them to cosign or help you in other ways. If you have money for settlements, lots of derogatory marks and heaps of unsecured debt, then debt settlement might be the way to go.

If you’re struggling to make a decision, contact a credit counseling service in the first instance. They will ask you a few basic questions, asses your situation, and then recommend the best course of action. This service is provided for free by settlement companies, but you may not get the best advice as they’re more inclined to direct you towards their own services. However, even the best counseling services will charge you less than $40 for a short 30- to 60-minute appointment and this is all you need.


What Is a Prime vs. Subprime Credit Score?

When it comes to credit, approval is all in the number—the three-digit number that’s your credit score. Most lenders and credit card issuers use this number to determine your risk level as a borrower. In general, credit scores are categorized as bad, poor, fair, good, good or excellent.

However, another important designation impacts whether you’ll get approved for a credit card or loan, the interest rate you pay and your terms. That’s the prime vs. subprime credit score designation. Really, It’s no different than bad, poor, fair, good, good or excellent, it just used different terminology.

Subprime encompasses bad, fair and poor credit. Prime covers good and excellent. And sometimes superprime is used to encompass the top tier of excellent. Table 1 shows how that breaks down.

Table 1: Credit scores, ranges and prime vs subprime designations

VantageScore  Score VantageScore Rating FICO Score FICO Rating Prime vs Subprime Designation
750-850 Excellent 800-850 Exceptional Superprime (800+)
740-799 Very Good Prime (750-799)
700-749 Good 670-739 Good Prime
650-699 Fair 580-699 Fair
600-649 Poor Prime (620+)

Supbrime (< 619)

300-599 Bad 300-579 Very Poor Subprime

Learn more about VantageScore vs FICO.

Prime and superprime borrowers are more likely to qualify for credit cards and loans and access better interest rates, terms and perks, such as rewards, including points and cash back. That said though, there are credit cards for people with poor credit, bad credit and even no credit.

Is My Score Prime or Subprime?

Although each lender has its own criteria about which scores it considers prime and which scores it considers subprime, generally, you need a score of at least 740 to be considered a good risk by lenders. Scores of 620 to 799 are usually considered prime. Scores below 620 are subprime. And individuals with superprime scores have scores that exceed 800.

The Fair Isaac Corporation, the inventor of FICO scores, releases periodic data about score distribution among United States consumers. Recent FICO score data, released in January 2020, gives the following breakdown of prime vs subprime credit scores in 2019:

  • 16% of Americans have a very poor credit score (300-579).
  • 18% of Americans have a fair credit score (580-669).
  • 21% of Americans have a good credit score (670-739).
  • 25% of Americans have a very good credit score (740-799).
  • 20% of Americans have an exceptional credit score (800-850).

If you’re wondering where you sit, you can get your free VantageScore credit score from Experian here on

What Are the Effects of Prime vs. Subprime Credit?

A prime credit score makes it much easier and more affordable to get a credit card—especially if you want a rewards credit card—purchase a home, buy a new car or finance home repairs or higher education.

A subprime credit score can make it more difficult to qualify for a credit card or loan. And if you do, you’ll likely end up paying a higher interest rate for the card or loan.

When you improve your credit score and get into the prime or super prime category, you get lower interest rates, higher loan amounts and credit lines and even special programs like rewards credit cards, low APR credit cards and sign-up bonuses like and 0% APR on purchases and balance transfers.

Subprime borrowers sometimes have to take additional steps to be approved for a loan. For example, a cosigner with good credit can improve your chances to qualify. However, he or she is responsible for payments if you default on the cosigned credit card or loan. If you’re buying a home or a car, the lender may require a higher down payment than it does for a prime borrower.

Although interest rates for a prime vs subprime credit score vary dramatically depending on the type of loan and the lender, you could pay tens of thousands less over the life of the loan if you have prime vs subprime credit score. For example, a subprime auto loan can have an interest rate of 10% or higher, while prime lenders can access rates of less than 5% or even 0% with special financing.

A credit card for subprime borrowers can carry an interest rate of more than 25%, compared to less than 10% or even an introductory rate of 0% for a prime or superprime credit score.

According to the federal Consumer Financial Protection Bureau, subprime mortgages are more likely to have an adjustable interest rate, which means your interest and monthly payment amount can increase over time. Prime mortgages are more likely to carry a fixed rate.

Keep in mind that a prime credit score isn’t necessarily a one-way ticket to loan approval. While lenders take your credit scores into account, they also consider factors like income, debt utilization and overall finances when deciding whether to extend you credit or a loan.

What Factors Impact My Score?

If your credit score falls into the subprime range, your credit history might not be long enough for lenders to make an astute judgment about your ability to repay a loan. Using credit responsibly by making payments on time and keeping a low balance on the cards you do have may slowly improve your score.

Other common characteristics of subprime borrowers include:

  • A high credit utilization ratiowhich is the amount of your available credit you’re currently using. Lenders generally like to see a ratio of less than 30% with 10% being ideal.
  • A history of late payments—Most lenders report late payments to the three major credit bureaus after 30 days, with additional reporting at 60 and 90 days late.
  • A history of defaulting on debt—These debts may be written off by the lender because they were not repaid after several years or sent to collections.
  • A history of legal judgments or bankruptcy—These are seen as serious black marks by lenders and remain on your credit report for seven to 10 years.

Learn more about “What Is a Good Credit Score?” and “Just How Bad Is My Credit Score?”

How Can I Improve My Credit Score?

Moving from the subprime to prime credit score category has distinct benefits that put you on the path to a brighter financial future. You may be able to buy a home instead of renting. If you lease, you’ll have a better selection of properties to choose from. You’ll have lower interest rates on everything from your mortgage to your car loan to your credit cards, which means you’ll spend less money on monthly payments and more to put toward repaying debt, savings and meeting other financial goals.

Whether you’re working to exceed the 740 credit score threshold or want to maintain your already excellent score and become a superprime borrower, try these tips to improve your score:

  • Check your credit report and scoreIf you don’t know where you stand when it comes to prime vs subprime credit, you can’t be able to take steps to boost your rating.
  • Dispute any inaccuracies on your credit report that could be affecting your score.
  • Set up automatic payment reminders through your financial institution or on your phone or email calendar. You can receive a text or email so that you never miss a payment, helping you avoid late fees and dings to your credit score.
  • Pay down some of your debt to improve your credit utilization ratio. Lenders like to see borrowers using no more than 30% of your available credit. If you’re able to do so, opening a new line of credit will improve your utilization and subsequently, your credit score.
  • If you’ve missed payments in the past, bring those accounts current to improve your account standing, especially if some items have gone to collections. Once that happens, the black mark will remain on your credit report for seven years even if you eventually pay.
  • Keep old accounts open. The length of your credit history contributes to a healthy score, so even if you’re no longer using a card you avoid closing it.
  • Avoid applying for too many accounts in a short period of time. Lenders may see this as a red flag and the resulting hard inquiries have a negative impact on your score.
  • Create a budget and expenses you can eliminate or reduce to repay your debt. This not only boosts your score but also puts you on track to reach other financial goals—like building an emergency fund.

Learn more about how to improve your credit score.


Voluntary Repossession: How It Affects Your Credit

When you get behind on your car payments, it might feel like you have no options ahead of you. If you’re anxious about having your car forcibly repossessed by the bank, there is a way to take control of the situation.

giving car keys back

A voluntary repossession allows you to hand your car back to your lender on your own timeline, rather than waiting for it to be towed from your home or workplace.

In a situation where repossession is unavoidable, a voluntary repossession does come with a few advantages. However, a repossession of any kind will still have dramatic effects on your credit history, and consequently, your future ability to borrow.

Learn more about what a voluntary repossession is and the effect it has on your credit and finances. We’ve even thrown in a few tips to avoid getting in this situation in the first place.

How does voluntary repossession work?

Voluntary repossession is a type of loan default where you surrender your vehicle back to your lender to be used as payment towards your outstanding loan balance.

While your lender can repossess your car at any time after you default on the loan in most states, a voluntary surrender is initiated by you, the borrower. You arrange a drop off time and location that works for both you and the lender.

The car is then sold at an auction and the money raised there goes towards whatever you owe. The exact intricacies and legal processes of a repossession, both voluntary and forced, vary from state to state.

You can find out the specifics of your state’s laws regarding auto repossessions by contacting your attorney general’s office.

Voluntary Repossession vs. Forced Repossession

While both voluntary and forced repossessions result in losing your car, there are a few advantages of choosing to turn in your car on your own. The most obvious, of course, is that you get to be in control of the situation and avoid the repo man. A voluntary surrender helps you avoid a potentially embarrassing situation.

You won’t have to worry about when your car will be towed, like at work in front of your colleagues or at home in front of your family. Instead, you get to arrange for a scheduled drop-off.

You also don’t have to worry about getting your personal property back out of the car after it’s been towed. This can be difficult, depending on the details of your auto loan agreement. You may only have 24 hours to make arrangements to retrieve your belongings, so it’s better to avoid this situation altogether.

A Voluntary Repossession Can Save You Money

You could save as much as several hundred dollars by voluntarily surrendering your vehicle. That’s because you are responsible for any fees the lender incurs as part of the repossession process. This not only includes the towing of your vehicle but also having it stored before the auction occurs.

Collectively, these fees can start to add up. Several hundred dollars may not seem like a lot in the grand scheme of losing your car. However, it could set you back further on some of your other financial obligations.

So it’s really best to avoid a forced repossession if at all possible. If you know that repossession is inevitable, a voluntary surrender on your own terms might be in your best interest, both emotionally and financially.

How does a voluntary repossession affect your credit score?

A repossession of any kind is serious business when it comes to your credit score. However, voluntary surrender of your vehicle won’t affect your credit scores quite as much as a forced repossession.

The negative item on your credit report is also listed differently for a voluntary repossession versus a forced repo. Future creditors can see that you willingly gave up your car to repay your debt. So, while it’s still not ideal, it’s a slight advantage compared to your other option.

How long does a voluntary repossession stay on your credit report?

A voluntary repossession will be listed on your credit report for seven years. However, you’ll notice your credit scores beginning to rebound after a few years.

To expedite the process, ask your lender to stop reporting your missed payments since you’ve saved them time and money by voluntarily surrendering your vehicle. This will at least prevent your credit score from becoming further damaged by late payment entries.

Getting a Car Loan in the Future

With a repossession listed on your credit report, it will be challenging to get credit in the future. Car loans will be restricted to lenders with extremely lax guidelines. This means you won’t be able to borrow as much, and you’ll have to pay exorbitant interest rates.

If you can’t get approved for a car loan or can’t afford your car payments, you might have to save up and pay cash for a cheap car. It might not sound ideal, but getting yourself into a high-interest car loan with expensive car payments could be setting yourself up for difficulty once again.

Driving an old car or taking public transportation might be better options than entering a cycle of over-burdensome debt. Hopefully, you can save up some money without having a monthly car payment and benefit from some peace of mind.

Will you still owe money after a voluntary repossession?

Another major consequence of a voluntary repossession, and also of a forced one, is the potential of a deficiency. The auction for your car may not cover the remaining balance of your loan, plus any fees that occurred during the repossession process.

The lender subtracts the auction amount from what you owe, and anything leftover is referred to as a deficiency. Unfortunately, you are not exempt from paying this balance.

The amount shows up on your credit report next to the repossession notation until it is paid off. In many situations, the lender may sell the balance to a collection agency. This can result in aggressive phone calls and letters as they try to get the money from you.

Collection Accounts

You’ll also have a separate listing on your credit report (and a corresponding drop in your score) for any amount in collections. If you can, try to work out a payment plan with your lender.

If you don’t come to a payment agreement, lenders in most states can sue you to collect the amount of the deficiency.

Judgments & Wage Garnishment

This is serious because a judgment can lead to wage garnishment and is added to the public record section of your credit report, which is even worse for your credit score. Consequently, you should try to avoid a judgment at all costs.

If you don’t come to an agreement with your lender prior to your hearing, be sure to show up in court to present your side of the story. Also, consider hiring legal help.

A knowledgeable lawyer may be able to help your case if you can find proof that the lender didn’t follow all of the proper legal procedures when selling your car. Obviously, this is a worst-case scenario, but it might be worth it if there’s no other way to prevent a judgment.

Can filing for bankruptcy help save your car?

Sometimes bankruptcy can prevent your car from being repossessed. However, it’s important to check your eligibility and understand the ramifications of bankruptcy. Just like a car repossession, it has long-lasting effects on your credit scores.

So how can a bankruptcy potentially help you keep your car? The first option, which is a little complicated, is through a Chapter 7 bankruptcy. You must meet certain income maximums to qualify for a Chapter 7. If you do, you’ll need to fill out a Statement of Intention explaining how you’d like to handle your debt.


The first option for a car loan is a redemption, which allows you to pay off the current market value of the car. The downside is that it must be paid in a single lump sum. But the good thing is that if you owe more than the current value, the deficiency is discharged.


Your other option in Chapter 7 is a reaffirmation, which provides a new contract between you and your lender. You continue to make payments but must accept full liability, which means the debt can’t be discharged.

To make this work, however, the judge must believe that you have the financial ability to make those monthly loan payments. Otherwise, you could still have your car repossessed. Chapter 13 works a little differently than a Chapter 7 bankruptcy.

Rather than having debts discharged, you go on a three to five-year payment plan with your creditors. You may be able to get your car loan included in your payment plan.

You’ll have a single monthly payment each month that is then divvied out amongst your participating creditors. Oftentimes, you end up paying much less than what is originally owed, and at the end of the repayment term, your debts are considered settled.

How can you prevent repossession before it happens?

Prevention is almost always a better alternative to mitigating damage to your credit scores and financials due to a voluntary repossession. If bankruptcy isn’t right for you, you can still take other actions before your loan gets too close to default.

Start by talking to your lender about your issues, especially if a temporary emergency caused you to fall behind on payments. A repossession is both timely and costly for a lender, and they’d much rather make money off your interest payments each month. If you have good credit, you might be able to refinance your car loan.

Renegotiating Terms

You could potentially qualify for a lower interest rate or renegotiate the length of your auto loan term. With that option, you’d end up spending more on interest over time, but at least you’d be able to afford your car payments and avoid the eventual costs of bad credit.

Selling Your Car

Another strategy to consider is selling your car. Depending on your loan amount and the current market value, you may or may not be able to repay your full loan amount. If that’s the case, you would have to pay the difference to your lender before you could transfer the title to someone else.

If the deficiency is higher than your money in savings, consider finding a part-time job or side hustle to bridge the gap.

You could sell some belongings on eBay or Craigslist, pick up a few shifts each week as an Uber driver, or volunteer for extra hours at work. While this isn’t an easy solution, the temporary hardship could help save your car from getting repossessed.

Is it possible to get a voluntary repossession removed from your credit report early?

If you have a voluntary repossession on your credit report, there is a possibility of having it removed before the seven-year time limit.

Credit bureaus are required to report information that is accurate and verifiable. If you check your credit reports and find any inaccuracies or inconsistencies with the way your repossession is listed, you can file a dispute.

Working with a Credit Repair Company

In many cases, the dispute process is more effective when working with a professional credit repair firm.

The best firms, like Sky Blue Credit, have decades of experience in getting defaults removed for their clients. You can certainly tackle the dispute process on your own, but it doesn’t hurt to get a free consultation to see how a professional could help you.

While going through a voluntary repossession is better than a forced one, it still has a significant impact on your credit score. Weigh all of your options carefully and try to address any financial issues as soon as possible. You often have more alternatives available earlier in the process.

7 Questions to Ask a Life Insurance Agent

  • Life Insurance

A life insurance agent can make the process of buying life insurance much easier. They can find you the best deals and ensure you’re completely covered. This is important, as close to a third of all Americans admit to lacking confidence about the insurance application process and can’t answer many basic questions about their needs and the coverage they seek.

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But what sort of questions should you be asking your life insurance agent and what answers can you expect in reply?

Who is Offering the Insurance?

Does your life insurance agent work on behalf of a single company or multiple companies? What are the names of those companies, and can you verify their legitimacy using a simple Google search?

No two insurance companies are the same. Many policyholders focus their attention solely on the price of the policy and the coverage it provides. But the company’s history of payouts and its reputation also comes into it. A cheap life insurance policy is pointless if the company has a reputation for not paying out.

Fortunately, it has never been easier to determine the legitimacy of an insurance company and a simple online search is all you need.

What Are the Guarantees?

The numbers you need to focus on the most are the guaranteed ones. This tells you how much a permanent policy will pay regardless of market changes. The projected figures are subject to change, but the guaranteed figures will provide you with some stability and assurances over the term of the policy.

Will It Adjust for Inflation?

It’s important to make sure the grant you receive will be paid after adjusting for inflation, because what seems like a lot of cash today may be worth much less in the future after years or decades of inflation.

$250,000 can seem like a huge sum of money today. If anything happens to your spouse and they are the breadwinner, this money can help to clear the mortgage and bolster your savings, securing you for years to come and allowing you to prepare for a future without them.

In forty years, however, $250,000 may count for very little. As an example, let’s imagine that you took out an insurance policy for your spouse in 1980 and they have just passed away. That policy was $100,000 at the time and this was a huge sum, enough to buy you two houses or 13 cars based on the national average rate.

Today, after accounting for inflation, that sum would be over $315,000, which is also a lot of money (although not quite enough for two houses). However, if the policy didn’t adjust for inflation, you’d get $100,000, which simply isn’t enough to cover an individual for life, especially if they have just lost most of their household income and still have a big mortgage to repay.

What Happens in the Future?

What happens to your policy as you age, can you switch your term policy to a permanent one, what options do you have, and can you save any more doing this? The older you are, the more you will pay, and by quite a considerable amount.

What costs you $100 a year when you’re in your forties could cost you $500 a month when you’re in your seventies. You’re a higher risk, and because life insurance is based on probability, you will be expected to pay a lot more.

Are You Covered if You Become Ill or Disabled?

Life insurance is designed to support your family in the event of your demise. However, you have your own wellbeing to think about as well. What happens if you become disabled or fall ill—what happens if you can no longer work and have growing medical bills to worry about?

This could place a big financial burden on your household and it’s something that you need to prepare for. Ask your life insurance agent if you will be covered in the event that you fall ill or become disabled. And, if so, what will that cover provide?

Many life insurance policies offer some kind of disability or illness cover, but this can vary greatly from policy to policy. More importantly, life insurance companies have their own definitions of what constitutes “disabled”. For some, it’s the inability to perform specific actions; for others, it’s about being unable to perform any actions at all.

What Happens if I Can’t Pay the Premium?

Life insurance providers are not as forgiving as banks and creditors when it comes to missed payments. They won’t chase you down, give you multiple chances, and then offer payment plans and other assistance programs to get those payments started again. In many ways, the ideal outcome for a life insurance company is if you meet the payments for twenty years and then stop. 

That way, they have secured a sizeable profit without the risk of a payout. And if you need to resign, you’re now much older and will, therefore, have higher premiums to repay. 

Discuss this potential issue with your life insurance agent in advance. Ask about grace periods and automatic premium loans; the former will give you a break to allow you to find your feet again, the latter will allow you to borrow against the policy.

What if Your Health Improves?

If your health gets gradually worse, your policy shouldn’t change and that’s a good thing, otherwise, life insurance would be pretty pointless. However, if you’re not in the best of health when you take out the policy, but this soon improves, there’s a chance you could get a discount.

Ask your life insurance agent what your options are in the future if your health or your situation changes. You could get a new underwriting if you lose weight, stop smoking, stop drinking or remove some other negative trait that initially increased your premiums.

Summary: Keep the Questions Coming

Life insurance agents are there to answer questions and support you in whatever way they can. Obviously, they benefit more if you don’t take up too much of their time, agree with the first policy they offer you and quickly sign on the dotted line. But you’re not there to make their life easier, you’re there to make a commitment that will impact you for years to come, one that will continue to provide for your family after you’re gone.

It’s important, therefore, to take your time and get everything off your mind. Don’t worry about sounding stupid and asking a question you feel you should know the answer to. You’d be surprised at how little the general population knows about life insurance and how common the most basic of questions are.

The most important thing is that you get the answers you seek and the policy you need. If that means asking a string of questions and making a life insurance agent wish they’d never met you, so be it!


Borrowers With Fannie Mae, Freddie Mac Mortgages Can Receive Up to 18 Months of Forbearance, Regulator Says

The Federal Housing Finance Agency will allow homeowners to receive an additional three months of forbearance as it extends the COVID-19 relief options available.

The agency announced Thursday that homeowners with loans backed by Fannie Mae and Freddie Mac  can receive up to 18 months of payment relief. To be eligible for the extended forbearance, homeowners must already be signed up for a forbearance plan by the end of February.

The FHFA also amended its separate payment deferral option for homeowners so they can now miss up to 18 months of payments. Those missed payments can be repaid when the mortgage reaches maturity, when the home is sold or when the mortgage is refinanced.

Originally, Fannie Mae and Freddie Mac instructed loan servicers that mortgage borrowers could request up to 12 months of forbearance on their mortgages as a result of the coronavirus pandemic. But earlier this month, the FHFA extended the forbearance period by an additional three months, for up to 15 months’ forbearance.

The new changes announced Thursday were made to bring the agency’s policies in line with the policies set forth by the Biden administration for loans backed by the federal government, including Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) mortgages.

Beyond extending forbearance, the FHFA also announced that it was extending its moratoriums on single-family foreclosures and real estate owned (REO) evictions until June 30. The moratoriums were previously set to expire at the end of March.


Forbearance of Foreclosure? How to Keep Your Credit and Homeownership Intact

The following is a guest post by Eric Lindeen, of Anna Buys Houses.

The second quarter of 2020 marked the highest U.S. mortgage delinquency rate (reported as 60-days past due) since 1979. Amidst the chaos of the pandemic, federal and state governments have made efforts to protect against the financial strain U.S. consumers are enduring—including mortgage payment forbearance of foreclosure. 

What Is a Forbearance?

Forbearance is the postponement of mortgage payments, or the lowering of monthly payments for a specified time period; it’s not loan forgiveness. Repayment terms are negotiated between the borrower and lender. Mortgage forbearance is one tool to help protect homeowners from foreclosure due to temporary hardships, such as a job loss, natural disaster, or pandemic. Some homeowners may opt for strategic forbearance, meaning they proactively enter a forbearance agreement just in case they lose their ability to make their mortgage payments.

As of October 25, data from the Mortgage Bankers Association (MBA) reports that approximately 2.9 million U.S. homeowners are currently in forbearance plans. That number represents 5.83% of servicers’ portfolio volume. MBA data also shows that nearly 25% of all homeowners in forbearance plans have continued to make their monthly payment (perhaps an indicator of the use of strategic forbearance).

How Do Forbearance Plans Work?

Mortgage payment forbearance programs have come at a time when many Americans are losing their livelihood and others fear the potential fallout from the health and economic crisis. Not all forbearance plans are created equal. Therefore, it’s critical to understand how different plans are structured to protect your financial health and credit. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act is one measure enacted to provide relief to consumers facing hardships due to the impacts of the coronavirus. One provision of the Act allows mortgage payment forbearance and provides other protections for homeowners with federally or Government Sponsored Enterprise (GSE) backed or funded (FHA, VA, USDA, Fannie Mae, Freddie Mac) mortgage loans. 

If you have a federally or GSE-backed mortgage, no documentation is required to request forbearance, other than an assertion that you are facing a pandemic-related hardship. Borrowers are entitled to an initial forbearance period of up to 180 days. If necessary, an extension of an additional 180 days may be requested. Federally backed mortgages are protected against foreclosure through December 31, 2020. 

Recently, the foreclosure moratorium was extended yet  again to at least March 31, 2021 for GSE-backed loans (Fannie Mae and Freddie Mac). Be sure you understand who owns your loan and the terms of your loan as these deadlines approach. Extensions are likely to continue to help borrowers keep their homes and lenders navigate the constant uncertainty that is 2020.

The CARES Act amended the Fair Credit Reporting Act (FCRA) with a provision that when a lender agrees to forbear an account of a consumer impacted by the pandemic, the consumer complies with the terms of the forbearance. Then, the mortgage issuer must report that account as current to credit reporting agencies.

How Your Credit Factors into Forbearance

On paper, knowing that your credit won’t be affected by forbearance seems like a good deal. There’s an important distinction here. Your loan doesn’t need to be current to qualify for forbearance under the CARES Act. However, any delinquencies on your account prior to entering a forbearance plan will impact your credit report. Make sure that your loan is current, and being reported as current to the credit bureaus, before you agree to a forbearance of foreclosure.

What about Private Mortgages?

Around 30% of single-family mortgages are privately owned. Many private banks and loan servicers have voluntarily implemented relief measures that don’t fall under the same protections of the CARES Act. Terms vary by institution and state of residence. And relief plans may not be structured in the same manner as federally-backed and funded loans. 

For example, borrowers with private loans may be required to pay back all missed payments in a lump sum as soon as the forbearance period ends. Lump sum payments are not required for GSE-backed loans. Additionally, if modifications are made to a privately funded loan, the new terms could impact your credit score depending upon how the lender reports the status of your loan to the credit bureaus.

The good news is that the three major credit bureaus (i.e., Equifax, Experian, and TransUnion) are providing free weekly online credit reports through April 2021. Be sure to check these reports to ensure that the new terms of your loan are being reported as “paying as agreed” and not reported as late. also has resources to help check and manage your credit.

It’s also important to understand the terms of your loan. Some homeowners who recently refinanced were asked to sign a form that was quickly described as “new COVID paperwork.” The fine print stated that their new loan was not eligible for forbearance relief measures. 

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Mortgage payment forbearance is one tool that can protect homeowners from defaulting on their loan, damaging their credit, and worst of all, losing their home to foreclosure. Key takeaways include, knowing who owns your loan, who services your loan, and what type of protections are available to provide relief if the current economic crisis is impacting you or you fear that it might. 

There are proactive steps to protect against foreclosure and determine the right path for your personal situation.


How Much Money Should You Have Saved For Retirement By 40?

At some point or another, you’ve probably asked yourself, “how much money should I have saved by 40?”

It’s a valid question that can be daunting to think about. The good news is you’re probably already saving money for retirement. The bad news is, you might not be saving enough money to retire when you want.

There are different ways to save money for retirement. The sooner, the better—so that it can start adding up. And that’s exactly what an increasing number of people in their 20s and 30s have been doing.

A Bank of America report found that almost one in four millennials (ages 24-41) have $100,000 or more saved as of winter 2020—a nearly 17% increase compared to that same report in 2015. The rising numbers are promising, but are these savings even enough? We’ll dig deeper into the numbers.

How Much Should I Have Saved by 40?

A general rule of thumb is to have the equivalent of your annual salary saved by the time you’re 30. By your 40s, many financial advisors recommend having two to three times your annual salary saved in retirement money.

In your 50s, conventional wisdom holds that you should have six times your annual salary in your retirement savings by the end of the decade.

How Can I Get My Retirement Money On Track?

If you feel you don’t have enough money saved yet, it’s never too late to get back on track. As you reach your 40s, it’s likely that your income increases, but so do the obligations tied to your money.

You might be saving money for your kids’ college; you probably have mortgage payments and existing debt; you may even be taking care of aging parents. It’s a lot of financial multi-tasking and you have to prioritize.

The key is to establish money goals and create a budget. Tracking your income and spending can help you figure out how much money you need to save for each goal and what kind of investments or savings make sense to achieve your goals.

This can be made much easier by using SoFi Relay to know where you stand with your money, what you spend, and how to hit your financial goals. With SoFi Relay you can track all of your money in one place, plus get credit score monitoring, spending breakdowns, financial insights, and more.

A key priority to think over is paying off any high-interest debt, including credit card debt. Be sure to make the payments on any existing loans to avoid any late fees or penalties for missed payments. It may be worth reviewing any loans you currently hold to see if you could potentially refinance to a lower interest rate.

If you don’t have an emergency money fund yet, consider putting that at the top of your priority list. You could plan to have three to six months’ worth of expenses saved.

Once you have high-interest debt paid off and an emergency money saved, you can allot a larger portion of your funds to save for retirement and other money goals. If you’re playing catch-up with your retirement money, try contributing any financial windfalls toward your retirement savings.

Saving and Investing Money by 40

If you already have a 401(k), there are a number of strategies to max out your 401(k) that are worth looking into. For example, it might make sense to contribute at least enough to qualify for any employer matching your company offers. Why lose out on the “free” money that your employer is willing to contribute to your retirement savings?

Try setting monthly or weekly savings targets to help you stay on track for retirement. You can even set up automatic transfers or deposits, so you don’t have to think about it.

As you’re rethinking how much money you need to save for retirement, it also makes sense to look at your lifestyle goals. That includes figuring out when you might want to retire, what kind of lifestyle you want in retirement, and how much money you might have coming in during retirement.

Where to Save Money for Retirement

Next, you’ll also need to figure out which retirement plan is right for you. There are many ways to save for retirement, even beyond the popular employer-sponsored 401(k). Other options include a traditional IRA or a Roth IRA (to see how much you can contribute to a Roth IRA, check out our Roth Contribution Calculator).

Some people choose to put their retirement savings in more than one type of account. This is useful if you want to set aside more than the yearly contribution limits on 401(k) plans—whether because you’re a high-income earner, or you started saving later in life, or you’re trying to achieve financial independence at a younger age. In that case, it might make sense to leverage a Traditional IRA, Roth IRA, or after-tax account to save beyond the 401(k) limits.

Investing in a Roth IRA now, with post-tax dollars, can also be useful if you want to withdraw money in retirement without paying taxes on the money. In contrast, 401(k) contributions are tax-deferred, meaning you will be taxed on funds you withdraw in retirement. That said, there are income limits on Roth IRAs, so this might not be an option depending on your salary.

After-tax accounts can be appealing to individuals who plan to achieve financial independence at a younger age and retire early. Unlike qualified plans, which place penalties on withdrawing funds before a certain age, an after-tax account is a pool of money that you can withdraw from without having to worry about penalties if you access the account before age 59 ½.

The Takeaway

While there are conventional rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.

Interested in boosting your retirement savings? You can open a Traditional IRA, Roth IRA, or after-tax account with SoFi Invest® to supplement your 401(k) or other qualified retirement plan savings.

Find out how SoFi Invest can help you start saving for your future.

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Here’s What You Need To Know About Becoming A Cosigner

Are you thinking about becoming a cosigner for someone? Have you ever been asked to cosign on a loan before? 

becoming a cosigner

becoming a cosignerMany people have been asked to cosign loans for family members and even friends. However, many people do not understand the full cosigner meaning, and becoming a cosigner is never something you should do unless you completely understand what it means.

If someone asks you to cosign a loan for them, you might be hesitant to say yes at first. You also might not want to offend the person or make them mad.

Whatever you may be thinking, I want you to fully understand what you are getting yourself into.

Becoming a cosigner can actually turn into a big financial mistake if you do it without really thinking it through.

Okay, now some of you may think that I’m a mean person for saying that, but I’ve heard many stories from people who’ve had their credit wrecked, have been stuck paying a loan for someone else, and even had their relationships ruined.

All of that from cosigning a loan.

Perhaps you have cosigned before and it went fine, or you know a friend of a friend who has done it. Perhaps you think that things won’t go bad for you or that you are hurting the person by not cosigning for them.

But, I want you to be careful before becoming a cosigner. I’m saying this to help you!

No matter how well you think you know someone, mixing money and relationships can change things. What you may have thought was a wonderful friendship or family relationship can turn into a nightmare.

It may seem very innocent – you’re just helping a good friend or relative get a loan. 

Really, if it was that simple, I’d tell everyone to do it. But, becoming a cosigner is a major financial decision that you need to seriously think about before agreeing to.

Before you cosign a mortgage or another type of loan for someone, it is always wise to be 100% positive of what cosigning a loan actually means and how it may affect your relationship with the person getting the loan.

Surprisingly, many people don’t know exactly what happens when they agree to being a cosigner. Many people just think that all you’re doing is helping a person get approved, but that’s not just it.

Sorry to break it to you, but the bank, landlord, etc., does not care if the applicant has a friend with a good credit history. 

There’s more that comes with being a cosigner.

As the cosigner, what’s actually happening is that you are taking on the full responsibility of the debt if the original applicant is unable to pay.

And, that happens more often than you might think.

Related content:

According to a survey I found on, 38% of cosigners had to pay some or all of a loan that they cosigned for because the primary borrower failed to pay. This is a HUGE percentage of cosigners, so please keep that in mind.

Other statistics I found about becoming a cosigner include:

  • 28% of cosigners saw a drop in their credit score because the person that they cosigned on a loan for paid their loan late or skipped a payment.
  • 26% of cosigners said that cosigning damaged the relationship with the person that they cosigned a loan for.
  • 90% of private student loan borrowers who applied for cosigner release were rejected. So, if you think that you are going to cosign for a loan and then remove yourself from the loan later, that is much more difficult than you probably think. Stat from Consumer Financial Protection Bureau)

So, who is finding cosigners for loans?

According to the survey mentioned above, 45% of cosigners are cosigning for their child or stepchild. And 21% of cosigners are cosigning for a friend.

The rest is a mixture of cosigning for spouses/partners and parents.

Today, I am going to answer common questions about becoming a cosigner for a loan.

What to know about becoming a cosigner.


What is a cosigner?

If you’ve been asked to become a cosigner on a loan, you may not know what that fully entails.

A cosigner is someone who agrees to be on a loan with another person so that they are more likely to be approved. 

A cosigner may be needed for different things such as a:

  • Car loan
  • Student loan
  • Mortgage
  • Apartment or other type of rental home

And more.

Here’s an example of when someone may want a cosigner: if your child wants to buy a car but doesn’t have a long enough credit history to be approved for the car loan. Your child may ask you to cosign their loan so the lender takes your credit score and financial information into account. This improves your child’s chances of being approved.

Other reasons you might be asked to be a cosigner is if the borrower doesn’t have a high enough credit score or doesn’t make enough money to pay the loan (that is a red flag right there).

However, as a cosigner, you are agreeing to pay off the debt if the original borrower is unable to pay it in the future. So, even if the original borrower doesn’t pay a penny, the cosigner would have to make all of the payments or risk being sued, having credit report damage, and more.

In that example I gave, the parent would be responsible for the car loan if their child could no longer make their payments. Not only that, if the child for some reason refused to make payments (I’ve heard of situations like this), the parent would be responsible.

Remember, like I stated above, 38% of cosigners had to pay some or all of a loan that they cosigned for because the primary borrower failed to pay. 

And in some circumstances, even if the borrower files bankruptcy, while their other loans might be discharged, the cosigner may still be responsible for paying the cosigned loan.

Related: Everything You Need To Know About How To Build Your Credit Score


How does a co signer work?

Here’s what happens when you agree to become a cosigner for a friend or family member. 

You will start by giving your personal information to the bank or lender. This is information like bank statements, tax returns, paycheck stubs, and so on.

You will also have to complete the loan application, and once you agree with all of the loan terms, then you sign it.

But, becoming a cosigner doesn’t mean that you will own or have partial ownership of the vehicle, house, or whatever else you are cosigning for. It does mean that you are taking full financial responsibility and promising to pay the loan yourself if the borrower does not pay.

Becoming a cosigner is nothing to take lightly.

Does cosigning hurt your credit? Is it bad to be a cosigner?

Becoming a cosigner can hurt your credit score and prevent you from future loans in some circumstances.

Here’s why:

  • If the person doesn’t pay the monthly payments on time, then you may be rejected for a loan in the future. Missed payments can damage your credit score and your credit report.
  • As a cosigner, you are increasing your debt-to-income ratio. So, even if your friend/family member pays every single bill on time, a lender will still see this as YOUR debt. Unfortunately, this may prevent them from approving your loan because they will think you have too much debt on your plate.

If you might be buying something soon that will need financing (house, car, etc.), you should think long and hard before you decide to be a cosigner on someone else’s loan.

Can cosigning a loan hurt a relationship?

Unfortunately, many cosigning relationships go sour. 

I have heard many stories where someone cosigned a loan for someone else and then didn’t talk to them for years or even decades because of a falling out of some sort.

I have always been a firm believer that money and relationships do not mix well. 

If you are going to cosign or lend money to someone, then you should consider it a gift because there is a chance that you will never see that money again.


Can you remove yourself from a loan as a cosigner?

Remember the statistic above – 90% of private student loan borrowers who applied for cosigner release were rejected. 

There’s not much you can do to remove yourself from a loan that you cosigned on. If the person isn’t making payments, you are stuck with it for the most part.

The loan would have to be refinanced to take yourself off the loan, and there are many horror stories out there where the original borrower refused to refinance because then they wouldn’t be able to force the cosigner to continue to pay the monthly bill.

Plus, there are instances in which refinancing is impossible because of the value decreasing, the economy changing, a person’s financial situation getting worse, and so on. 

So, while the original borrower may be okay with getting you off of the loan and refinancing, it’s still up to the lender whether or not they will refinance the loan.

How do I protect myself as a cosigner?

There is no guarantee that becoming a cosigner is going to work out, but if you’re determined to do it, you will want to know both of these two things for sure:

  1. That you can trust the person you are cosigning for.
  2. That YOU can make the payment.

Many people who are thinking about becoming a cosigner may not think about that last one, but it is just as important as the first one. Being stuck with the loan payment would be awful, but not being able to make the payment could cause you to go into serious debt and destroy your credit.

You may be certain you won’t be stuck making the payment, but you don’t want to be stuck in a bad financial situation.

Should I cosign a loan?

Even though those cosigning horror stories are real cautionary tales, most people don’t believe they would ever happen to them. 

However, don’t you think most (if not all) cosigners felt the same way in the beginning?

It’s up to each person to decide if they will cosign, and you should never feel forced to do it. However, I want you to remember that if you cosign, then you should make sure that you can afford to make the monthly payment.

You never know, one day those payments are being made and everything is going well. The original borrower may be a great person, but then they may lose their job, have an unexpected expense come up, or something else that prevents them from paying their bills.

Then, what if something happens to you and you can’t make those payments either? Unfortunately, being unprepared and not really knowing what you are getting into can turn into a disastrous situation.

Cosigning a loan may not always be bad. However, I believe it’s better to realize what the consequences are before going into something that can negatively impact your life. It’s always better to be prepared!


Is it a bad idea to cosign for someone?

Cosigning a loan doesn’t always have to be a bad thing.

However, I want you to remember that there is a chance that you will be on the hook for the loan.

So, if you cosign, whether that be for a car, mortgage, apartment, student loan, or something else, you should make sure that you can afford the payment as well. Because, there is a chance that you may have to pay it one day.

Everyone has a different situation, and ultimately, you have to do what’s right for you. 

What do you think of becoming a cosigner for a mortgage or other type of loan? Would you ever do it?

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