When a family member or friend asks you to co-sign on a debt, that person isn’t requesting a small favor. If you accommodate the request, you’ll be putting your cash, credit score and perhaps future access to credit on the line. Even if your friend is responsible when repaying the loan, an unexpected job loss or death could cause the debt to suddenly become your sole responsibility.
For some co-signers, these downsides are enough to convince them to seek a release from their obligations. But scoring a co-signer release is easier said than done. “People who co-sign often find themselves wanting to get out of the relationship, and they’re shocked that it’s hard to break up with a co-signer,” says Gerri Detweiler, education director for Nav, a San Mateo, California-based service that matches small business owners to financing options.
In general, your co-borrower will have to have relatively good credit to qualify for the loan independently — and be willing to help you offload responsibility for the debt. Here’s what to know about arranging a reprieve from your obligations as a co-signer.
Ask for a co-signer release. Asking for a co-signer release is typically a strategy for co-borrowers of private student loans. This might appeal, for example, to a parent who co-signed on a private student loan for her child but wants to offload responsibility to ensure that repayment isn’t impacted in the event of her death. Some private lenders offer this as a path through which a student can become the sole borrower after proving responsibility in repayment.
Typically, a co-signer release for a student loan is available after the student makes a certain number of consecutive, on-time payments and submits an application to the lender. Ask your lender about the process for qualifying for a co-signer release. The Consumer Financial Protection Bureau also has a sample letter you can use to request a release from the loan. To be approved, the primary borrower will likely need to demonstrate proof of good credit and the ability to repay the loan on his or her own, which can be a tough hurdle for some.
Refinance or consolidate. Refinancing or consolidating, which is the combination of multiple loans, involves paying off your existing debt with a new loan that has new terms, conditions and perhaps a better interest rate, depending on the borrower’s circumstances and interest rate trends overall.
If the borrower’s financial situation has improved to the point where he or she can qualify for the loan independently, this can be a straightforward way to score a release of your obligation as co-signer without jumping through hoops required by the original lender to earn a co-signer release.
To make this option sound palatable to the borrower, consider framing it as a chance for the primary borrower to renegotiate his or her payments, stretch out the payment plan if monthly bills are high or find a loan that better meets his or her current needs, says Jeremy Straub, the Fort Lauderdale-based CEO of financial services firm Coastal Wealth.
[Read: 10 Easy Ways to Pay Off Debt.]
Sell off the asset. This could be a strategy with, say, a car loan. To secure a release as a co-signer, you can sell the car. But note that you’ll need to own the title to the car to do this. If you don’t, you’ll have to get the primary borrower on board.
If you co-signed on a leased car that’s eligible for transfer, you may be able to swap out the lease with Swapalease or a similar site, Straub says. In this circumstance, you’d find someone willing to take over the lease, sign lease transfer documents and release you of your responsibility as co-signer under the old contract. Again, you’ll likely need the primary borrower to agree to this plan.
You can also pay off a debt you co-signed on to clear your name and credit. It’s an expensive way to handle the situation, but if you have the funds, it may save your credit score and your relationship.
Transfer the debt to a new credit card. When it comes to credit cards, joint accounts are less common these days, Detweiler says. More borrowers choose to allow someone to become an authorized user, which gives the primary borrower more freedom to remove a irresponsible user, she says. But if you have a joint account with another borrower and want to extricate yourself from that relationship, consider suggesting that you and your co-borrower transfer the account to a balance transfer credit card — and leave your name off it this time. Sometimes, these cards have a 0 percent interest offer for the first year or more, giving borrowers a chance to pay down debt more aggressively. Once the old credit card balance is at zero, “make sure it’s closed,” Detweiler says. “Ideally, confirm that in writing with the issuer.”
Bottom line: Think twice before you co-sign. Mull it over before you co-sign for a friend, family member or someone else. It’s very hard to get a release, and you risk the debt becoming yours. Lenders may not even let you know that the debt is not being repaid. And if things go south, creditors may hound you, your credit score may drop and you may end up paying more than you expected in fees, interest and penalties. The death, illness or job loss of the primary borrower could cause the debt to suddenly become your responsibility.
There are empathetic and helpful ways to turn down a friend or family member asking you to co-sign. You can agree to an alternative form of financial help, such as funding a down payment or offering a personal loan. This way, you can still be of assistance without putting your credit on the line or potentially taking on full responsibility of the loan.
When you do become a co-signer, remember this: “Legally, it is your debt,” Detweiler says. “Don’t co-sign unless you can afford to make that amount as a gift.”
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