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Lou wrote to me and asked the following question.
“Dear Steve,
Asking for my guy. He’s currently about ,000 in debt between his student loan, car loan, and using his credit card to pay bills while he was out of work. The card is a bit over k, car is between and 11k, and the student loan is around k.
He currently makes about ,000 a year but with the different interest rates, etc plus regular stuff like rent and food, he’s barely making it. He’s already deferred his student loan 2 or 3 times in the past few years so I don’t think they’ll give him another break, they haven’t even responded to the request. He truly isn’t the kind to spend irrationally it really is just a series of unfortunate events.
What is the best course of action? Is it possible to get a loan to consolidate all his debt? My credit is pretty good, if I’m willing to co-sign will that make a difference?
Lou”
Dear Lou,
If you co-sign for any loan I will personally hunt you down and kick your ass. Never ever cosign for anyone for any reason. Co-signing does not solve their problem, it drags you into their problem. If they are not qualified to get a loan on their own and need a cosigner then the chances are pretty damn high that they will fall back into trouble and then YOU will be 100% responsible for their debt.
If he is barely making it now with his student loans deferred, any student loan solution may push him over the financial edge and into deeper trouble. Student loans are one of the two worst debts you can owe. But the Department of Education has a new program out called the Income Based Repayment (IBR) program.
The IBR should be his first avenue to follow to try to get the student loans under control. Once he finds out what payment the IBR will allow him to make then we can begin to address the other debts.
Rather than cosigning, you are better off helping him to make monthly payments out of your pocket once he gets his IBR payment worked out. If you do that you are not obligated for his debts, you are lending a hand and doing a nice thing for him. Plus, if this relationship does not work out you can stop making the payment on his behalf and instantly end any further investment.
Come back and give me an update in the comments about what you decide to do.