A Texas woman thought she would move past her ex. Unfortunately, fate had something else in store since she’d cosigned a $10,000 bike loan with the individual, who then vanished. Now, years after the split, the woman, Annie, has been left dealing with debt collectors over a bike she has not seen in four to five years, and for a guy who she does not know is ‘alive or dead’.
She narrated her ordeal on The Ramsey Show, which advises on how to build wealth, a couple of weeks back. “He hasn’t made a payment. I don’t care about my credit, but they keep calling,” she shared.
However, Annie was in for bad news. Despite not being with her ex or having access to the bike, Annie is on the hook for the money borrowed. As per Consumer Financial Protection Bureau (CFPB), the cosigners would legally be on the hook if the primary borrower stops paying. Further, it notes that lenders do not have to track down the other person first. They can directly approach the cosigner, which in this case was Annie.
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Since the bike couldn’t be repossessed and the ex couldn’t be found, the lender took the logical step of approaching the cosigner. The show hosts had some advice from Annie.
How to protect credit?
Jade Warshaw, the host, told Annie “You gotta stack up the money,” adding, “And If it doesn’t get paid your credit’s going to get destroyed.”
Cosigned loans show up on both borrowers’ credit histories so late payments and defaults impact both parties. Annie is now married and lives on a tight budget which is making her return to work after retirement so she can make ends meet.
Warshaw added Annie should sit down with her husband and go over their finances together so they can have a clear picture and can plan ahead accordingly. Meanwhile, guidance from the CFPB, Experian and the Federal Trade Commission (FTC) explain how to protect credit in such cases.
- There is no escaping the debt, and if the primary borrower fails to make a payment, it is best to consider the debt your own and make timely payments to avoid increased fees, penalties, and credit damage, as per CFPB.
- Consumer regulators advice responding quickly if collectors contact a person. Ignoring calls or letters can merely worsen a situation.
- Experian suggests to keep an eye on the credit reports. This will give an idea of how the cosigned loan is being reported. Late payments, charge-offs and the like are bound to hit both parties’ credit scores visibly.
- As per the FTC, there is a scope to negotiate the repayment or settlement options with the creditors. The agency noted that in some cases, especially with older debt, creditors might not just be open to negotiation but may also accept a lumpsum settlement which is lesser than the full money owed. However, in such cases, it is best to put the deal in writing before money changes hands.
- A full household plan must be built including a nonnegotiable like rent, so people can have an idea on what can be trimmed in the short term to pay off the debt.