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Why You Should Never Co-Sign a Loan

You're taking on more than simply signing your name.

The saying goes that when lending money to a friend, be prepared to lose the money or the friend. The reality is that you could end up losing both.

When you co-sign a loan or credit card account, you are liable for any debt incurred. According to the Federal Trade Commission, 75 percent of all co-signed loans in default are ultimately repaid by the co-signer — not the original borrower.

Lenders quickly contact co-signers when payments are late. Delinquencies are also reported on the co-signer’s credit report. Thus, you’re putting your own financial wellbeing at risk when you co-sign a loan.

That 75 percent statistic shouldn’t be surprising. After all, friends and family members seek co-signers because they can’t obtain loans or credit cards on their own. Lenders expect them to default — and they’re often right.

Co-signing someone’s college loan is perhaps the ultimate sign of goodwill. But the pitfalls are even greater than with other types of loans because these loans cannot be discharged — even in bankruptcy. Worst of all, you could be risking your Social Security benefits.

In an effort to recover millions in unpaid student debts, the federal government sometimes debits the Social Security benefits of recipients who co-signed loans. About $1.1 billion reportedly has been collected this way since 2001. In 2015 alone, $171 million was taken from about 114,000 recipients age 50 or older who had co-signed loans that had been in default for at least a year.

The government says targeting Social Security recipients is the best way to protect taxpayers. But some in Congress say that retirees are among the most vulnerable and that slashing their benefits makes a bad problem worse.

Until the issue is resolved, millions of people are susceptible to Social Security benefit garnishment.

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