Wednesday, August 26, 2015

To Co-sign or Not to Co-sign

The fall semester's tuition payment is due this month. Many students must take out student loans to make that payment. Most take advantage of having a co-signer on their loan as it allows them to be approved for the loan or to qualify for a lower interest rate.

You may feel obligated to co-sign or just magnanimous but there are a few risks involved for you as the co-signer:

1. It may limit your access to other forms of credit as this loan increases your debt ratio.

2. You may incur higher interest rates on future borrowing as the student loan is considered part of your debt obligation.

3. It is very difficult to remove a co-signer from the loan.

4. It may change your relationship with this person as now they will feel obligated to you or you may find yourself nagging him/her about payments.

5. Upon graduation, if the student does not find gainful employment or decides to ignore paying, you could be totally responsible for this debt.

These reasons hold true for car loans, boat loans and credit cards.

Be $ Smart - protect your credit worthiness, know the risks before co-signing a loan.

Prepare an LOI

LOI = Letter of Instruction, not laughing out loud or lots of luck.
It goes along with your will and ties together loose ends that have not been addressed through your will or trust.

In an LOI you can mention to whom you would like to leave a piece of jewelry, your favorite tools, a piece of art, an expensive watch, etc. This helps your executor know your wishes and reduces any family friction as to "who gets what"!

You may also state certain requests and preferences in your LOI about funeral arrangements, services, burial or cremation as well as songs, prayers, rituals and family traditions.

If you are young and in good health with no intention of dying you may pose these questions to your parents or grandparents. You certainly want to honor their wishes and encouraging them to put these wishes in writing provides immeasurable relief to those left behind with the job of distributing their estate.

It also opens the door to:
Bring up inheritance issues for discussion.
Decide what "fair" means.
Ask family members what items they would like.
Consider how to deal with family dynamics and conflicts before they arise.

Be $ Smart - make your wishes known by preparing an LOI to ease the task for your loved ones.