Be careful if cosigning a loan - it could keep you from getting one of your own
Q. I’m on a loan with a family member. I was trying to help the person avoid bankruptcy. How will that affect me in trying to rent or buy a new home?
A. Consider the recent results from a national survey of 1,200 people who have been unemployed in the past 12 months. About a fourth of the respondents have missed a mortgage, rent, or credit card payment, according to the John J. Heldrich Center for Workforce Development, a research center at Rutgers University. Over half borrowed money from friends or relatives to get by.
What if you had cosigned on a loan for someone now experiencing long-term unemployment? What many people don’t realize is that when you cosign for a loan - credit card, car, home - you are tying your financial fate to the borrower’s. When you cosign you are equally responsible for the debt. Therefore, how much you can borrow in the future can be affected by the amount of debt to which you have obligated yourself on behalf of a friend or family member. You may find it hard to get a mortgage or even rent an apartment.
I know people see cosigning as a way to help, but you have to consider how much it may hurt you.
Q. My 9-year-old son does not know the value of a dollar. He doesn’t get an allowance, but he gets money from relatives. He knows he has to tithe on what he gets; 40 percent goes into the bank, and the rest is his to play with. I’ve noticed that he has been dipping into his piggybank, which when filled goes to the bank. I don’t know how to instill (in him) that it’s important to save.
A. Let the boy have some short-term fun with his “play’’ money. He should be able to buy some things he wants now. With your son, come up with a list of the things he can afford to get right away and things that will take some time to save for, which will teach him about delayed gratification. If you make him save all of his money without any short-term pleasures, he may grow up to resent saving.
Q. What should a couple do when they have saved for years to help fund their only child’s college expenses - only to have said child go off to college and fail miserably her first year? She doesn’t want to continue. First, how do I get the funds out of the 529 savings plan? Right now, I want to take the money and go on a dream vacation.
A. The first year of college can discourage a lot of people. Hang on to the money in case your daughter changes her mind. You should also wait to avoid paying a penalty if she does return. Contributions to a 529 plan, a state investment plan, grow tax-deferred. If the money is used for purposes other than qualified higher-education expenses, earnings are subject to a 10 percent penalty and federal income tax.
Make your daughter get a job and pay rent. She is likely to find the pickings slim and the salaries low for someone without a degree or technical training.
Michelle Singletary is a columnist for The Washington Post. 
