Approach Joint Debt with Caution
The best way to protect yourself from joint debts is through preventative measures. If you can, start building up your credit history and savings on your own, so when the time comes for you to apply for a loan, you won’t need a co-signer. If you’re trying to build up credit but don’t qualify for a credit card, instead of getting a joint credit card you can ask a parent, friend or spouse to put money on a secured credit card as a loan to you.
If you’re being asked to co-sign for a loan or credit card, it’s best to exercise caution before agreeing to anything. With a loan, determine if it’s something you can realistically pay off without putting the rest of your finances in jeopardy, because if the person you’re co-signing for isn’t able to repay the loan, it will be your responsibility to do so. Here’s a handy debt calculator that can help you determine how much will be too much.
With a joint credit card, you can request a low limit to avoid the temptation of overspending and piling on debt. You can also set some spending boundaries on the card, such as usage (eg. Only gas and grocery purchases) and spending amounts (eg. Nothing more than $100 per week). Whatever terms and responsibilities you agree on, it’s important that you put it down in writing.
If you’re thinking about asking your parents to co-sign on a student loan, make sure you’ve exhausted all your funding options – scholarships, grants, bursaries – before approaching a lending institution. If student loans are your only option, don’t get tempted to borrow more than you need; just because the money is available, doesn’t mean you need it.
Once you’ve taken these precautions, it’s also important to keep the lines of communication open and to monitor the joint account, to ensure neither account holder is spending too much and that payments are getting made.