Why you should never co-sign a loan You may think you're doing a good deed by adding your name to a loan. Don't do it. You could be headed for big financial trouble. What could be worse than being head over heels in debt with little hope of climbing out? Try this: Your child (parent, significant other) is head over heels in debt and your name is on the loan. For those of you who are toying with helping out a partner, parent, sibling or child, don't do it by co-signing a note. Adding your name to someone else's debt is a very serious financial step. If the primary borrower gets behind in payments, the bank will come after the person they have the greatest chance of collecting from. If they thought they had a good chance of collecting from your son, they wouldn't have required a co-signer in the first place. When you co-sign a loan, you are signing a legal contract that holds you responsible for the entire debt, say consumer credit experts. If the borrower does not repay, it can be reported on your credit record. If it goes to a collection agency, the agency will try to collect from you. But the bank can do more than ruin your credit rating. It can sue you and get a judgment against you for the amount of the loan plus interest. Collectors go after the person who offers the best chance of recovering the money. If a loan becomes delinquent, a collector can choose to call you, harass you, rather than your friend or relative, if the collector sees that you have a much better repayment record. Even if the loan is repaid on time each month, another lender may consider the amount of debt that you co-signed when determining if you already have too much credit. In other words, if you've added your good name to someone else's debt, it could be counted against you if you need a loan. If you're already on the hook for someone else's debt, you may have to pay it off. Before you do that, you might try negotiating to see if you can get it reduced. That's what my new photographer friend did. He called the credit-card companies and offered to pay 65 cents on the dollar. It's a little known fact, but you can negotiate with credit companies on how much you'll pay of what is owed. Most credit-card companies will agree to a lower repayment amount rather than face having to wait months or years to get something -- if anything. In this case, the creditor countered with 85%. He ended up paying 75 cents on the dollar to settle the debt. If you do that, be certain that you get a clean credit record as part of the negotiation. Get that in writing and follow up to make certain that your record is unimpaired. You should also negotiate a contract with the primary borrower before you pay off the debt. Remember, most lenders are happy to work with you when you indicate your willingness to whittle down the debt.