How Your Child’s Debt Can Affect You

Life brings many milestones, such as buying your first car or house, graduating from college, and starting a family. Unfortunately, many of these milestones can also incur major costs.

Although you may be very capable of managing your own debts, have you considered the impact of your children’s debts on you? Co-signing a loan for your child, whether it’s for a car, house, student loan, or any other type of personal loan will affect your financial situation just as much as your child’s. Before agreeing to be a co-signer, it’s important to understand all the potential consequences before putting pen to paper.

Debt-to-Income Ratio

When you sign a loan together, it will increase your debt-to-income ratio—your total monthly debt divided by your gross monthly income. If you need to apply for a new loan or even refinance an existing loan, this may become a problem because the lender will consider the debt-to-income ratio when determining loan eligibility.

Continuous Liability

As a co-signer, you are usually tied to the debt until the entire balance is paid off. In some cases, you can ask the lender to waive your loan liability, but this is not always an option. The only other way to remove yourself is to refinance the loan, in which case your child must re-qualify for the loan on his or her own.

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Unforeseen Events

While no parent wants to think about something terrible happening to their child, the reality is that these things do happen. If your child becomes disabled, he or she may no longer be able to work and continue to pay the loan. If the unthinkable happens and your child dies, any loan you co-signed may become your responsibility. In some cases, this can mean that the total amount owed would be due in full when the child dies.

In addition, unexpected funeral expenses add to the extreme pain of the loss of a child. A life insurance policy on the life of your child is a dependable way to protect yourself from unexpected tragedies and additional financial burdens.

Catholic United Financial encourages Catholics to consider purchasing Youth Term Life Insurance for their children and grandchildren to ease any outstanding financial concerns. The death benefit from a Youth Term Life policy can also factor into financial situations such as: 

  • Unpaid medical or dental bills
  • Remaining balances on student loans or loans co-signed by parents
  • Legal bills or court costs
  • Loss of salary due to work absence to care for family members
  • Establishment of scholarships, memorial funds, or charitable gifts in the name of a child

Lock in Your Child’s Insurability

Insuring a child early in life has advantages that can grow over time. Catholic United Financial offers several life insurance products that give families security, insurability, and wealth-building opportunities. Our Youth Term Life policy provides term protection at affordable rates, can be converted to term or permanent insurance to age 30, offers eligibility for a post-high school tuition scholarship, and provides a $25 donation to a Catholic school or religious education program.

As the holiday season approaches, consider giving the gift of financial protection to a child you love. Log in to your account at my.catholicunitedfinancial.org to find your local Sales Rep. information.

Catholic United Financial is not permitted to provide legal advice. Consult your personal legal advisor with any questions about your will, trusts or other legal documents.