How to Avoid Cosigning

When I was 5, my mom yelled, “NOOOOO” as I was about to touch a hot burner. I did it anyway?…

…And quickly found out that was a bad idea. 

Cosigning on a loan is also one of those bad ideas. In His Word, God is clear: Don’t do it.  

It says in Proverbs that cosigning, as dangerous as it is, should be avoided. Solomon even advises, if we’ve already cosigned for someone, to swallow our pride and beg to be released (Proverbs 6).

Seems straightforward, but it’s messy.  In many cases, our desire to cosign for a family member or friend comes from a good place. We may think it’s the only way we can help.  

Take student loans, for example. According to the Consumer Financial Protection Bureau, more than 90% are cosigned. While that number is staggering, I get it. College is important to parents, and they want their kids to take responsibility for paying for it. But maybe there’s a better way.  

Here are some alternatives for anyone considering cosigning on a loan:

1. Students: consider taking a gap year.  

Work, wait, save for school, then pay as you go. Jesus encourages us in Luke 14 to build a budget and savings before starting a venture, so we won’t run out of money.  Maybe God has a different plan and timeline for you.

2. Parents: consider working out a direct arrangement with your kids. 

If you want them to be disciplined in paying for things, a low- or no-interest loan and repayment schedule may work for you both as they navigate school, work and life. Maybe God is giving you a unique opportunity to directly teach your kids how to handle money His way—through your generosity, coaching and modeling.

3. For anyone tempted to cosign, remember: you are liable.

You’ll have to fully repay the debt if the person you’re cosigning for cannot. This implies you have the ability to cover the loan if necessary. If that’s true, consider just giving to the cause rather than cosigning. 

Paul tells us in 1 Timothy 5:8 those who do not provide for their family have denied the faith and are worse than unbelievers… Ouch! 

If you have the funds to help, consider a couple great options. You can use the federal annual gift tax exclusion, a tax the government may collect from a portion of assets you transfer to someone else.  

Individuals can give up to $16,000 per person in 2022 ($32,000 for married couples, if both spouses give). For larger amounts, you can “give while you live” and use some of your lifetime gift-tax exemption (about $12 million) now.

Many people consider leaving an inheritance after their death.  Maybe God is calling you to model unusual generosity now and pass on the wisdom you’ve received, as well as money.  

Is there an antidote to cosigning? It just might be the Holy Spirit. 

The fruit of the Spirit we see in Galatians 5, produces patience and self-control. So, the next time you’re tempted to “touch the burner,” invite the Holy Spirit to help you make the best decision that honors the Lord.

Keep charging for Christ,

Brandon Sieben

AUTHOR BIO

After nearly three years in a mentoring relationship with Founder and Chairman Howard Dayton, Brandon joined Compass-finances God’s Way as president and CEO in September 2019. Brandon graduated with a B.S. in finance from the University of Illinois and an MBA from the University of Iowa; and also studied international business at the Universidad de Alicante in Spain, and Latin American business and culture at the Instituto de Idioma Español in Cuernavaca, Mexico. Brandon and his wife, Deb, are actively involved in ministry in their local church and community. They have three daughters, Kay, Nina, and Georgia, and currently reside in Iowa City, Iowa.