When you sign up for a credit card or loan you’re obviously on the hook for the debt. But what if you’re a second cardholder and someone else is the primary cardholder - what are your responsibilties? Read on – you are about to find out that the devil is in the details.
When you receive a credit card where someone else is the primary cardholder, you may be jointly liable for the balance outstanding on the credit card even if you have never signed a document accepting this responsibility. The key to knowing if you’re accountable for this debt is reading the credit card agreement. Some agreements have a clause stating that by activating the card you are deemed to have accepted the terms of the agreement, one of which is that you are liable for the debt. Your liability will be “joint and several,” which means you share 100% of the debt with the primary cardholder. The bank can’t collection the debt twice, but they will take the first 100% they can get regardless of the source.
There are card agreements out there where the second cardholder is not responsible for paying the debt, so the key to understanding your obligation is to read your credit card agreement.
Sometimes, even when we have the best intentions for choosing a joint credit card, there can be negative consequences.
A man I knew put his daughter on his credit card so she could access money while she was at school. Unfortunately, when he had a heart attack and was unable to work, he filed for bankruptcy and his daughter was on the hook for the balance of the credit card. So even when it is someone trying to help you out, be aware that having your name on a credit card could bring unforeseeable consequences and responsibilities.
When you’re considering whether to attach your name to a debt that is not your own, consider the following:
- Do not co-sign or attach your name to anyone else’s debt unless you are prepared to pay for the total amount owing – even if that person is currently in a better financial situation than you and is trying to help you out;
- Putting your kids names on debt to help them out may end up causing them harm you never intended – know all the consequences before signing up;
- The timeliness of the repayment of these loans can impact your credit rating too; and,
- You will likely not be able to take your name off a loan or credit card until the balance is zero, so you may be married to this debt for a long time.
I don’t think we should all become pessimists, but I do think responsible financial stewardship requires us to think about the full range of possibilities, including the negative consequences, before making a decision regarding where we’re willing to sign on the dotted line.
Rebecca Frederick - Frederick & Company Ltd, Trustee in Bankruptcy