Editorial Policy

Hold ex to paying off his part of co-signed loan

Erica Sandberg

February 18, 2016

Q  Hi Erica,

My ex-fiancé and I took out a $10,000 debt consolidation loan together when we were engaged. We moved our joint card debt onto it. When we broke up six months ago, we agreed I’d make the payments to the bank and he’d send me money (through Venmo) every month to cover his share. So far, he’s been doing so.erica-box4

Well, my aunt died last month and left me enough money that I could pay off the rest of the loan. I told him that I’d just pay it all off early with this money, and he could just give me money for half of what was left (or keep paying me in monthly installments if he wanted). He says he shouldn’t have to. He says that the debt was mostly because of things I wanted and he was only giving me payments each month so that I’d keep the loan current so it wouldn’t hurt his credit.

Since he said that, I’m thinking I shouldn’t pay off the loan early — so that he has incentive to pay me for his share each month. He agreed to all the things we bought with the cards — it wasn’t all my idea, and I don’t think I should have to pay for all of it with the money I inherited. But my friends are saying to just pay it off anyway because it would be better for my credit, and I wouldn’t have the loan hanging over my head and keeping me tied to my ex. What should I do? — Ex With a Debt Dilemma

A  Dear Ex With a Debt Dilemma,

The answer is clear to me: Do not repay the commingled balance with your personal inheritance.

First, you wouldn’t come out ahead financially. No amount of interest that you would save by deleting the loan early will come close to half the debt.

Second, your ex can’t change the rules in the middle of the debt game. He agreed to the terms! The history of those payments he’s been making via the Venmo app offer some proof that the two of you have a mutually agreed upon arrangement, but it would be even better if you possess further evidence in the form of an email, text, voicemail or letter. In that case, you probably have an enforceable contract. For him to void it, he’d have to prove misrepresentation — that you withheld important facts, that he was pressured (the “gun to the head” excuse), or he was not of right mind when he agreed. While I’m not a lawyer, that doesn’t prevent me or anyone else from knowing this aspect of the law. Still, get legal counsel on all such matters.

As for your credit rating, it’s true that the sudden payoff could give it a jolt. However, your credit scores are already escalating because you’re keeping the loan in positive standing. The increase is just a bit more gradual.

Check your credit reports and you’ll see that the bank that issued the consolidation loan has been listing the account on your consumer credit reports from the day it was granted. The initial $10,000 debt, your most recent balance, and a detailed payment history is all showing up. Credit scoring systems such as the FICO and VantageScore put the information from these reports into a mathematical model, and both rank payment history and credit utilization as the two most important factors. Each month your on-time payments are posted and the balance is lower than it was the month before (which expands the debt-to-credit-limit ratio), the higher your scores will go.

It’s good news that your ex wants to maintain his credit scores, but based on what you’ve written I wouldn’t trust that he’ll continue to send the money on a regular basis. If you don’t have the proof that he agreed to the terms, try to get it now. Even a simple, “Hey, got your last payment for our consolidation loan. Based on the amount that you and I send, it will be at a zero balance by __” message that is met with affirmation will help solidify the deal.

And if he does stop? You have the cash from your aunt, so you can make good on it, which will protect your credit rating. Moreover, you will be prepared for a trip to small claims court — should you need to go that route.

Got a question for Erica? Send her an email.

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