As if settling your own debts wasn’t difficult enough, adding joint debts usually makes the equation more difficult. You must be careful settling joint accounts since the joint account holder’s credit will also be affected by the choice you make. It’s fair to include the cosigner in the decision, even if you’re the one who made the charges.
Creditor Objection to Settling Joint Accounts
Creditors may give you a hard time about settling joint accounts. The purpose of a cosigner is so that there’s always someone on the hook for the debt if one party becomes unable to pay the debt. When you, or your debt settlement company, approach a creditor about a joint debt, they’ll likely deny your request and instead pursue the joint cardholder or cosigner for the balance. Meanwhile, both parties are still expected to pay and the debt continues to be reported on both parties’ credit reports.
Salvage That Account?
Can you keep up the minimum payments on just that joint account? This may help you save the account from settlement and salvage your personal relationship with the joint account holder. Note that other creditors could use timely payments on this joint account against you when you approach them about a settlement. (They can see your payment status on your credit report and may ask how you’re able to keep up payments on one account but not any of the others.)
Settle Just Your Portion
If you and the other account card holder can come to an agreement about who’s responsible for which portion of the debt, the creditor may allow you to settle only on the part that you’re liable for and let the cosigner continue payments on their portion. For example, you may settle on 50% of the balance while the other person keeps up payments on the remaining 50%.
Include the Other Account Holder
Talk to the cosigner to let them know you’re having trouble making payments on all your debts. Explain that you’re considering debt settlement for your debts as an alternative to bankruptcy. You should also explain that since you can’t make payments on that debt anymore, that it will go delinquent and could affect their credit.
Avoid Balance Transfers
You probably don’t want to transfer the balance to your own credit card just so you can do a settlement on the balance. The creditor may deny your settlement offer simply because the balance transfer was too recent. On the other hand, if the joint account holder is responsible for the balance, and isn’t going through settlement, they can move the balance to a credit card that’s in their own name.
What If You’re the Other Account Holder
If you’re a joint accountholder on an account and the other person approaches you about a settlement, you have to decide whether you can afford to take over payments on this account and keep up payments on all your other accounts. It may be worth it to save your credit score. Know that if payments become delinquent, your credit score will likely be affected.