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How To Approach Joint Debts and When to Avoid Them

Learn the essentials about joint debt.
Photo by Towfiqu barbhuiya on Unsplash

Photo by Towfiqu barbhuiya on Unsplash

A joint debt is a debt entered into as the name implies, jointly. Not only does it mean joint responsibility but it means joint liability as well, which is why co-signing on debt is relatively serious. It’s important to be fully informed about any financial contract you enter into, joint debt included.

In many cases, having a joint debt isn’t automatically bad. However, in the case of divorce, bankruptcy, or death, the debt may become neglected or go unpaid. While you can use a debt consolidation calculator to help you pay down joint debt just as you would single-payer debt, it may be easier to avoid getting into it in the first place. Let’s take a look at joint debt, when to avoid it, and what happens if you default on it.

Joint Debt Always Warrants Caution

The surest way to guard against difficult-to-pay debts is by preventing them. One of the best strategies to do this is to build your credit up as much as possible so that if you are in the position of taking out a loan or line of credit, you won’t need a co-signer.

If you are asked to cosign on someone else’s credit card or loan, it’s best to think long and hard before you agree to anything. Remember, if the person taking out the loan or credit cannot pay, the debt falls to you as the co-signer.

If you hold joint debt with another person, you may be assigned that debt in full if the other person can’t pay for any reason, even death. For instance, if you cosign on a car loan and the other person passes away, that is your car loan, and it is your responsibility to pay it.

How To Deal With Joint Debt

If you have joint debt with someone and you are struggling to pay it off, you have many of the same options available as with traditional debts. You can consolidate, you can negotiate a settlement if the creditor or lender is willing to, or you can pay the debt as agreed. Consolidation is often the most cost-effective option as negotiation is difficult and if you could have paid the loan off entirely, you probably would have already.

Dealing with joint debt can be particularly difficult during a divorce. However, you will often be given the option of paying the debts separately or together.

What Happens To Unpaid Joint Debts?

Joint debts are the responsibility of two account holders, so creditors can seek payment from either or both for the full debt amount. This means that they can also go through all of the usual channels to get that payment, including collections and repossessions if applicable.

The Bottom Line

When it comes down to it, joint debt is sometimes a necessary part of choosing to live your life with someone. However, this doesn’t make it any less of a serious commitment. Just as you would strongly consider taking out a loan in solely your name, you should strongly consider taking on a joint debt.

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