September 10, 2025
Is co-signing a loan right for you? It can be helpful, but it’s also a big responsibility that can impact your credit score. Learn the pros and cons of taking on joint debt here.
Not all debts are created equal. Most debts are one person's sole responsibility, but that's not always the case. Joint debt is one of the messiest forms of debt because it involves two or more people. Having a joint debt links these individuals financially, and that connection can complicate repayment and impact both parties’ credit if problems arise.
If one person struggles with payments or defaults, it affects everyone involved. Understanding how to manage joint debt effectively requires open communication, clear planning, and a firm grasp of each person’s rights and responsibilities.
Joint debt is any debt shared by two or more people. Anyone who signs on to the debt is equally responsible for repaying it. Common examples of joint debt include:
If one person misses a payment, the other is still fully responsible for covering it, and any missed payments affect both credit scores.
So, if you have a joint credit card with your spouse, you are equally responsible for paying off its balance, even if your spouse is the primary user of the card.
While this shared responsibility might sound daunting, there are some real advantages to joint debt.
For instance, combining incomes with a partner can make it easier to qualify for larger loans, like a mortgage, which may otherwise be out of reach for a single applicant.
Additionally, sharing the cost of large purchases can help lighten the financial load, making it easier to finance something like a car. Both parties can also build their credit history and strengthen their credit scores through joint debt by committing to making timely payments.
However, it’s crucial to understand that joint debt requires clear communication and commitment, as any changes in financial circumstances for one person can directly impact the other.
Before co-signing a loan, there are some key factors you'll need to consider.
First, you'll need to have a frank and open conversation about each person’s financial situation, including income, existing debts, and payment reliability. You need to each ensure who you're co-signing with can afford their portion of the payments.
Also discuss what to do if one person is unable to make a payment. Having a plan how to handle missed or partial payments will reduce friction between you in the event this happens. It's important that someone else is able the payment in this circumstance, as you're both responsible for the debt.
Being transparent and prepared can help protect both people involved and set up a path toward responsible shared borrowing.
Defaulting on a joint debt can have serious consequences for both parties involved. Because both account holders share responsibility for joint debts, creditors have the legal right to demand repayment from either person if the debt is not being paid as agreed. This means that if the person you co-sign with stops making payments, it affects both of you.
If the debt remains unpaid, both of your credit scores can drop.
Even if you ensure all your other accounts are managed well, falling behind on a joint account can have a lasting impact on your credit rating. This may limit your ability to secure future loans, mortgages, or other types of financing.
You may also be expected to cover the full balance of the debt if the other person cannot keep up with the payments. These financial and credit consequences are important to keep in mind when deciding whether to co-sign a loan.
So, what should you do if you default on a loan you co-signed?
If you or your co-signer have missed a payment and you don’t think you’ll be able to get back on track, you should reach out to the lender and say so.
It’s possible they will allow you to renegotiate the terms of your loan to something you can afford. Reaching out also shows the lender that you understand your financial obligations and are doing your best to meet them.
Debt consolidation could be a useful option if you and the other borrower are facing multiple high-interest debts and want to simplify repayment. By combining your joint debt with other personal debts into a single, lower-interest loan, you may reduce the monthly financial burden and make payments more manageable.
If the interest payments are the main thing holding you back from affording your payments this can be a great option.
Consolidation can improve cash flow and make it easier to keep up with payments, although it’s essential to weigh whether you both qualify and can afford the new loan terms.
It should be noted that you often need good credit to be approved for debt consolidation, which may be tricky if you're missing payments on a loan.
If you and your co-signer have a lot of debt piling up, then you can file a joint consumer proposal.
A joint consumer proposal will lower the amount you each have to pay back overall by up to 80%.
For a joint proposal, you and your co-borrower work with a Licensed Insolvency Trustee to negotiate a manageable payment plan with your creditors. This agreement can reduce the total amount you owe and protect both of you from further interest, penalties, and legal action, like wage garnishments or collections calls.
A joint consumer proposal typically lasts up to five years, though you can pay it off earlier if possible. The payment terms are designed to be affordable, based on both parties’ financial situations, which helps you stay on track without creating additional hardship.
As for credit impact, both parties will see a credit rating of R7, which indicates a negotiated settlement and remains on each credit report for up to three years after the proposal is completed.
This can be a challenge if you have co-signed a loan with your spouse, leaving you both with trouble accessing credit for a certain period. However, by making the payments as part of your consumer proposal you will begin to rebuild your credit score.
Joint consumer proposals are not the right option for everyone though. A Licensed Insolvency Trustee can help you understand what solution will work best for your situation.
When faced with joint debt, speaking to a Licensed Insolvency Trustee can be the first step toward regaining financial control. Our experienced trustees can assess your specific situation and determine the best course of action for dealing with your joint debt.
Our Licensed Insolvency Trustees are here to help with a non-judgmental approach, providing expert guidance on managing joint debt effectively. Our goal is to help you find a solution that works for your unique circumstances.
By reaching out to us, you can take the first step toward a brighter financial future. The first consultation is free of charge.
September 10, 2025
Is co-signing a loan right for you? It can be helpful, but it’s also a big responsibility that can impact your credit score. Learn the pros and cons of taking on joint debt here.
