A lot of times in the financial world we take risks—with stocks, bonds, loans, etc. But how big of a risk is co-signing a loan for someone? There are many different things to consider before signing any paper work and depending on the person, it may not be that big of a risk.

When you co-sign a loan, this means that you are telling the lender that you are just as responsible as the person who is getting the loan. It also means that if they can not make a payment, the lender will look to you to make that payment. It also means that if the loan is not entirely paid back, the lenders will expect you to pay back all the money. This can be very overwhelming and very unexpected, especially if you are not getting any thing back by paying the money for your friend or family member.

Generally lenders only require a co-signer when a person has little or bad credit. If your friend has had trouble paying back loans in the past, do you think they will have trouble paying it back now? Do you really trust this friend to be able to pay you the money if you end up making payments for them? Make sure that you really know all the details of their credit history before volunteering to cosign for them.

If a person does not pay back their loan, the lenders will generally expect you to start paying back the loan before they take any legal action on your friend. This may also effect your credit score if your friend does not pay back a loan that you have co-signed. Having your name on the account shows the lenders that you have good credit but as soon as it is defaulted on, your credit score can change drastically.

There are a few things you can do to try to prevent a disaster if you do decide to co-sign a loan for someone. Make sure it is someone you really know well and have good communication with. Ask them or the creditor to please contact you when a payment is missed so that you can be aware of it. Take note of the amount of the monthly payments so that you can see if you would be able to afford it if your friend does end up missing a payment. Get copies of all the important documents and read them through thoroughly. You are just as responsible for the loan as your friend is.

Also, make sure you get a copy of the co-signers notice. It is a legal document outlining your role in the loan. It can help you by knowing a lot of the details before signing your name on anything. Co-signing a loan can be risking, but as long as you know the person well and know all the background, you should be fine. Just remember that co-signing a loan is a serious deal and should not be taken lightly.

How Does One Determine Where To Put Their Money First?

This has been an old question from the past. Should you be putting money in savings or investments, or paying off a loan? This is one of the most frequently asked questions that are asked at financial offices throughout the country.

The best way to narrow this down is to examine your debt and separate your good debt from the bad debt. You ask, is there such a thing? It is almost always a good idea to get rid of credit cards and other high interest loans before you set aside cash.

However, it is paramount not to accelerate payments on your mortgage or student loans at the expense of increasing your savings or retirement. This is what we call good debt. We will examine more on this later.

First Step Is To Pay Off Your High Interest Debt

If you have high interest credit card debt, pay that off first. It does not make sense to keep paying that high interest rate and try to save pennies at the same time. You would have to make more than 20% after-tax return on stocks, bonds or mutual funds to make them a better investment than paying off credit card debt.

There is one exception to this. If your employer offers a 401k plan and matches your contribution, fund it up to that level, even if you have credit card debt. This is because you are getting a 100% return on your investment.

Second Step Is to Identify The Good Debt

It is usually not a good idea to pay off your home mortgage unless you have a lot of extra cash. Uncle Sam refunds part of your interest payment if you itemize your deductions on your tax return. Use your money instead to invest in liquid assists.

Do not be in a rush to pay of your student loans either. Qualifying interest on student loans can be written off no mater how long it takes to pay off your loans.

You can ease the burden of repaying your loans. Thanks to recent legislation, you can now shop round for the best terms. For example, lenders may offer a rate reduction if you choose to have your loan payment automatically deducted from your bank account.

And some lenders will knock more off your rate after 24 or 36 months of on-time payments. Also, you can often save quite a bunch of money by looking into consolidation of your loans, which is also a good idea.

Third Step Is To Try Saving And Investing

Once you have eliminated your high interest consumer debt, start saving as much as you can. The best place to begin is a 401k plan if you have one. The next best option is an IRA. In addition to putting money into a retirement account, you need cash that is readily available to you in case of an emergency so you do not have to go back and rely on those darn credit cards.

Try to set aside enough money to tide you over for three months if your job suddenly stops. If you have less-than-steady income, such as from a commissioned sales position, a job that has exposure to economic fluctuations, you definitely need a six month cushion set aside for income.

It is best to put it away in a high-yield saving account or money market fund on a monthly basis until you reach the amount you need.