Keep Your Benjamins Stacked High: A Cautionary Tale About Frank’s Money Mistake
Growing up in Minnesota, my best friend and I had an absolute blast hanging out with his Step Dad Frank. This was the dude that would get us up early to go fishing, take us golfing, and always stayed up late telling stories by the fire. “Uncle Frank” is what I called him.
My best friend recently acknowledged to me that he looked at Frank more as his Dad than his biological Father.
Don’t get me wrong…Frank could be a disciplinarian when he needed to, but he’d always be there for us and would always find a way to bring the family together for a good time. I grew up as an only child without a father, so Frank took me under his wing and showed me a lot of cool things I wouldn’t have otherwise experienced.
Frank joined my buddy’s family (6 sisters and no brothers) after the youngest turned 3. This would be a whole lot of responsibility for any man, and I admire his ability to treat all the kids (and me) as his own. He sacrificed a lot for us, and we loved him for it.
By now you’re probably wondering “where is this guy going with this!?!” There’ll be a little takeaway from this at the end, I promise.
Frank’s Problem: Bobbie
Frank’s (real) nephew Bobbie was a good kid for the most part. Growing up in Northern Minnesota, Bobbie liked to take trucks off-roading, shoot guns, and appreciated a good beer like the rest of us. We were all very close at one point in our teens, but as we got older and took different career paths, we lost touch a bit. I went into banking, my buddy went into the Marines, and Bobbie became interested in become a police officer.
Bobbie’s family lived close to a casino and it was understood in the family that Bobbie, his brother and parents weren’t strangers at the poker tables. It wasn’t uncommon for them to run a little short on rent, and Uncle Frank would never refuse to help them out.
Frank’s parents were both killed in a car accident when he was in high school, and he was put in a position as the oldest in his family and sole breadwinner. Frank was also a former Marine, and after leaving the service he climbed his way to the Senior Vice President Level of a large Home Improvement retailer earning well over $100,000/year.
One day Bobbie called his Uncle and shared that he was interested in joining the police academy, and had applied for a $5,000 loan for tuition but was denied. Frank suggested they co-sign on the loan and Bobbie could take over payments, which Bobbie agreed to.
…And That’s When Things Turned Sour
Four months later, Frank received a call from the collections department at the bank. It turns out Bobbie had stopped making payments, and an additional phone call to the county police academy facilitator brought some troubling news. Bobbie didn’t pay a dime in tuition and never showed up for class.
It turns out he had gambled the money away in one weekend at the casino, and Frank was devastated. Not only did his credit get severely dinged, but he was hurt that his nephew had taken advantage of him.
Frank told the bank to send him the bills, and he paid it off quickly. The unpaid $5,000 loan balance isn’t what bothered Frank, it was the disrespect he felt from his nephew. Ultimately Frank forgave Bobbie, but the damage was done.
The Fallout
I tell you this story because sometimes it takes a little defense to keep your benjamins stacked high. Frank’s credit score dropped from 793 to 631 in a matter of months. The timing couldn’t have been worse as the company he worked for had transferred him to their biggest store in a town about 3 hours away and he was in the market to buy a new home.
Frank was declined by 2 mortgage companies before finally getting approved (at a slightly higher rate), and I can bet you he’d NEVER recommend co-signing a loan or borrowing money to someone for that matter.
Protect your benjamins and keep ‘em stacked high by avoiding money pits like co-signing a loan.
Co-signing is definitely a risky proposition. I would much rather loan the money directly and draw up my own terms. Either way you risk losing the money, but at least that way you won’t hurt your credit score.
I agree that consigning is much more dangerous than just loaning capital directly. Don’t think we’d ever co-sign a loan, but we have been the beneficiaries if a family loan that worked out well for us and the lenders (my in-laws).
Poor Frank! Yep, that’s one thing I don’t think I’d ever do. Not worth risking the relationship. Hopefully Bobbie has his crap together now.
He’s getting there… It has ruined their relationship though.
I couldn’t agree more. My brother and I have had a couple falling outs over money. I’ll loan him money and then he will never pay me back or take months to do so. I wouldn’t even care that he doesn’t pay me back if he would spend his money wisely but he doesn’t. I’ve learned my lessons. DO NOT LOAN FAMILY MONEY, that is of course unless the money is just a gift. Don’t loan, don’t cosign. It’s a horrible feeling to be mad at your family over money.
That’s a tough story, though thankfully Frank was able to forgive Bobbie. It’s a good illustration of the dangers of co-signing, which seem to threaten the relationship at least as much as the co-signer’s finances.
While I don’t even have kids yet, I would consider co-signing their student loans if I needed to. I would keep a close eye on the payments, though. Then again that is at least 20 years in the future so I have no reason to really think about it yet haha.
I would never co-sign for anyone. As Dave Ramsey says, it is like giving a drunk a drink. My mother-in-law co-signs for all of her children’s loans and one day I know it is going to come back and bite her.
I just met a lady today that is DROWNING in debt, and has 2 car loans she co-signed for her kids… now one of them doesn’t want the car so guess who’s responsibility it is to sell them? MOM… Irresponsible kids!
really interesting story. I imagine though that this is a hard topic for parents with children that need to take out loans from school. I have a friend whose dad refused to sign (he was struggling financially) and she was forced to take out loans with crazy high interest rates. Hubby and I are working on a plan so that by the time our hypothetical children are ready to go to school, we will be able to fund their studies without loans.
Nice reminder, Charles. I’ve always heard of the horror stories with co-signing so I don’t think that I’ll ever do it. The only way I may ever co-sign is if it were my own kids. Then I’d be able to have control over them and I’d never do it if I couldn’t afford to pay for the loan myself in case things went sour.
Thank you! I really like the earlier comment about doing a loan directly to a family member vs co-signing. That way you can basically assume that it’ll never be paid back, and if it is its just a bonus.
Unfortunate story but great lesson to be shared. I have to plans to cosign a loan for anyone.
I don’t think I would ever cosign a loan, it just looks like there would be too many things that could go wrong.
I wrote a similar story how my parents and grandparents enabled my brother so bad he is basically ruined for life. Not that it’s all their responsibility, but it caused them a lot of stress and heartache, and my brother is STILL somewhat dependent on them. Bad situation!
I’m not only concerned by adults co-signing for immature kids, but I’m also concerned about responsible kids co-signing for their immature parents. When I worked at a bank (like yourself), I witnessed this all too often.