Ask The Money Coach

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Question: My Husband Has a Motorcycle Loan in My Name That I Did Not Sign For. I Have Knowledge of the Loan But Did Not Sign For It. We are Having Marital Problems Now. I Have Disputed This Loan With Equifax and They Will Not Remove It. He is Not Making Payments On Time. What Can I Do?

Answer: This is a very unfortunate situation because it sounds like even though you didn’t personally sign for the motorcycle loan, you knew that you husband was getting the loan in your name (i.e. using your credit in order to get the loan). Even if you didn’t know what he was doing, your recourse and options are going to be limited because I assume that many months (maybe years) have passed since he originally got the loan. The time for you to speak up about it – or to let creditors or the credit bureaus know that you did not authorize the loan – would have been immediately after you learned of this. If he took out a loan without your knowledge, authorization or consent, then that is identity theft. If you can prove that it was fraud, perhaps by showing that it was not your signature on the loan contract, then you may have an outside chance at getting this loan off your credit. However, that may be a long shot. Weren’t the statements coming to your house each month and didn’t you see them? Doesn’t your husband live in the same home with you and didn’t you ask how he got a motorcycle? How long has it been that he’s had that motorcycle? I know these questions may sound harsh. But from the financial community’s perspective, it may seem like you are complaining about being on the loan now that you and your husband are having marital problems and he is not making the payments.

Under the law, if your name is on a credit account with your husband, (such as a mortgage, credit card or car loan), then you are both liable for that debt – even if you divorce. Right or wrong, that’s the law – and not just in community property states either.

Evaluating Your Other Options

Since your husband is not making timely payments, you have a handful of other options:

a)      make the payments yourself – and preserve your credit rating;

b)      try to convince him to pay on time

c)      see if you can work out a voluntary repossession, where he would turn the motorcycle back into the lender/finance company (but your credit would be impacted)

d)      consider whether a financially responsible family member or friend can take over the payments and use the motorcycle, which will relieve your husband of paying each month and may also keep your credit intact

What to Do With the Credit Bureaus

Additionally, if you think that divorce is likely, I would start closing out all joint accounts and notifying your creditors of your impending or actual separation. You should also put a credit freeze on your credit files so that no new credit can be obtained in your name. Lastly, pull your credit records from Equifax, Experian and TransUnion, and sign up for a good credit monitoring service for the next year or so. You want to make sure there are no other accounts opened by your husband of which you may not have been aware.

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Here is a clip from an interview I did with ABC News where I explain the differences between good debt and bad debt. If you don’t have time to watch this video, here is a short summary:

- Mortgage Debt: Good Debt
* It’s tax deductible
* Homes can appreciate
* Real estate ownership can build wealth

- Credit Card Debt: Bad Debt
* It’s not tax deductible
* Has Higher Interest Rates
* Can Hurt Your Credit Rating

- Student Loan Debt: Good Debt
* May be tax deductible
* Carries Low Interest Rates
* Can Boost Earnings Power

- Auto Loan Debt: Bad Debt
* Is Often Ego-Driven
* Cars Depreciate Immediately
* Loans Outlast Warranty or Value (explanation: some people pay on cars for 5 to 7 years, long after their warranty has expired and sometimes after a car has outlived its usefulness)

- Wedding Debt: Bad Debt
* Emotionally Driven
* Can Limit Future Options (Like buying a home)
* Is Created for a Single Day

Becoming the co-signer on a new car loan will not hurt your credit score unless you or your mother fail to meet the terms of the car loan and start to miss payments.  Your email indicated that you already have many charge-offs on your credit records. Therefore, your credit scores are likely to already be very low, which means you will not qualify for a home loan, something else you also asked about.  People who buy their FICO credit scores or subscriber FICO’s credit monitoring service (www.Myfico.com) can get access to an online credit simulator which can show you want actions you need to take to increase your credit scores to qualify for all kinds of loans.

Anytime you have a substantially reduced income, or an outright elimination of income, it means you have to completely overhaul your budget. A few tweaks, changes and minor pullbacks here and there just won’t do. You’ve indicated that your income is off by 50%. As a result, you must drastically slash your current or previous spending, and also think about creative ways to raise cash. Otherwise, you risk falling deeper into debt.

How to Overhaul Your Budget

Before you look at “extras,” and any “luxuries” you may be spending money on, start by examining the very basics: like your phones, housing and car. Often, the things that we think are “necessities” have to be sacrificed just temporarily when there is a major shift in income. Since you are a self-employed as a massage therapist, it may be the case, for example, that you have multiple phones. Perhaps a cell phone, a business phone and a personal home phone. If so, consider which one – or maybe even two – of those phones you can live without on a temporary basis until you restore your income. This is the kind of thinking that will help you figure out how to get through this economic rough patch. This advice is also applicable to anyone who:

•    Has been laid off recently, for a long time, or expects to be unemployed soon
•    Has seen a big decline in self-employment income
•    Has had has their hours on the job cut
•    Has had their hourly salary or regular pay slashed
•    Has found a new job that is substantially less than the income previously earned

Lifestyle Choices

Overhauling your budget also means making tough choices about your lifestyle. An example of a major lifestyle change might be considering where you live. Do you rent or own? Can you find cheaper housing, a less expensive neighborhood, or is bringing in a roommate an option? Also, what about the car you mentioned? You said you drive only when you must. Can you sell the car and use public transportation? If you have car payments, is getting a friend or relative to take over those car payments at all feasible? I recognize that these are big shifts. But sometimes you have to dig deep when things are far more challenging than the norm. That’s why I usually recommend these strategies for people who are extremely deep in debt, or for those who have had major reductions in their income.

Negotiating and Bartering

As you consider your options, don’t forget about one of the best budget-saving strategies of all: negotiating. Whenever you are about to buy something, ask for a discount. Ask for a discount for paying for goods and services, like medical care, in cash instead of with credit. Ask for a discount if you’re at a store and you’re buying two or three of an item, instead of just one. You can even ask for, and negotiate, to receive products and services free of charge – if you’re willing to exchange your time, talents and services as well. For instance, you said you are a massage therapist. I imagine this is a stressful period for accountants. Instead of paying a CPA to do your business tax returns, maybe you can offer to provide a one-hour massage or treatment to your accountant. The idea is to think creatively about how you can both exchange value – without exchanging dollars. That’s a win-win situation for both parties and one that will help you to more quickly bounce back from your economic slump.

Negative information (such as late payments) generally stays on your credit report for seven years. So yes, your credit reports are likely accurate in indicating that in about a year or so, that car repossession – which is already about 5-plus years old – will be deleted from your credit files. If you make a lump sum payment to settle the account, or even make partial or monthly payments, then you would “reactivate” this account, so to speak, and extend the length of time for which is will be reported on your credit files. I suspect that you may have seen this information on your Experian credit report because Experian credit reports contain a unique feature that many users find extremely enlightening.

Experian Credit Report Highlights

For all of the accounts listed in your credit file, Experian shows you “Status Details” indicating when an account is scheduled to fall off your credit report. For example, an auto loan that you paid off and closed in July 2008 will show the following Status Details: “This account is scheduled to continue on record until July 2018.” Or let’s say you had an account go to collections and ultimate get written off by a creditor. In your case, the negative information is your car repossession. For you and anyone else with these and other negative marks in your credit file, you won’t have to wonder how long a certain blemish will haunt you. That critical “Status Details” section of your Experian report will give you that precise information.

No Need to Settle Very Old Debt

Regarding settling your debt, unless you’re in desperate need of getting that car repossession off your credit report before a year’s time (this might be true, perhaps, if you need to qualify for a mortgage), and unless you’ve got thousands of dollars sitting around to pay off that old car debt, I wouldn’t bother trying to settle the account. It’s already been on your credit report for nearly six years. I would simply tough it out for the next year or so until it falls off your credit.