Beware holiday gifts with strings attached
'Tis the season of gift-giving, but instead of the usual cable-knit sweater or tube of socks, some people are giving something else: their debt.
Since the financial crisis began in 2008, households have been paying down debt. According to the Federal Reserve, the ratio of debt payments to disposable income each month has fallen to around 11 percent, the lowest level since 1994. An analysis by American Century Investments has found that overall consumer indebtedness in the U.S. has fallen by about $1 trillion since 2008.
But loan balances remain, and some consumers are looking for ways to offload the debt on to someone else or to get help from others in paying the balance down.
"You're seeing people give the gift of debt," said Daniel Gershburg, a consumer bankruptcy attorney in New York. What do you do if you unwrap such a gift this holiday?
Co-signing caution
In some cases, you may be asked to become a co-signer on a debt. But agreeing to be a co-signer should be done only in "extreme situations," said Jack Gillis, director of public affairs at the Consumer Federation of America.
Here's why: As a co-signer, you can be held liable for the entire amount of the debt, not just your half of the monthly payment.
"A lot of times people think because you're sharing the responsibility with someone else, you're not liable for the full amount. But both parties are," he said.
Also, the debt will have the same effect on your credit score as any other loan that you borrow on your own.
"You need to go into this with eyes wide open and with extreme caution," Gillis said.
Gershburg said another common scenario he sees is a boyfriend or girlfriend putting the name of his or her partner on the deed of a house. In that case, the partner is not responsible for the mortgage but is on the hook for liabilities associated with the property, such as taxes.
"People run into trouble with this all the time," he said. "The person giving you this doesn't want to get married because that's too serious. But he does want you to make a big financial commitment."
Careful with lease transfers
To get out of a Car Lease, the driver either has to break the contract and make the remaining car payments all at once, or he can transfer the lease to someone else.
Not surprisingly, the second option is more appealing. And today, several websites, such as swapalease.com and leasetrader.com, help facilitate lease transfers, which include fees.
The "buyer" of a lease has a few advantages, the chief one that you don't have to come up with a down payment, said John Sternal, vice president at LeaseTrader.com. Also, you can get a lease for a shorter term, say, 12 months, than you'd probably find at a dealership.
"At a dealership, you most likely have to commit to 36 or 48 months," Sternal said.
But again, you have to be cautious. You want to check that the mileage is well below the limit on the lease and that the car is in good shape. Otherwise, you, as the new lessee, will be responsible for the additional fees.
"We encourage buyers to find car in their own backyard so you know exactly what you're getting," Sternal said. Additionally, at LeaseTrader.com you can request a third-party vehicle inspection for a $99 fee.
And if you use a website to transfer a lease, you'll have to pay other fees. At LeaseTrader.com, for example, you pay a membership fee (60-day memberships start at $39.95) and a $149.95 (after $100 rebate) transfer-initiation fee. Additional fees could include a bank transfer fee (between $0 and $600).
The company says any costs can be negotiated between buyer and seller.
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com