Help stuck in a bad first time loan!
"I think the part of your question about not wanting to ""mess up more"" is the most important element. You say you know someone with good credit who is willing to co-sign for you, but let's be honest -- your credit isn't bad for no reason.  Your credit's bad because you have a history of not paying on your obligations. Putting someone else's credit at risk, even though they may be willing to try and help, could be doing exactly what you said you're trying to avoid -- messing up more.  This person's heart is in the right place, but you really have to ask yourself if you should put them in jeopardy by agreeing to guarantee your debts. So the vehicle you bought is older and has a lot of miles -- you knew that when you bought it.  So you're paying a high interest rate because of your bad credit history -- you knew that when you bought it.  Why you think the vehicle's only going to last another year is what confuses me.  There are many vehicles out there with much higher mileage that are still on the road, and with proper preventative maintenance there's no reason your truck can't do the same. The fact is, you just don't like what you're paying or what you're driving (even though you were good with both when someone was willing to extend you credit), so now you see this other person's willingness to co-sign for you as your ticket out of a situation you no longer want to be in. My suggestion is that you stay with the loan you have, take care of the vehicle to make it last, and prove that you can pay your obligations.  Hopping from loan to loan isn't going to do your credit any favors.  One of the big factors for your credit score is the average age of accounts.  Going and signing a new loan now will only drag that number down and hurt your score, not help it.  And there's no guarantee the next car you buy with your friend's help is going to last the length of that loan either. I would be careful about this ""grass is greener on the other side"" attitude and just bear through your situation, if only to prove to yourself that you can do it.   There's nothing saying your friend won't still be willing to co-sign for you later on down the line of something does happen to the truck, but you can show them that you're trying to be responsible in the meantime by following through on what you already agreed to."
I have recently been the lender to a couple people. It was substantially less money (~$3k), but I was trusting their good faith to pay me back. As a lender, I will never do it again. Reasons, Overall, not worth it. "Don't use a ""credit repair"" agency. They are scams. One of the myriad of ways in which they work is by setting you up with a bogus loan, which they will dutifully report you as paying on time. They'll pretend to be a used car dealer or some other credit-based merchant. For a time, this will actually work. This is called ""false reporting."" The problem is, the data clearinghouses are not stupid and eventually realize some hole-in-the-wall ""car dealer"" with no cars on the lot (yes, they do physical inspections as part of the credentialing process, just sometimes they're a little slow about it) is reporting trade lines worth millions of dollars per year. It's a major problem in the industry. But eventually that business loses its fraudulent reporting ability, those trade lines get revoked, and your account gets flagged for a fraud investigation. The repair agency has your money, and you still don't have good credit. Bad news if this all goes down while you're trying to close on a house. You're better off trying to settle your debts (usually for 50%) or declaring bankruptcy altogether. The latter isn't so bad if you're in a stable home, because you won't be able to get an apartment for a while, credit cards or a good deal on auto financing.  ED: I just saw what one agency was charging, and can tell you declaring bankruptcy costs only a few hundred dollars more than the repair agency and is 100% guaranteed to get you predictable results as long as you name all your debts up front and aren't getting reamed by student loans. And considering you can't stomach creditors-- well guess what, now you'll have a lawyer to deal with them for you. Anything you accomplish through an agency will eventually be reversed because it's fraudulent. But through bankruptcy, your credit will start improving within two years, the tradeoff being that you won't be able to get a mortgage (at all) or apartment (easily) during that time-- so find a place to hunker down for a few years before you declare." The problem is that the reason you find out may be that you are at the car dealer, picked out a car, and getting ready to sign the loan papers with your supposedly good credit, and you are denied for late payment on loans you didn't know you have.  Or debt collectors  start hounding you.  Or you credit card interest rates go up.  Or you are charged more for your insurance because you are seen as a bad credit risk.  Or you can't rent an apartment.  The list is almost endless. It can takes many months and hours spent on the phone to fix these things. I am 17 and currently have a loan out for a car. My parents also have terrible credit, and because I knew this I was able to get around it. Your co-signer on your loan does not have to be your parent, at least in Wisconsin, I used my grandmother, who has excellent credit, as my cosigner. With my loan, we had made it so it doesn't hurt her credit if I don't get my payments in on time, maybe this is something for you to look into. It sounds like there are no provisions in the loan document for how to proceed in this case.   I would view this as creating a brand new loan. The amount owed is going to be (Principal remaining + interest from 2 years + penalties).  If you created a new loan for 13 years, that would not be how I would expect a lender to behave. I would expect most repayment plans to be something like make double payments until you are caught up or pay an extra $1000 per month until caught up and then resume normal payments. @littleadv has said most of what I'd say if they had not gotten here first. I'd add this much, it's important to understand what debt collectors can and cannot do, because a lot of them will use intimidation and any other technique you can think of to get away with as much as you will let them. I'd start with this PDF file from the FTC and then start googling for info on your state's regulations. Also it would be a very very good idea to review the documents you signed (or get a copy) when you took out the loan to see what sort of additional penalties etc you may have already agreed to in the event you default.  The fee's the collector is adding in could be of their own creation (making them highly negotiable), or it might be something you already agreed to in advance(leaving you little recourse but to pay them). Do keep in mind that in many cases debt collectors are ausually llowed at the very least to charge you simple interest of around 10%.  On a debt of your size, paid off over several years, that might amount to more than the $4K they are adding.  OTOH you can pretty much expect them to try both, tacking on 'fees' and then trying to add interest if the fees are not paid.   Another source of assistance may be the Department of Education Ombudsman: If you need help with a defaulted student loan, contact the Department of Education's Ombudsman at 877-557-2575 or visit its website at www.fsahelp.ed.gov. But first you must take steps to resolve your loan problem on your own (there is a checklist of required steps on the website), or the Ombudsman will not assist you. Note that this kind of entry on your credit record may also affect your ability to get a job. Basically, you're going on record as not honoring your commitments... and unless you have a darned good reason for having gotten into that situation and being completely unable to get back out, it's going to reflect on your general trustworthiness. "I'm sorry you are going through this, but what you are dealing with is exactly is how cosigning works.  It is among other reasons why you should never cosign a loan for someone unless you are 100% prepared to pay the loan on their behalf. Unfortunately, the main ""benefit"" to cosigning a loan is to the bank - they don't care who makes payments, only that someone does. It is not in their interest to educate purchasers who can easily get themselves into the situation you are in. What your options are depends a fair bit on the type of loan it is. The biggest problem is that normally as cosigner you cannot force your friend to do anything. If it is for a car, your best bet is to convince them to sell the car and hopefully recoup more than the cost of the loan. Many workplaces have some sort of free service to provide counseling/guidance on this sort of thing. Look into your employee benefits as you may have some free services there. You can sue your friend in small claims court, but keep in mind: It also depends on how big the loan is relative to your income. While it might feel good to sue your friend in small claims court, if it's for $500 it probably isn't worthwhile - but if your friend just stopped paying off their $30k vehicle assuming you will pay for it, even though they can pay for it themselves?" "I really don't feel co-signing this loan is in the best interests of either of us.  Lets talk about the amount of money you need and perhaps I can assist you in another way. I would be honest and tell them it isn't a good deal for anybody, especially not me.  I would then offer an alternative ""loan"" of some amount of money to help them get financing on their own.  The key here is the ""loan"" I offer is really a gift and should it ever be returned I would be floored and overjoyed.  I wouldn't give more than I can afford to not have. Part of why I'd be honest to spread the good word about responsible money handling.  Co-signed loans (and many loans themselves) probably aren't good financial policy if not a life & death or emergency situation.  If they get mad at me it won't matter too much because they are family and that won't change." Does the full time PHD student extend to 70-80 hours/week or more? If not, can you pick up an extra job to aid with living expenses? Also, whose name is the debt in? Is your wife paying to avoid the black mark on her credit record or her mother's? Basically what it looks like to me is that you guys currently have a car you cannot afford and that her mother doesn't seem to be able to afford either, at a ridiculous interest rate on top. Refinancing might be an option but at a payoff amount of 12k you're upside down even when it comes to the KBB retail value. I'm somewhat allergic to financing a deprecating asset (especially at a quick back of the envelope calculation suggests that she's already paid them around $18k if you are indeed three years into the loan). What I would be tempted to do in your situation is to attempt to negotiate a lower payoff to see if they're willing to settle for less and give you clean title to the car - worst thing they can say is no, but you might be able to get the car for a little less than the $12k, then preferably use your emergency money to pay off the car and put it up for sale. Use some of the money to buy her a cheaper car for, say, $4k-$5k (or less if you're mechanically inclined) and put the rest back into your emergency fund. The problem I see with refinancing it would be that it looks like you're underwater from a balance vs retail value perspective so you might have a problem finding someone to refinance it with you throwing some of your emergency money at it in the first place. "The first thing I'd do is to find out your credit (FICO) score.  If you have a good one, try to get another card with a lower rate. Then call up the lender, point to your good score, and your alternatives. If you have a bad score, do nothing. ""Let sleeping dogs lie.""" "I believe no-one who's in a legal line of business would tell you to default voluntarily on your obligations. Once you get an offer that's too good to be true, and for which you have to do something that is either illegal or very damaging to you - it is probably a scam. Also, if someone requires you to send any money without a prior written agreement - its probably a scam as well, especially in such a delicate matter as finances. Your friend now should also be worried about identity theft as he voluntary gave tons of personal information to these people. Bottom line - if it walks like a duck, talks like a duck and looks like a duck, it is probably a duck. Your friend had all the warning signs other than a huge neon light saying ""Scam"" pointing at these people, and he still went through it. For real debt consolidation companies, research well: online reviews, BBB ratings and reviews, time in business, etc. If you can't find any - don't deal with them. Also, if you get promises for debtors to out of the blue give up on some of their money - its a sign of a scam. Why would debtors reduce the debt by 60%? He's paying, he can pay, he is not on the way to bankruptcy (or is he?)? Why did he do it to begin with?" Some lenders will work with you if you contact them early and openly discuss your situation.  They are not required to do so.  The larger and more corporate the lender, the less likely you'll find one that will work with you. My experience is that your success in working out repayment plan for missed payments depends on the duration of your reduced income.  If this is a period of unemployment and you will be able to pay again in a number of months, you may be able to work out a plan on some debts. If you're permanently unable to pay in full, or the duration is too long, you may have to file bankruptcy to save your domicile and transportation.  The ethics of this go beyond this forum, as do the specifics of when it is advisable to file bankruptcy. Research your area, find debt counselling.  They can really help with specifics.  Speak with your lenders, they may be able to refer you to local non-profit services.  Be sure that you find one of those, not one of the predatory lenders posing as credit counselling services.  There's even some that take the money you can afford to pay, divide it up over your creditors, allowing you to keep accruing late/partial payment fees, and charge you a fee on top of it.  To me this is fraudulent and should be cause for criminal charges. The key is open communication with your lenders with disclosure to the level that they need to know.  If you're disabled, long term, they need to know that.  They do not need to know the specific symptoms or causes or discomforts.  They need to know whether the Social Security Administration has declared you disabled and are paying you a disability check.  (If this is the case, you probably have a case worker who can find you resources to help negotiate with your creditors). "With the scenario that you laid out (ie. 5% and 10% loans), it makes no sense at all. The problem is, when you're in trouble the rates are never 5% or 10%. Getting behind on credit cards sucks and is really hard to recover from. The problem with multiple accounts is that as the banks tack on fees and raise your interest rate to the default rate (usually 30%) when you give them any excuse (late payment, over the limit, etc). The banks will also cut your credit lines as you make payments, making it more likely that you will bump over the limit and be back in ""default"" status. One payment, even at a slightly higher rate is preferable when you're deep in the hole because you can actually pay enough to hit principal. If you have assets like a house, you'll get a much better rate as well. In a scenario where you're paying 22-25% interest, your minimum payment will be $150-200 a month, and that is mostly interest and penalty. ""One big loan"" will usually result in a smaller payment, and you don't end up in a situation where the banks are jockeying for position so they get paid first. The danger of consolidation is that you'll stop triggering defaults and keep making your payments, so your credit score will improve. Then the vultures will start circling and offering you more credit cards. EDIT: Mea Culpa.  I wrote this based on experiences of close friends whom I've helped out over the years, not realizing how the law changed in 2009.  Back around 2004, a single late payment would trigger universal default on most cards, jacking all rates up to 30% and slashing credit lines, resulting in over the limit and other fees. Credit card banks generally apply payments (in order, to interest on penalties, penalties, interest on principal, principal) in a way that makes it very difficult to pay down principal for people deep in debt. They would also offer ""payment plans"" to entice you to pay Bank B vs. Bank A, which would trigger overlimit fees from Bank A. Another change is that minimum payments were generally 2% of statement balance, which often didn't cover the monthly finance charge. The new law changed that, resulting in a payment of 1% of balance + accrued interest. Under the old regime, consolidation made it less likely that various circumstances would trigger default, and gave the struggling debtor one throat to choke. With the new rules, there are definitely a smaller number of scenarios where consolidation actually makes sense." When you do finance problems the first thing you need to think about is how the interest is accrued. Is it monthly semi annually or yearly? Once you understand the period of time on the interest and payments it’ll help you understand these problems more. Also a good thing to memorize is converting from EAR to APR. and APR to EAR. You’ll use that a lot. Good luck!