The saying goes that no good deed goes unpunished. Perhaps there are actually some good deeds that don’t backfire, but there are many financial good deeds that can come back to haunt a generous soul if they’re not careful. These favors can cost you more money than you expected, or hurt your credit.
Before you embark on an expedition of financial kindness, consider these examples of good deeds that can backfire.1. Co-signing a lease or loan
You may hope to do a friend or family member a favor by helping them buy a new car or land a new apartment. But even if you are assisting someone you know and trust, you are putting your own finances at risk. If the other person fails to make a loan payment or doesn’t pay the rent, you will be on the hook for whatever is owed. If you can’t make the payments, it will show up on your credit report and hurt your credit score. Even if the other party pays on time, you are increasing your debt-to-income ratio by being a co-signer to any loans, and that can hurt your own ability to get a loan.
If you feel strongly about helping someone out with a lease or loan, it’s better to protect your own credit by making them a personal loan, preferably one that won’t sink you financially if they don’t pay you back.
2. Adding an authorized user to your credit card
It’s hard to build credit when you’re first starting out. That’s why some parents choose to make their child an authorized user on their credit card. This is often a great way for your teen to start building credit.
But there are right and wrong ways to do it. This strategy can backfire financially, especially if you’re not keeping an eye on their spending. Missed payments and high debt levels could impact both of your credit scores.
It’s best to add your child as an authorized user only if you can closely track their spending. Once they’ve established that they can be financially responsible, let them get their own credit card if they qualify for one.
3. Donating to a bad charity
It’s unfortunate, but every once…
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