43 min

Denis and Katie O’Brien – Understand Negative Equity Before Cosigning a Loan My Worst Investment Ever Podcast

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... The consequences of not doing so can be brutal Guest profile Denis and Katie O’Brien decided to create a “Chain of Wealth” after having a tough conversation about Katie’s debt that was piling up. She had more than US$200,000 of debt that included student loans, a mortgage, a car loan, and negative equity. After hunkering down and reprioritizing what is important in life, they’ve managed to pay off all their debt in less than two years, all while getting married and paying for their wedding in cash!
 
“We often speak about the ostrich technique in terms of payment where you stick your head in the ground and you pretend it’s not there. Don’t do that.”
Denis O’Brien
 
Worst investment ever Denis and Katie O’Brien met at a time when Katie was over her head with debt. Before they met, her way of dealing with the lingering debt was to bury her head in the sand and hope that someday it would all go away. Her anxiety over her piling debt was so much that she wouldn’t bring herself to check the mailbox.
But the debts didn’t magically disappear. They followed her when she moved in with Denis in Washington DC. When the stack of bills came knocking in the mail one day, Denis decided that she was done burying her head in the sand and that it was time to deal with the debts head-on.
Flashback to when all the mess started It was back in March 2015 or 2014 when she was dating a “smooth-talking dude”. It so happened that he needed a car but he had bad credit and therefore, needed someone to co-sign the car loan for him.
After a couple of conversations, the smooth talker managed to convince Katie that if she cosigned a loan for him it would lower his interest rate allowing him to save money for other important things. He promised that this would not affect her in any way and he’d make every single payment.
The ironic thing is that at the time Katie was driving an old 2002 Toyota Corolla, with all sorts of mechanical issues. She could have done with a new car! But here she was helping someone else to get themselves a new car she could barely afford.
From zero car loan to negative equity Finally, she went to the car dealership with him and he picked out a pretty good car. Not a high-end car but still quite good and expensive, well at least for her.
After the purchase, he told her that he had negative equity. She didn’t know much about negative equity finance. She knew that it wasn’t something good for your credit but she didn’t quite understand what the consequences were. What she didn’t understand was that after cosigning his car loan she had also inherited his negative equity loan.
At this point, Katie had no car loan. She was a 26-year-old graduate, working a normal teaching job and living on her own.
As expected, the relationship quickly came tumbling down as soon after the car purchase. As if that was not enough, the dude defaulted on the car payments.
It now became clear that Katie had bitten more than she could chew. After chasing him all over trying to get him to make payments Katie finally went to a lawyer as she didn’t know what to do because the car loan was attached to her credit.
The lawyer told her she had two options. She could either make him pay for the car or take it and deal with the mess on her own. She came home one night, she was living with her mom at the time, and in front of her house, there sat the car. He told her she could keep the car, it was in her name anyway.
Bearing the weight of someone else’s negative equity So now here she had a car that she did not need nor could afford. On top of that, she had to pay off her ex’s negative equity debt of $20,000! This was a lot of money to pay off with a teacher’s salary.
To say that she was distressed is an understatement. Other than having to pay off the car loan and equity, she still had to get his name

... The consequences of not doing so can be brutal Guest profile Denis and Katie O’Brien decided to create a “Chain of Wealth” after having a tough conversation about Katie’s debt that was piling up. She had more than US$200,000 of debt that included student loans, a mortgage, a car loan, and negative equity. After hunkering down and reprioritizing what is important in life, they’ve managed to pay off all their debt in less than two years, all while getting married and paying for their wedding in cash!
 
“We often speak about the ostrich technique in terms of payment where you stick your head in the ground and you pretend it’s not there. Don’t do that.”
Denis O’Brien
 
Worst investment ever Denis and Katie O’Brien met at a time when Katie was over her head with debt. Before they met, her way of dealing with the lingering debt was to bury her head in the sand and hope that someday it would all go away. Her anxiety over her piling debt was so much that she wouldn’t bring herself to check the mailbox.
But the debts didn’t magically disappear. They followed her when she moved in with Denis in Washington DC. When the stack of bills came knocking in the mail one day, Denis decided that she was done burying her head in the sand and that it was time to deal with the debts head-on.
Flashback to when all the mess started It was back in March 2015 or 2014 when she was dating a “smooth-talking dude”. It so happened that he needed a car but he had bad credit and therefore, needed someone to co-sign the car loan for him.
After a couple of conversations, the smooth talker managed to convince Katie that if she cosigned a loan for him it would lower his interest rate allowing him to save money for other important things. He promised that this would not affect her in any way and he’d make every single payment.
The ironic thing is that at the time Katie was driving an old 2002 Toyota Corolla, with all sorts of mechanical issues. She could have done with a new car! But here she was helping someone else to get themselves a new car she could barely afford.
From zero car loan to negative equity Finally, she went to the car dealership with him and he picked out a pretty good car. Not a high-end car but still quite good and expensive, well at least for her.
After the purchase, he told her that he had negative equity. She didn’t know much about negative equity finance. She knew that it wasn’t something good for your credit but she didn’t quite understand what the consequences were. What she didn’t understand was that after cosigning his car loan she had also inherited his negative equity loan.
At this point, Katie had no car loan. She was a 26-year-old graduate, working a normal teaching job and living on her own.
As expected, the relationship quickly came tumbling down as soon after the car purchase. As if that was not enough, the dude defaulted on the car payments.
It now became clear that Katie had bitten more than she could chew. After chasing him all over trying to get him to make payments Katie finally went to a lawyer as she didn’t know what to do because the car loan was attached to her credit.
The lawyer told her she had two options. She could either make him pay for the car or take it and deal with the mess on her own. She came home one night, she was living with her mom at the time, and in front of her house, there sat the car. He told her she could keep the car, it was in her name anyway.
Bearing the weight of someone else’s negative equity So now here she had a car that she did not need nor could afford. On top of that, she had to pay off her ex’s negative equity debt of $20,000! This was a lot of money to pay off with a teacher’s salary.
To say that she was distressed is an understatement. Other than having to pay off the car loan and equity, she still had to get his name

43 min