Financial Education Explained by Danielle: The Cost of Trust
Last week, one of my friends experienced a financial pitfall that most of us only ever hear about and hope to avoid. For the past five months, my friend's monthly rent money was not making it to their landlord because their roommate had been pocketing it. To give some context: most landlords require a single rent check for each unit that they own. To achieve this in a multiple person apartment, one roommate—typically the original or most responsible tenant—usually inherits the responsibility of asking the other roommates for their share of the rent and then writing the single rent check. This exchange requires a level of trust that everyone will pull their respective weight and contribute their agreed upon rent amount when it's time to pay the landlord. Sadly, like my friend had to experience, this is not always the case.
The consequences when this trust is misplaced can be devastating. My friend was just recently evicted from his apartment and moved back home for the time being. Fortunately, their family did not live too far, and they were more than willing to help out given the circumstances. Others are not so lucky and may still owe the landlord the rent money they never received, may find themselves mired in problematic legal situations, or not have a place to move after being evicted.
This unfortunately can also lead to credit report trouble. An eviction can show up on the public records section of your credit report as "debt owed through collection agencies or civil judgements," and future landlords down the road can see that and choose not to take you on as a tenant. In addition, an eviction can also "dock your score several hundred points and will stay there for 7 years." Whether the eviction was your fault or not, it can haunt you—and especially your credit score—for years after it happens.
So what can you do to avoid such a financial pitfall?
- Don't take on this financial responsibility if you don't know your roommates well.
- If you choose to have roommates you don't know extremely well, ask for references and additional information (previous roommates, employers, credit score, etc.). If they don't want to provide these or seem evasive, look elsewhere.
- Offer to be the one to collect the individual rent checks from all roommates and pay the single check to the landlord. Yes, it's extra work but it will ensure you know that everyone is pulling their own weight.
- Always have an easily accessible emergency fund in case you don’t have any friends or family members you can stay with should you ever get evicted.
If you liked this article, check out our Unit on Financial Pitfalls on our website to learn more about avoiding personal finance downfalls.