It’s usually not a good idea to loan money to family.
So many things can go wrong. In this economy many family and friends may need help, and of course we want to help ease their stress and pain. Even though lending a financial hand seems like the right thing to do, it can actually backfire and cause drama and distress.
Have you ever used your hard-earned money to help someone that is “broke” keep their house, car, utilities, or put food on their table? Then to see them a few days later with a new manicure, pedicure, or hair cut?
Have you loaned money with a promise to repay and after they ditched and dodged you for months and even years, you realized you would never see your money again.
So what should you do when you are approached by family or friends to borrow money? First, find out why your friend or family member is having a difficult time. If they have a history of being irresponsible or reckless with money, why should that be your problem?
If they are consistently bad with money – giving them money would do more harm than good. In fact, if you give someone money that isn’t interested in changing their spending habits, loaning money can ruin them and your relationship.
Below are some suggestions on loaning money to family:
Do not lend money you do not have. You have your own bills to pay. If you are in a jam who will be there to help you? If you can’t afford to lose the money, don’t do it.
Do not co-sign for a loan. You want to ruin your credit and get in debt? Co-sign and take on someone else’s financial obligations. If you want tension, stress, possible resentment, and a stained relationship – Go right ahead co-sign. Not a smart move!
Teach them how to budget. Giving a loan or money is not always the solution to someone that is having financial troubles. Show them how to manage their money, prepare for the unexpected, and take preventative financial measures to be sustainable.
Give a small gift. I never loan money. But, what I will do is give towards a person’s need if I feel lead to do so. Many times I do not feel lead to do so, but when I do I let them know it is not a loan and they do not have to repay me.
Get a loan in writing. If you do decide to loan money, make sure you put all the terms and conditions in writing. The agreement should include a date for repayment, monthly or lump sum amount, signatures of both parties, and copies should be made. The original should go to the lender and a copy to the borrower.
There is no shame in saying “No”
If your answer is “no,” that is okay. You don’t have to give a long
explanation or reason, keep it short-n-sweet. Let them know you can’t loan them money, but you can offer a small gift (if you can). Bottom line, it’s up to you to look at all the options and make the best decision for you, your family, and your situation.
Sharman Lawson a personal finance coach, trainer, writer, and author of the book 12 Steps to Eliminate Debt Forever. Visit her website at www.freedomconceptsusa.com.