Marcia's Blog

3 things to do when a loved one asks for money

We all want to help our loved ones get through tough situations, but all too many times I’ve seen people put themselves in financial distress because they lent money to family and friends that they couldn’t afford to lend.


While you may have the best intentions, you can’t pull someone up out of a financial hole if you’re not on solid financial footing yourself.
The next time a loved one asks you to lend a hand, consider these tips so that you can make the decision that is best for both of you.

Don’t lend more than you can afford to give. You’ve probably heard this advice before, but it’s worth repeating. When you lend money, you shouldn’t expect to get it back. Even when people really want to pay you back, they sometimes aren’t able to get it together. Ask yourself before lending the money if you would be financially ok if you never got the money back. If the answer is ‘no,’ keep in mind that an unpaid debt can easily destroy your relationship with that person. Is it worth it? When lending money, always give out of excess. That means you’re not taking from your emergency fund or retirement account, or using your mortgage payment to bail someone out.

Write the agreement down. Sometimes people lend money with vague conditions attached. For example, you may say ‘just pay me back when you can.’  When you don’t communicate clearly about how the debt will be repaid, it’s easier for someone to keep putting the repayment off. Determine when your loved one will pay you back or how much they’ll pay back per month. Write all of the information down and each of you sign the agreement. That way, there’s no room for misunderstanding, and if you ever have to go to court over the money (hopefully you won’t), you’ll have written documentation to back you up.

Look beyond money. Sometimes the best thing you can give someone isn’t money, but rather information so that they can do better with their own finances. It’s one thing if someone has an unexpected financial challenge such as a medical bill and needs some help. But if someone is constantly looking for a handout, you might be able to help them more by giving the gift of financial education. Sign your loved one up for a class, or better yet, take a class with them. That way you can bond while you’re both learning better ways to improve your lives financially.