Two Steps in Lending Money to Friends and Family

You’ve loaned money to a friend or relative and they haven’t paid you back.  In fact, they’re not even answering your phone calls.  The best thing to do is write it off and move on.  

Why?  Because when it comes to friends, family and lending money, you have to make personal decisions to minimize or avoid conflict and bad feelings, some of which could linger for a lifetime.  Regardless of the reason for the loan (whether it’s to buy a pair of tickets to an exclusive concert or to bail someone out of jail), let these two rules guide you in your personal financial dealings:

1.  You Can’t Give What You Don’t Have.  If you don’t have the money to lend in the first place, then you have to say no, you can’t help out.  How can you justify offering your rent payment to anyone if it puts you at risk of losing the roof over your head?  No real friend or loving relative would ask you to give them money that would create a hardship on you or that would put you at risk of missing your obligations.  

Notice the phrase “real friend or loving relative.”  If someone really cares about you, they won’t put you in jeopardy.  However, if they’re selfish and only using their friendship or family tie with you to get money for their own benefit, then they really don’t care about you and will expect it anyway.  Don’t be surprised by this behavior, and don’t let yourself be pushed into giving money through guilt or any other type of manipulation. 

Please don’t agree to put a charge on your credit card and let the person make payments.  If you have to charge the expense, that means you don’t have the money, and the fact that you’re name is on the card means you’re responsible for the debt.  The same applies to co-signing a loan for someone.  Don’t do it if you don’t have the money to pay the loan off.

2.  If You’re Able, Help Out.  If you’re in a position to help your friend or relative, seriously consider giving the person the money without expecting it to be repaid.  Obviously, this depends on the reason, the amount and the frequency of the requests.  But there’s nothing wrong with being nice to your friends and family by sharing what you have with them.  They’re part of you and every interaction should not be some legally-binding contract.  Life is about give and take.  Share when you can and receive graciously when they share with you.  

If the amount of money involved doesn’t allow you to give it as a gift, then make sure you and your friend or relative agree on repayment plans that are reasonable and fair to both of you.  Ask yourself if you can live with the agreement.  If you’re going to stress over it, or comment on your friend’s spending habits every time you’re together, then you’re not at peace with the decision and shouldn’t enter into it.  Be honest and say you don’t lend money to anyone because it causes bad feelings. 

So, if you’ve already loaned money and haven’t received it back, write it off as an expensive lesson regarding friends, family and finances.  Sure, you could go to small claims court, but the long-term damage would be huge.  Don’t let it fester or be divisive to negatively affect your family life for the next twenty years.  However, do learn from the experience and use these two guidelines to avoid bad feelings in the future.