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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.  

Have you ever loaned money to family or friends?

Sharman Lawson a columnist on Fabulously40, and a financial coach, speaker, and author of the book 12 Steps to Eliminate Debt Forever!

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Member Comments

    • 0 votes vote up vote up

      Denise Richardson wrote Jun 8, 2009
    • No we donot lend money or co-sign for anyone, we learned from other peoples mistakes, this is a great post thanks for sharing.



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    • 0 votes vote up vote up

      UK Girl wrote Jun 8, 2009
    • I have learnt the hard way ....... by bailing folk out then they assume they don’t need to pay me back as I have money !!
      I now have a word that trips off my tongue easily NO !



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    • 0 votes vote up vote up

      Termite wrote Jun 8, 2009
    • Yes we do. We cosigned for our daughters car, so far she has been very responsible and we havent had to make a payment yet for her. We have also loaned money to our daughters as well.
      We have loaned money to my sister n laws, and they have always paid us back. I guess we’ve been lucky.

       I will say we loaned money to a neighbor one time and my husband had to go after him to get it back. LOL ohhhh not good!



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    • 0 votes vote up vote up

      Cindylouwho1966 wrote Jun 8, 2009
    • Right after my mom died, my dad (they were divorced) started asking for loans. I turned him down several times, but each time we talked the hard luck story got worse. So I finally agreed after a promise to pay me back half within the next few days. long story short we ended up not speaking for over a year.  

      I knew better, because he had followed the same course his whole life with others. But he really played me.



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    • 0 votes vote up vote up

      Daphne wrote Jun 8, 2009
    • As my father said, “Loaning money causes amnesia.”



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    • 0 votes vote up vote up

      Tuliplady wrote Jun 8, 2009
    • I never loan money.  If I have extra and someone needs it, I give it, but I don’t loan it.  

      I think Daphne’s father was right.



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    • 0 votes vote up vote up

      Mztracy wrote Jun 8, 2009
    • I learned that loaning money to anyone, be prepared to never see it again.
      Saves relationships that way. If you expect it back, do not loan it! My motto!estatic



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    • 0 votes vote up vote up

      L J wrote Jun 8, 2009
    • i guess i have a soft heart... sometimes too much, and i have loaned money to relatives and friends and most of the time the sob story continues, and i never get it back... but oh well, i figure if they need it that bad give it to them cause i can't take it with me when i die!!! worried



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    • 0 votes vote up vote up

      Gypsynitefire wrote Jun 9, 2009
    • tongue out Not anymore!!! Money is the root of all evil in my book...and I have seen it destroy many a person who didn’t know how to handle it properly!~



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    • 0 votes vote up vote up

      Susan Dahringer wrote Jun 9, 2009
    • Sharman

      My family and I do,only to one another..Knowing that once we get back our feet that the debt will be paid always back in full.

      Susan



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    • 0 votes vote up vote up

      Doreen XoXo wrote Jun 10, 2009
    • Only time I loan money is when I know for sure that I will be getting it back.  I make sure of that!!



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    • 0 votes vote up vote up

      (華娃娃) ChinaDoll wrote Jun 11, 2009
    • This is just great timing for me.  I received a call from my girlfriend yesterday.  She is asking for 2K.  She is having pending health issue herself (not sure if she is having cervical cancer, waiting for biopsy result).  Her mother in law had been sick and thus she had not been working for 3 weeks, thus no tips from waitress‘ing.  She filed bankruptcy 5 years ago.  Her husband works in Az while she lives in Vegas.  He has to work there for no other job offering in Vegas.  He is a Chinese cook.  They both cashed out the life insurance policies and there are no more reserve anywhere else.

      She was very generous with me when I was a single mom.  She lived with me in my son’s room, occupied only the upper bunk and she paid me rent then.  She bought grocery and cooked.  

      I am indecisive.  She said she would pay me back in 4 installment for next few months.  However, I got an inclination that might as well consider that down the drain.

      What questions should I ask myself to evaluate this situation?  Help please...



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    • 0 votes vote up vote up

      Sharman G. Lawson wrote Jun 11, 2009
    • ChinaDoll, if this is money you can afford to lose and don’t care about, give it! If a yes will not affect you paying your bills, losing sleep, going hungry or homeless, give it. If you giving it and never getting it back still sustain your friendship, give it.  

      Otherwise, donate a small percentage or amount (like $100) to her cause without any obligation, and encourage her to go to other friends, family, and co-workers for the rest. $100-$200 from 10-20 different people would solve her problem, right?



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    • 0 votes vote up vote up

      Frannie1964 wrote Jun 11, 2009
    • My Hubby loaned alot of money to someone I wouldn’t even say shes a friend of ours, shes this lady who bowled with him and she needed money right away ( I forget what It was for ) but Hubby being the nice man that he Is to other people and hard for him to say NO most of the time, he lent It to her but she did put on paper that she would pay him back on certain dates and she post marked each check to him that he could deposit In the bank on those dates, well 2 of the checks bounced and so he told her about this when he saw her on bowling night and she acted like she didn’t know why, so she said she would pay him In cash and so far she has paid him 2x’s but she still owes him 2 more payments and she hasn’t done It yet. I am upset and I know It’s his money, but It pisses me off that someone would take advantage of him like that cause another person told this lady that so and so has money, why don’t you go ask him If he will lend It to you. Needless to say, i do not talk to that person who is my hubby’s co-worker anymore. He should have never opened his mouth and then again hubby should have never talked about his finacial situation. I am probably going off track here, but I told hubby It’s not good to lend money out to people you don’t really even know. As for family,

       a few years ago my cousin use to barrow money from us and her parents found out that she was also barrowing money from other people also. She use to tell us It was to pay her phone bill that was going to be disconnected or that she needed to pay her health Insurance. We come to find out when my Aunt called us and told us that my cousin was barrowing all this money to give to her then boyfriend to support his drug habit and whatever else he wanted. So I don’t trust her anymore when It comes to money.



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    • 0 votes vote up vote up

      (華娃娃) ChinaDoll wrote Jun 12, 2009
    • Thank you Sharman.  I have discussed this with my mother since she knows her as well.  So I have decided to send her 1/4 of what she requested and asked her to pay back whenever she can.  (basically, I consider that being donated).  I am more worried about if she has cervical cancer than her finance.  She will know Wednesday.



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