The long financial downturn caused financial problems for many people that still haven't been resolved. It's still tough for many young adults, especially, to find a job, much less a job that pays well enough to meet more than basic expenses.
It's difficult when a hard-working, much loved relative approaches you for a loan. It's even harder when the relative is in his or her financial position due to poor judgment in the past.
The most important consideration when lending to family is what you're going to do if they are unable or unwilling to pay it back. Will it be a financial disaster for you? Will it change your feelings toward your debtor? Will people in your family take sides? Will your willingness to help one make other family members expect similar treatment?
"Many family loans simply don't get paid back," notes Shawn Friday, senior consultant for VITAL WorkLife. If there's a better than average chance your family member won't be able to pay it back, you might consider giving the money as a gift instead of loan
If you decide to lend, make sure you're clear about when and how you expect to be repaid. For amounts less than $100, you don't necessarily need a written agreement. For larger amounts, a written agreement is a good idea that spells out the repayment schedule and interest terms.
Remember, it's okay to say yes, it's okay to say no—and it's okay to say yes, but under certain conditions. You may want to use the loan to encourage the person who needs money to put their financial house in order. Here's where your VITAL WorkLife benefit can help.
Free Financial Consulting Services: A Benefit for You and Your Family Members
Before lending to a family member, encourage them to speak to one of our financial counselors. All they have to do is call us to arrange for a free, confidential consultation with one of our financial counselors. Our financial counselors are qualified to help you and your family members understand everything from creating a budget or making a financial plan to consolidating debt or declaring bankruptcy.
Lending & Living Within Your Means: A Success Story
Parents of an adult daughter who was asking for financial assistance called VITAL WorkLife for help. Their daughter and her husband were living way beyond their means and had incurred significant debt. They'd bought too much of everything—from too much car and too much house to too much stuff to put in the house.
The young couple's car loans and credit card debt was so high they were unable to cover their mortgage payment. The parents had helped out their daughter on previous occasions and were now being asked for help in making mortgage payments.
In the past, the parents had not minded helping, thinking that their daughter was simply hitting a rough point in her life, but now it was clear that she and her husband were over spenders and any financial help given might ultimately not be helpful. The parents, who were planning on retiring soon, were also not in a position any more to help much due to their own limited resources.
The dilemma for the parents was that they wanted to help their daughter but felt that direct financial gifts were not the way to go. They feared angering their daughter and were concerned that they could be cut off from their grandchildren.
After discussing their options with a VITAL WorkLife consultant, the parents decided to offer financial help that was contingent on the daughter and her husband working with a financial counselor, getting on a budget, and following the budget. They further agreed that they would limit the amount of assistance they provided so as not to jeopardize their own financial health. Further consultation and counseling were offered to them, if needed, for continued support.
