Borrowing from Family to Pay off Debt

Borrowing from family can be tricky. Family and friends may sympathize with a request for a loan, and will either give freely without question, or feel pressured to comply. Either way, this kind of request has the potential to strain or destroy relationships.

If a member of your family or close friend asks you for a loan, consider these tips before making a decision:

Can you afford to give a loan?

You need to consider your own monthly expenses and commitments. It will not do you any good if you go into debt helping someone else get out of debt. If you are comfortable with loaning the money without being repaid and your budget can afford it, then there is nothing to worry about.

Confirm terms of repayment.

If you would like to be repaid, it is a good idea to consider how and when you would like to be repaid. Do you have a time line in mind for paying back the loan? Are you going to charge any interest if the loan is not paid back by a certain date? Will you bind your loan with a contract for the debtor to sign? The interest rate and a schedule for repayment should be included in such contract. Take the time to visit these options before you make your final decision.

You are not comfortable loaning the money.

If you are not comfortable with loaning money, you need to make your reason(s) clear without straining your relationship with the person requesting the loan. It may have been difficult for the person to ask for the loan in the first place. Being sensitive to this in your reply will make it easier for the person requesting the loan, to accept. For example, you could say, “I’m flattered that you chose to ask me, but I’m pretty strapped myself at the moment.” Be sympathetic, but be firm.

Consider the history of the person who is asking for the loan.

How well do you know this person? Do they have a good track record of managing money? If the answer is yes, and the reason for the loan is viable, then consider the tips listed above. If the person does not have a good track record and the reason for the loan is to simply get them out of debt trouble, you really need to be comfortable with NOT getting repaid. If he or she does not have the means to repay their bills, what makes you think you will be repaid?

The lesson here is, “borrowing from Pete to pay Paul”, will not solve debt trouble. Borrowing from family can cause tension and possible disaster. The best plan of action is to tackle debt head on by getting it repaid as quickly as possible, with the aid of a debt relief professional. When a person takes responsibility and ownership of their debt, the burden of such will not be laid on any family member.