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Money Management Tips and Finance Basics

How to Lend Money to Your Family Members

Whether it’s for an overdue bill or to fund a new business, a relative will ask for financial help at some point. Follow these tips for a smoother lending process.

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3. Set Clear Boundaries

There are two types of family members you may encounter: the temporarily down and out, and the truly toxic, who look to you for loans again and again. Knowing which one you’re dealing with is the first step.

“During a tough time, my sister asked for money to help pay the rent—and, of course, I said yes,” explains Alice, 26, from San Diego. “Instead of paying me back right away, she purchased a dog. Another time she lied and borrowed money to get a tattoo. Eventually, some of the cash was forked over, but the rest was paid back with favors.”

Unfortunately, Alice was contending with a Type Two borrower—and she’s not alone. According to a 2009 Money magazine survey, 43% of readers who lent money to family and friends were only paid back part of the balance—and 27% never saw the money again.

There are a few ways to go about ensuring that doesn’t happen to you:

  • First, try a soft approach. “Listen and be there for them emotionally, because everyone’s circumstances could be different,” says Buck. It could be that the relative asked for money, and truly doesn’t have enough to give it back yet. That’s when you turn to the terms of your loan.
  • If a close relative is consistently overspending—like Alice’s sister, above—you can offer to sit down and help them hammer out a budget. Just make sure that it includes repayment of her debts to you.
  • Does your family member need outside help? Buck cautions that there could be an underlying issue like anxiety, depression or addiction. If that’s the case, encourage your serial borrower to visit a therapist. You’ll be doing them a favor in the long run by helping them to stop this destructive behavior.
  • Finally, if you’re confident that the relative has the means but not the desire to return what he owes you, this is when you can remind them of their contract. If the sum still goes unpaid, you can consult a lawyer.

At the end of the day, sometimes loaning funds to a family member does leave you stuck between love and money. If you’re in the middle of a dicey financial situation without an agreement in writing and can’t figure out how to get repaid, consider letting it go and chalking it up as a learning experience. Next time, with these guidelines in place, you’ll do it differently.

-Written by Lindsey Edson

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