Lending Money to Friends
Problem: You lent a hefty sum to a friend. After she misses a payment or two, she shows up with an expensive new handbag. Do you say anything?
Solution: Yes, but don't make assumptions. She may have received the purse as a gift, or perhaps she just got a raise and is ready to pay you off. It's tempting to confront her angrily, but express concern instead. "Say, 'This is bothering me, and I don't want it to come between us. But you missed a payment to me, and now I see you with a $300 purse. I'm wondering what's going on. Could we talk about it?'" suggests Dave Ramsey, author of The Total Money Makeover: A Proven Plan for Financial Fitness ($25, amazon.com). That might be enough to persuade your friend to get back on track with payments. If not, you may have just learned an expensive lesson: Never lend money to friends. "You're better off making it a gift and not expecting it back. That's much less awkward," says Ramsey. If you ever play banker again, treat it like a financial transaction and use a promissory note ($9, nolo.com) so you're both clear about payment dates, interest rates, and other loan details.