Is lending money to family the right decision for you?
Millions of Americans are struggling to overcome rough economic conditions, and rather than turning to traditional banks and lenders, some adults may look to their family when they’re in a tough spot. When family members approach and ask for financial assistance, individuals may feel compelled to agree to a loan. But lending to family is a big decision, and it’s important for adults to weigh several factors before making a choice.
First, adults should examine their current financial standing. Individuals who are already struggling with credit card debt, trying to pay down a loan or save money for their future may jeopardize their own financial health to accommodate family members.
Making a decision can be difficult either way, but adults who are already in poor financial shape may endanger their own well-being by cashing out emergency savings or a retirement account to help family, according to U.S. News and World Report.
If adults are in a position to provide some assistance, but are still on shaky ground themselves, they may perhaps suggest providing some aid to relatives, but not the full amount requested. As important as it is to help family, it’s also crucial to stay on solid financial footing to avoid falling behind on bills.
In addition, one of the most difficult decisions to make is lending to a family member with a history of poor money management habits. Even the most financially solvent individuals may have reservations about handing over a portion of their income to an adult who may not use it responsibly.
In these scenarios, adults will have a difficult to decision to make. Adults who agree to help out family should not feel guilty for putting the terms of the loan in writing to protect themselves and their assets.Individuals who do not feel comfortable loaning to family members may also suggest non-monetary options to help family.
For example, if a relative loses his or her job, adults can suggest bringing over meals a few days a week to cut down on grocery expenses or agree to watch their children while the parent interviews for new positions. Adults may also urge irresponsible family members to seek assistance through credit counseling services to help them manage their debt balances.
Lending to family is a heavy decision and the outcome can lead to strained relationships or financial problems. For this reason, adults should try to be objective when weighing all the factors and make a firm decision.