How to Help a Loved One Out of Debt
When a family member is financial trouble, we often feel it is our duty to step in and help. Of course, if your loved one is in debt due to poor choices rather than an unexpected emergency or situation you must be very careful about how to help your loved one out of debt.
Come to Terms
If a loved one approaches you for help with debt and you are agreeable, you must first examine the situation. Does this person need money because they managed their own poorly or if this is an unusual situation brought on by an emergency or life event? If it is an emergency situation and you know the person has the wherewithal to repay you as quickly as possibly, terms will be simple. If your borrower has a bad financial past, you need to help your loved one but protect yourself in the process.
To lend money to anyone, including a loved one, you should come to terms with that individual. If possible, get those terms in writing just to make the exchange more official. If you’re dealing with a poor money manager, be ready to add very specific terms to the arrangement. If you are helping a loved one out of serious debt, you have every right to request a structured repayment plan. You may even require collateral, but be careful to not strain your relationship.
You basically need to know how much money your loved one needs, and your loved one should be able to tell you exactly where every dime of the money is going to go. You have rights to his financial information, so ask how much will be going to each credit card or loan. Don’t forget to set up a repeating payment plan to make repayment of the loan simple.
Arrange the Money
If you have the money you need sitting in a savings account, you are able to loan it easily without any additional work. If it is in stocks or invested, it may be better to arrange short term installment loans to keep your investments working for you. If you don’t have cash on hand, but do have solid credit, a personal loan can be arranged, but realize that taking out a loan to help a loved one can potentially put your credit at risk if they flake out.
Don’t Give – Teach
Finally, when you offer money or help to a loved one in debt, truly help them. There is an old saying, “Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.”
Rather than just coming to terms and writing a check, work with your relative to develop healthy spending habits and to avoid the pitfalls of repeated debt performances. Your loved one may resent the interference, but if they have made poor money decisions in the past, they are likely to do so again if they aren’t shown the correct way. Your money is bailing your loved one out; it entitles you to a bit of time on the soapbox.
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Posted in Business & Finance, Money
