Family members love each other and want to support one another through tough times both emotionally and financially. A perilous situation can arise, however, when a family member borrows money to a loved one facing significant debt and, potentially, bankruptcy. If you are seeking money from a family member to stay afloat financially, you know there's reliability in your close personal relationship - but is there a place to draw the line?
Millennials, in particular, carry more debt than previous generations but are still more reliant on their parents for help in adulthood. This situation often puts parents and their children between two adverse alternatives. You don't want to see your child struggle, but you don't want to let their financial maladies affect your bottom line. How do you proceed?
Here are four tips to guide you when borrowing money to family members:
1. Don't borrow more than you can afford
Generosity is a benevolent virtue, but it should not necessarily be applied to borrowing personal cash to a family member. You likely have some cash easily available for leisurely activities, and this could be a good place to start if you want to provide a loan.
While you may be willing to give up cash you would otherwise spend on a weekend afternoon mall shopping, you should not sacrifice your budget for the essentials like groceries or paying bills. Be willing to discuss scenarios including the terms of the loan.
When and how are you expecting your money back? What could happen if he or she does not pay back the loan? A guilt trip isn't necessary, but your consideration for their needs should be returned candidly.
2. Think about your future too
Do not dip into retirement or other long-term savings accounts in loaning to a family member. That $100 you borrowed but didn't get back could have become $1,500 in a retirement account. Consider the opportunity cost. Don't mortgage your future for short-term relief.
3. Go small first
Seek the details why they are asking for the money first. What do they plan on doing with it? If you are hesitant to borrow money, but would still like to help out a family member struggling with finances, a tank of gas or a bag of groceries could be enough to get them by in the short-term without enabling them in the future.
4. It's okay to say no
Borrowing to a family member can put you in an uncomfortable spot. Further, it could strain a web of relationships that you value and rely upon. A considerate "no" could direct your loved one to take the proper steps to solving their financial problems themselves.
If you or your loved one's search for financial help is a symptom of a larger problem with debt, it may be time to consider bankruptcy to clear burdens and start new. A respected, compassionate bankruptcy lawyer can help you or a loved one on a stable path to financial solvency.