There’s a reason the subject of lending money to friends and relatives has a big section in the It’s Your Money book. Rough rule of thumb: Don’t do it.
Recently, I had some e mails back and forth with someone who was talking about their credit card balance. One of the first sentences in the note was: I know you hate lending money to family. That was followed by explaining it was the reason their credit card bill was up there. Now, I’m guessing that this wasn’t about a hundred bucks or so – because that’s totally different than a more significant amount.
I don’t actually hate lending money to relatives or friends – and that applies just as much to borrowing it, as lending money. What I hate, and what should never happen, is that broke people shouldn’t lend money to other broke people!
If you can’t take care of your own finances, how can you help others? If you don’t have the money, how on earth can you justify lending it to someone else? THAT was the problem with this person, and THAT is what shouldn’t happen.
Anyone who is financially successful can, and should, use some of their money to help others. Whether it’s tithing, donations to charity, and even helping someone directly who needs the helping hand. If that applies to you, it’s a Christian thing to do, or at least it’ll also make you feel great to know you’ve made a small difference. But it should be done with actual money, and not by someone getting themselves further into debt by borrowing more money.
For the rest of us, we can’t afford to do it – we don’t have the money! Stop thinking of the room left on your credit line, or your credit card as actual real money. Focus on what you owe, and not on what you can still borrow!
It’s perfectly OK to say no and ask if there’s anything else you can help with. It’s also a great idea to go down to Mosaic and spend the $20 buying them a copy of the It’s Your Money book so they can get the tools on borrowing smarter – or better yet – getting out of debt.
Giving someone one car payment doesn’t solve the underlying issue that they likely can’t afford the car – and will just have the same problem next month. Lending someone the money for the rent often just delays the problem for another 30 days. Even worse, is helping someone to pay their credit card or other bill payments. They’re spending money they don’t have. They need to face it to replace it. Stepping in as a temporary stop gap doesn’t get them any closer to their financial reality check.
Yes, I’m being kind of mean. I don’t mean to be, and if you get out of the emotional reasons, you probably know I’m right. If not, I’m OK to get your hate mail, although there certainly are legitimate times for you to step in and to help.
Two more quick points:
This advice applies just as much to co-signing a loan for someone, as lending them money. In fact, more so, because you’re now fully liable for the entire term of the loan. It’s also a really quick way to destroy your credit rating.
Finally, if you do lend someone the money, you have to think of it as a gift and not a loan. If you don’t, it WILL cause problems down the road. The person will start to avoid you, no matter how nice you are about the subject. You may get resentful of how they used the money, or with family, dinners together will never taste the same with the loan balance still hanging over everyone’s head. All of those do more harm than thinking you’re doing something good in the first place.