As family members see you struggling with debt, they may want to help. Perhaps they have been in your shoes and know what you are going through. Maybe they are just generous and want to contribute. Is accepting loans from family members a good idea?
It depends on the person. And the family.
Let’s Look at both sides
There are some who are absolutely against loaning money between family and friends, for fear that it will ruin relationships. In The Total Money Makeover, Dave Ramsey gives several scenarios to show how relationships can suffer when well-meaning people loan money to family members. He says “the borrower is slave to the lender.”
In many cases I’m sure this is true. If relationships already feel unbalanced and communication isn’t excellent, or the agreement is only verbal, the pressure and anxiety of money issues between two people could break the relationship. If you’re going to choose a “safe” side of the issue, it would be to say no to family loans.
Ever since I was a kid, I have though of myself as invincible, so it doesn’t surprise me that I see myself as the exception to the “no family loans” rule. Here are a few reasons why my husband and I are comfortable with family loans.
- We have great relationships with our families. We feel that our relationships are strong enough to handle even the strains that a loan might bring.
- We are open and have good communication, both in good times and bad.
- We would take a family loan more serious than a debt to a faceless creditor.
- We have every intention of paying back everything borrowed at a fair interest rate.
- We know it’s important to put these things in writing and discuss all the possibilities.
If these don’t sound like your situation, then a family loan probably isn’t a good idea.
Family loans can be a win-win situation. The borrower can avoid the high interest rates of their original creditors and the lender can earn more interest than they would in a savings account or CD and be able to help out someone they love at the same time.
Other Ways Family Members Can Help
Knowing that we work hard to keep our food budget low, my sister-in-law often shares her excess with us. It is not unusual to visit her and come home with a couple gallons of milk.
My in-laws, who grow a big garden, share their excess with family and friends who can really use a little breathing room in their budget.
We are proof of this, since we currently live in my in-laws’ basement. Making headway on our student loan debt would be nearly impossible without this generous arrangement. While this is not an option for everyone, it works very well for us. If you are considering this sort of arrangement , check out my tips for living with family to save money.
If you are worried about potential strains on family ties in a lender/borrower relationship, giving money without expecting to be paid back is another option. However, don’t be offended if your family member doesn’t want to accept such a gift. I know I am proud and stubborn and would have a hard time with someone wanting to give us money. I have a hard enough time accepting expensive Christmas gifts from family members.
If relatives have more time than money and you have student loan debt, you can participate in rewards programs like Smarter Bucks, where the money they earn from surveys and cash back can go toward your student loans.
Being a Listener
Having someone disclose their debt to you might be kind of a big deal. It puts them in a vulnerable position. Chances are they are not asking for a loan or free money, but just someone to talk to. You can share a burden by simply listening and encouraging.
What do you think?
- Would you accept (or give) a loan from a family member?
- If you have borrowed or lent money between family how has it turned out for you?
This post contains my referral link. For details, see my disclosure policy.
Let's Do This Together!
We're banding together to pay off some serious debt in 2019! We want you to join in the debt-smashing fun!
When you subscribe, you'll get monthly reminders to report your progress and you'll see how we're doing as a group!
You'll also receive frugal inspiration and financial motivation in your inbox to help you along the way!
Are you ready to smash debt with us?!