Ask the Readers: How Can You Help a Family Member in Financial Trouble WITHOUT Loaning Them Money? Print
Friday, 13th July 2007 (by J.D.)This article is about Ask the Readers, Debt, Real-Life
“The Tim” is in a bind. He’d like to help his brother-in-law out of a tight spot, but he’s not interested in loaning him money. What are his options? Here’s his story:
My brother-in-law is currently in his third year of college at a private university. He is paying for his schooling without any financial assistance from his parents, as they had somewhat of a falling-out a few years ago. Recently, his job came to an end (I don’t know if he quit, or if it was just a limited-time job), and he is now rapidly running out of money. I don’t know how many places he’s applied when looking for new work, just that he hasn’t found a new job.
He has asked my wife and me to co-sign a loan for $10,000, which he would (allegedly) use to pay off his car (he owes $1-2k on it I think), rent, tuition, and food until he finds another job.
There’s pretty much no way I’m going to agree to co-sign any kind of loan, especially not one for that much more than he really needs. I’m also not keen on the idea of just loaning him money directly (which I would essentially treat as money I’d never see again).
So my wife and I are trying to think up things we can do that are not facilitating poor financial habits, but also not completely ignoring a family member in need. I would like to solicit advice from you, the GRS community. If you want more details about the situation, feel free to ask. I’m sure there’s probably some pertinent info that I’m leaving out.
Here’s the conventional wisdom on loaning money to family and friends: DON’T DO IT. These sorts of transactions have the potential to create resentment from all parties — it’s best to leave them alone. However:
- If you insist on loaning money to somebody close to you, do so with the expectation that you’ll never see it again. Only loan money that you can afford to lose. Charge a fair interest rate. Set up a payment arrangement, and get the agreement in writing. Or offer the money as a gift.
- If you insist on borrowing money from someone close to you, fulfill your end of the bargain. Make your payments in full and on time.
Whatever you do — whether you loan money to a friend, or help them in some other way — please don’t jeopardize your own financial well-being in the process.
I have a good friend who repeatedly loaned money to his former girlfriend. He basically subsidized her entire life, even after they’d been split up for years. He did so without the expectation of repayment. But eventually he lost his job and had no savings — he’d loaned all his money to his ex-girlfriend. He was forced to move out of his apartment and find someplace cheaper. Since then, he has been unable to pay for a much-needed operation. And still he loans money to this woman!!! I try not to be judgmental, but in this case it’s difficult. Because my friend refuses to say “no”, his financial life has been ruined, too.
If a friend asks to borrow money and you’re uncomfortable loaning it to her, it’s important to be honest. Don’t be mean. Be straightforward. Explain to her why you can’t, or won’t, make the loan. Saying “no” may cause some temporary awkwardness. But it’s nothing compared to what might happen if a loan were to go sour. If you’re uncomfortable loaning money to a friend, be up front about it.
If you do so say “no”, look for other ways to help. If the borrower needs money to pay off debt, offer to help with credit counseling. Give them the best advice you can offer. Help them find a job or an apartment. I think The Tim has the right attitude here — he’s not looking for a way to give money to his brother-in-law, but a way to help him without becoming an enabler.
Have you loaned money to family or friends? Have you been on the receiving end? What was it like? Would you do it again? More to the point — and to directly answer The Tim’s question — what alternatives are there to offering a loan? How do you help a friend in need without actually giving them money?
Here are some other discussions of this subject:
- Liz Pulliam Weston has a good article that discusses the right way to loan money to family members.
- Mary Rowland at MSN Money explains why you should never co-sign a loan.
- Ask Metafilter: What do you do when a sibling ask you to bail them out of a financial problem?
- Ask Metafilter: How much money should I loan a very good friend of mine in a tough situation?
- Ask Metafilter: How do I lend someone money?

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July 13th, 2007 at 5:16 am
I’ve done it in the past with a couple/few grand that I never expected to see back, and, surprise, I never did see it again.
I do know what I would do different, though. I would agree to lend some of the money (say half) through Prosper.com. I get a fair market return and likely others would help cover the loan so that I wouldn’t foot the whole bill if it goes belly up.
With Prosper, I don’t have to worry about collecting, and if the borrower doesn’t pay, he has to deal with the consequences, including collection calls, a ding on the credit report, etc. None of which comes back to me, because I’m not involved, I was just giving the borrower a jump start on a loan.
July 13th, 2007 at 5:52 am
One idea is to let them “earn” the money from you. If this guy is out of work hire him to mow your lawn and then pay him really well. As long as both parties are in agreement work for money it should work out.
If he won’t mow your lawn to put food on the table he maybe doesn’t really need the money.
I agree loaning money is a bad idea. Even if you loan it with the expectation of never seeing it your perception of that person will change forever.
July 13th, 2007 at 5:58 am
I ran into a similar situation very recently with my bro in law. What I did was basically refuse to give him money, but offered to help him budget and find new ways to make more money. You know what they say, give a man a fish and he eats for a day, but TEACH him to fish and he’ll eat for a life time.
July 13th, 2007 at 5:58 am
Wow, I sympathize with him. Wanting to help, but not creating dependency and irresponsibility. Could your reader maybe offer to pay some of the tuition directly to the school (so he knows where it’s actually going versus not knowing where the loan money might go)? Could he give the give the brother-in-law an older but reliable car so that the brother-in-law can sell his current one and pay off the outstanding loan?
It sounds like the brother-in-law doesn’t have the best financial judgement. It might be most helpful to sit down with him and explain budgeting etc or give him a copy of a personal finance book. Basically provide an alternate view to the one put out there by the credit industry.
July 13th, 2007 at 5:59 am
1. Help him find a job
2. Give him a job
3. Help him find scholarships that he may not know about that would cover some/all of the cost of school
July 13th, 2007 at 6:15 am
Relatives are always difficult. The ones you would never have problem loaning money never ask. I think Argonautica’s suggestion is good one for someone you’re not absolutely comfortable loaning to. Spread the risk, and make the person more accountable.
July 13th, 2007 at 6:15 am
Oh, that’s a tough one. I’m particularly biased on this one, as I ran out of money at the end of my third year of school at a private university, and neither of my parents qualified to co-sign on a private loan.
Honestly, I’d maybe consider loaning him the money. Usually, I think it’s a terrible idea to loan money to family; whatever got them into that situation will just happen again, but you’ll be holding the bag. However, college is pretty unique–it’s not money mismanagement that gets you into trouble, and other things you can usually say (”get a job!”) might be totally unfeasible. I never could have held down a job of more than 4-5 hours a week, since schoolwork was quite demanding, and when you’re in an area with roughly a few thousand other people your age also looking for that same 4-5 hour a week job, it’s pretty tough to land. If he’s in his third year, it’s also probably a money-loser to transfer to a cheaper university, as the vast majority of schools will accept at most 2 years of credits, so he’d just be on the hook for an extra semester or two of costs.
If you’re not comfortable loaning him the money or cosigning, it’d be very nice of you to help him research places where he might not need a co-signer for a loan. They’re far and few between, and the rates are killer (mine was prime plus 6.5% at Wells Fargo, which meant it was running above some of my credit card rates by the time I finished school), but dropping out of school is probably far worse money-wise. He could always try filling out a FAFSA and qualifying for a non-subsidized Stafford loan, although those are capped at $7,000 per year and you usually don’t have the option of leaving your parents off even if they aren’t supporting you.
Good luck. Maybe Prosper could help. I’d put limited time into looking for scholarships; asking at the financial aid office is probably worth it but I think most people have a very skewed sense of how many are really out there. Absent being able to demonstrate parental poverty, scholarships are probably not a realistic option. Finding a way to secure a loan is the best bet.
July 13th, 2007 at 6:45 am
This won’t help Tim’s situation because his friend does not seem to have any assets, but …
My wife and I were crippled by monthly debt payments (equity loan, car, school, credit). We consolidated them with a loan from her parents. The loan is tied to the substantial equity we have in our house having bought before the market really boomed.
One of the conditions of the loan is that we are *not* to make payments (in-law’s words “Who would you choose not to pay first?”); payment is expected in full when we sell the house. This has, understandably, encouraged us to start planning to move, but in a few years’ time after a master’s degree has been acquired (on the company dime!). The interest rate on the loan is lower than the average rate of appreciation in the housing market.
Some would say we should not have lost the equity in the house. We figured that money was already gone, we would have just been losing it a bit at a time for a longer time (and eventually, more of it) making payments monthly under harsher loan terms. We’ve been able to get our budget under control and start saving.
July 13th, 2007 at 6:45 am
Instead of loaning money, what about helping the brother-in-law cover some essentials in other ways:
1. Gift card for grocery store for food
2. Gift card for gas for car
3. With the fall term coming up, maybe offering to buy the textbooks for fall classes
4. Purchasing a prepaid cell phone for him so that he could cancel monthly cell phone service (if he has this) or other similar ways to cut down on monthly expenses so that he can stay in school.
Good luck!
July 13th, 2007 at 6:47 am
I wouldn’t loan him money either. Give a little, maybe, but not loan. Ways to help could include using your contacts to help him find a job, offering him work (does your house need painting? yard need landscaping?) that you were going to have done by someone else, and helping with budgeting. Although when you don’t have money coming in, budgeting can only go so far. Also check to see if he is has applied for unemployment, if he’s eligible.
July 13th, 2007 at 6:52 am
Some of this has already been posted, but I agree:
Help him find a job.
Have him over for dinner a few nights a week.
I don’t know what kind of degree he has or if he even has one, but he sounds a lot like my brother and the best option for him was to join the Air Force. They give you a useable skill, train you, and he was making more money than me as a first year teacher.
July 13th, 2007 at 6:55 am
“Here’s the conventional wisdom on loaning money to family and friends: DON’T DO IT.”
Well, I don’t put family and friends in the same category. I would never loan money to friends. To family, yes.
July 13th, 2007 at 6:56 am
Whoo, and that’s why I went to a state school. Stafford loans covered pretty much most of my costs (with a partial scholarship from the school on my end as well).
For this guy, however, I would second AB’s advice– look for private college loans that don’t require a cosigner. It’s completely possible that the student didn’t research all the options, but went with the first one that could supply him with the money. The interest rates are going to suck, but he wouldn’t be responsible for them until after graduation, usually.
Depending on the university and where it’s located and all that, I would also suggest selling the car totally. He could move to a place that’s within walking or biking distance. It might not help out as much with a job, but if it’s in a college town or a city, he should be able to get a job within walking and biking distance as well. It would also give him several thousand to live off of.
Also, if they did consider cosigning on a loan, I’d also require sitting down with the guy and looking at his expenses and budget. What’s the rent like, what’s his food budget like– where can he cut down? Ramen with frozen vegetables tossed in will do wonders for dinner:)
July 13th, 2007 at 7:02 am
I echo all the previous entries: it’s tough, especially with family. A certain amount of empathy has to kick in here though. Like “AB” pointed out, he was in the same situation. Fortunately (or unfortunately, depending on your viewpoint), I’ve been on both sides as well. I can recall a few times when I was in a fiscal pinch (some doing on my part, some just bad timing) and I had to swallow my pride and ask for help - especially early in my school days, etc. Family and friends were able to bail me out given in part because I set up a repayment agreement. It keeps honest people honest. Now that I’m a little better off financially, I’ve had the opportunity to bail friends and siblings out; again, with a definite repayment plan in place. Thus, the take-aways are character and empathy. Really try to put yourself in the asker’s shoes; how would you feel about asking? what would you do in a pinch? Finally, does the individual possess the character to repay? My two cents.
July 13th, 2007 at 7:16 am
Or, if his wife (the sister) is guilting him into loaning him money, do it in installments, not 10k up front. That’s just asking for trouble.
He would only need a chunk for tuition. The rest would be monthly expenses, including paying off the car (if he’s only got $1 - 2k left on the loan, the interest savings aren’t that great). This way, he would HAVE to learn to budget. Even then, I would consider lending him $10k out of savings before I would co-sign a loan - if he doesn’t pay it, there goes your credit score!
Having said that, I’d pursue the other options first. (Check out ALL the banks and CUs in the area of campus, most will loan money without co-signers for student loans.)
July 13th, 2007 at 7:17 am
/no to loan
/cut expenses
/trans to affordable college
/find new job or leave college all together and become billionaire like bill gates
July 13th, 2007 at 7:19 am
I was loaned money by family members.
My grandparents offered loans to be used for education only to all their grandchildren. They didn’t charge interest and they did have terms very carefully written out by their lawyer. I ended up borrowing $3,000 from them to go to graduate school, and repaid it when I got my first professional job.
Overall, that worked pretty well. It was clear that some of the money (interest, for instance) was to be a gift (the loan was given at the same time as a “grant”). And when I graduated, Grandma forgave some of the loan as a present. There was one problem that came up, and that was when she said that some portion of it was forgiven, but didn’t name a dollar amount. I thought she was giving me a larger gift than (the already large gift that) she intended, which caused some bad feelings until we resolved it.
I’d do it again, but make sure that any gifts were as carefully written out as the original terms.
My mother also loaned me money for graduate school. Again, no interest, but also no written terms. I wish that there had been. I repaid when I was working, but we had to talk a bit to make sure we remembered how much I was repaying, because neither of us kept as good track as we should have. (That’s partly the trouble of loaning money that’s to be repaid five moves later.) No bad feelings there and I don’t think my mother would have been concerned if the loan had turned into a gift, but I would have been.
So, largely good experiences, if some learning experiences, but I’ve always been a saver and good at budgeting. And I don’t think I’d loan money to anyone that wasn’t demonstrably good at both.
I don’t have advice for how to help. Amongst the people I’ve known, people who aren’t good with money can’t be talked into being good with it. You just have to hope they’ll want to enough at some point.
July 13th, 2007 at 7:20 am
How responsible is he generally? What are his spending habits? What kind of car does he have? How often does he upgrade his computer, and does he play World of Warcraft 24/7 like half of my college friends seem to? How much is he spending on alcohol? IS HE DOING WELL IN HIS CLASSES? Are you close enough with/to him that you can check in on him every few weeks?
I couldn’t see myself co-signing a loan with anyone. I would rather loan money and never see it again than co-sign a loan and watch my credit plummet. If he is responsible, keeps his word, does his schoolwork, and so forth, I would say help him out, if you have the means. Maybe a loan with a payment plan similar to a student loan (no payments until he graduates). If he is generally a good kid, but has some bad habits, give him some conditions (i.e. keep the partying to one or two a month, no more weed, and you don’t really need ANOTHER vintage Les Paul).
Disclaimer: I’m a college student, but my parents are paying my way (their parents paid for their undergraduate degrees, and if I have kids, I plan to pay for them as well — sort of a pay it forward thing).
July 13th, 2007 at 7:29 am
I agree with Argonautica (first post). Lending a portion of the money through a peer to peer lending site such as Prosper may be a very good idea. You could loan a small portion of the money (as low as $50) and then other people would loan the rest. The family member would have monthly payments to make and would pay interest (as low as 6%). In addition to loaning part of the money you could endorse your family member which would encourage others to fund the loan.
You can read a little bit more about Prosper on the GRS Forums or my Prosper Lending Blog. Facebook’s new Lending Club is also an option.
July 13th, 2007 at 7:32 am
Thanks for all the advice so far, everybody.
It’s worth mentioning that he’s in LA, and we’re in Seattle. So suggestions of paying him to do work for us, or having him over for dinner wouldn’t quite work in our situation. Good ideas though!
July 13th, 2007 at 7:42 am
@AB:
There are scholarships for ANYTHING and EVERYTHING if you look hard enough. They may only be $1000 or so a piece, but there is nothing preventing you from getting multiple scholarships. The financial aid office will probably only know about scholarship programs offered through the school, which is a fraction of the ones that are available. Yes it’s a place to look, but look outside the school as well.
That’s why I suggested that they offer to help look…because there are so many places and so many scholarships that one person would have a hard time tracking down all of them.
July 13th, 2007 at 7:43 am
I had a similar issue come up with a friend of mine a few years ago. She was in dire straits, but being just out of college myself, I wasn’t in a position to loan her large sums of money.
But, because she was at a point where she either had to pay her rent and car payment or eat, I started sending her care packages. When things went on sale at the grocery store, I’d buy extra and set them aside in a box for her. I bought grocery store gift cards and gas gift cards (as another poster mentioned). I went to the dollar store and bought her nearly a case of things like peanut butter, pasta, pasta sauce — anything I could find that was relatively healthy and cheap. I even printed and clipped extra coupons for her, because I knew she couldn’t even spare the extra quarters to buy a Sunday paper.
The nice part was that the care packages kept us in touch, and let her know that someone cared, even though I couldn’t make her problems go away.
On the other hand, if I were in your situation today, I might consider paying off the brother-in-law’s car for him. If he only owes $1-2k and it is within your means to do so, that might be a big burden lifted for him. But again, it would have to be a gift rather than a loan.
July 13th, 2007 at 7:50 am
Re-reading your question, I’m compelled to say one more thing–I notice that this is your brother-in-law, and so presumably it was your wife (his sister?) that he asked to co-sign. One of the major reasons that people always say “don’t loan money to family members!” is because of the weird dynamics that can occur when re-payment doesn’t go according to plan. However, handling this request in the wrong way can also result in some real tension. Presumably, this guy is going to be in your family for the rest of your life, so finding a way to help him achieve his goal of staying in school (and the more I read this, the more I think helping him find a loan not requiring a co-signer is ideal, since he’s looking for loans rather than a gift anyway) without creating rifts is key. *Please* don’t tell him “just go get a job,” or tell him you’ll co-sign only if you get veto power over his grocery list, or that you can’t co-sign because you think his money management sucks.
And make sure you and your wife are on the same page regarding what is “fair” to your brother-in-law. I come from a blended family, and looking back, it’s a bit funny how my mother would slip me checks to help with rent without telling my stepdad, and my stepdad would do the same for his children in law school. The entire thing caused a lot of friction between them, because while they both agreed that in principle it was better for the kids to learn to deal with money woes by themselves, in practice it was almost unbearable for both of them to watch family members struggle while trying to stay in school, pay rent, study, and work a part-time job. Making wise money choices is important, but not at the cost of stressing your relationship with your spouse. (If you and she are totally on the same page, good! Just wanted to through in a warning, since I’ve seen how this dynamic can go wrong.)
July 13th, 2007 at 8:32 am
I have received small loans from my parents: $500 or so, which were short term–a matter of weeks.
I currently have a loan *in my name* out for my dad. He pays me, I pay the laon. The bank gets the interest, but I think that is simpler for me that way. I don’t think I would do it again. Though he pays me, it is a hassle. If he were to ever *not* pay, I know my mom would cover him. If for some reason he stopped paying me, I could take the loss (though I would not like it).
More nervwracking, I’m cosigned on close to 20k of my sisters student loans. I have since put an end to this cosigning, as I was increasingly uncomfortable with it. At the time, I was too young to really “understand” the implications of signing them, or that it wasn’t a one time request. My parents say they will cover them if it ever becomes an issue (they went through some things that made them uneligable to cosign), and I beleive them 100%, but I still regret it because she should be able to get her own loans by now, and if she can’t, there is a reason. I feel like she’s going to be in student loan debt for the rest of her life (private loans) and it worries me..
To the person who said there are scholarships for everything and anything…. It is certainly worth looking, but the scholarships that are for “easy” things are often very well applied to and not easy to actually get. Even if you are a bright student with plenty of talent, you are not going to find THAT MUCH money. If you are an average student, then you’ll have even less luck. Have you personally found thousands of dollars of “easy” money?
Advice? Wish I had some! If they do get a loan, you maybe could offer to “match” a portion of the repayments if you are in a position. This is something I’m considering trying for the loans I’ve cosigned for, because it’ll benefit us both and help keep me off the hook.
Best of luck, and let us know what you decide.
July 13th, 2007 at 8:33 am
Why can’t he just take out a studen loan from a loan company like I did? No one paid my way to college (or grad school) either!
No way would I co-sign on this loan. He doesn’t need a co-signer if he takes out a legit student loan.
July 13th, 2007 at 8:41 am
The Tim, I commend you on sticking to your instincts and refusing to loan him money. This is a difficult situation because it likely makes for some (short-term) resentment and anger within the family. Without knowing the details of the borrowers finances, spending habits, and character it is hard to say if I agree with The Tim but it is likely I would do the same thing. The Tim likely realizes, like I have, that co-signing a loan would be giving the borrower an easy out. The borrower needs to be resourceful and find ways (a job as well) to finance this debt. There’s a reason the bank will charge him 10-15% for a loan, he clearly is a credit risk and is likely to default. The Tim is not obligated in any way to give (lose) this money. In fact I think the lessons learned by not co-signing or giving a gift and forcing the borrower to solve the problem on his own will serve him best in the long run.
As others have mentioned I agree that giving coaching, ideas, and reading material is the best way to help (if the borrower even wants to be helped) without putting his own money or credit at risk.
For loaning to family members, I consider assets and income as well as outstanding debts. I think of it the same way a banker would when figuring risk of repayment. I currently have loans out to my mother, father and brother. In the case of my parents I considered their assets and realize that if needed they could sell one of their cars or other unnecessary assets (electronics equipment, etc) to repay. Although difficult, I would turn down a loan to a friend who is broke because of spending too much oh lifestyle items. I would instead offer to council them on money management (if they are ready to hear it).
July 13th, 2007 at 8:47 am
He’s asking you to co-sign a loan, not for the money itself. I know this puts your at risk if he doesn’t make the payments, but still, I don’t see how this is the same as loaning somebody money.
@mary, seems to me that that’s exactly what he’s doing, taking out a loan from a loan company, but maybe because he doesn’t have sufficient credit history on his own, he needs somebody to co-sign the application.
July 13th, 2007 at 8:49 am
So here’s my 2 cents, in the order i’d recommend them in…
Talk to a school counselor - I forget the name of the program, but lots of schools have a ‘work your tuition off’ program where you work about 20 hours a week on campus - if he walks into a private university and tells them that he has to drop out because he can’t afford it - assuming he’s a good student - they’ll find a way to keep him in school through grants, student loans, and in-service work. But you have to ask for it.
If he belongs to a fraternity, they may have scholarships available to brothers. I am a Sigma Alpha Epsilon brother, and as an alumni i give to our scholarship fund to help other brothers in college.
Get a job - he’s in LA (I’m assuming that means Los Angeles), there are a ton of jobs out here if you know what to look for, if he’s in college, paying internships can go for 10-15 bucks an hour. Even In-N-Out pays something like 8.75 an hour. I worked my way through college as a security guard - which meant they paid me 3.75 an hour to sit in a guard shack for 8 hours a day at a retirement home and study while i waved at old people driving through the gate. Again, there should be a bulletin board on campus where jobs are posted. Or offer to be a tutor to students of freshman classes he’s already taken.
Prosper.com - can’t hurt to see if he can get the money from there, generally gets a lower interest rate than certain other alternatives like…
CashCall - we just had a post on this, yeah, it cost a lot to borrow from them, but hey, it is an alternative, especially if he’s looking to start a rock band.
And last ditch effort - Become a lab rat - professors at Uni are always looking for psychology experiment subjects, or sell your blood to the blood bank.
Now that being said, if you can afford to send him the money, then give him the tuition as a gift, no strings attached, and when he graduates you can stand in the crowd of well-wishers and know that you had a part in helping him create a better future for himself. If you want to attach some sort of strings, tell him something like you’ll pay the tuition as long as he maintains above a 3.0 (or whatever) and call it the ‘Sibling Scholarship’. When and if my sister goes to law school, I’ve already told her I’d help her out as long as she maintained good grades. As Suze Orman says, people first.
July 13th, 2007 at 8:50 am
The carepackages sound like a really solid bet for helping out with the day to day ‘necessicty to eat’ that most people face.
Combined with a search for additional scholarships and -school/tuition- loans, this may help greatly.
Moving schools is most likely not an option. Moving residences might be. Live cheap. It might not be nice, but cheap rental housing is out there. Use a free apartment hunter, and tell them you want the cheapest place available. He should investigate what it would take to get out of his current lease, or at worse wait until the current lease is up. Also, he can get roomates.
Then there’s standard cost cutting. Switch off cable. Sell your tv. Sell your old CD collection on ebay.
The best way to look at co-signing is: “The bank, who analyzes credit and loans all day, doesn’t think that the applicant will be able to pay this loan back. But if you think that they’re good for it….”
July 13th, 2007 at 8:57 am
I’m curious about the details behind this story. What makes you think he has poor financial habits? And is he unable to qualify for student loans?
I didn’t qualify for students loans (in Canada) and my dad was a letter carrier supervisor (that’s about $1/hr more than a letter carrier). I had to scrimp and save to get through school — thank goodness for scholarships. But it’s pretty darn hard to stay at the scholarship level (A- and above at my school) if you are working even part-time.
If your BIL was expecting to have a job throughout school, he might not have anticipated being in this situation. If he only has a year left, he may be thinking it’s best to get the year done, as opposed to taking time off to work. It might be hard to even take a semester off, since the courses he needs may not be offered till the next year.
As for poor financial habits, he might actually be spending a LOT less than his peers, especially at a private school. Living along poverty lines can have devastating effects on networking abilities and even marks. Because I couldn’t even get $5 to buy a beer at the pub, I was in a dire social situation. It put me at a disadvantage when applying for jobs after university.
So, I think you should find a way to help him finish the year. But don’t just hand over money. I think the Prosper idea is the best one, since it will affect his credit rating if he doesn’t pay - and will boost it if he does. He’ll have incentive to pay it. And he can’t really complain that no one offered to help him, since, if he really intends to pay, he shouldn’t mind having a contract and all that.
July 13th, 2007 at 9:02 am
Asking him to transfer to a more affordable university, as previous posters have pointed out, would probably cause him to stay in school for additional semesters in order to make up the difference in credits that don’t transfer. I wouldn’t advise this.
Scholarships are also tricky. I would definitely encourage him to take a look at available scholarships and apply for those for which he is eligible, but understand that (especially if his parents are decently well off) his chances of receiving such scholarships are low. I would also ask in the department of his major (for example, my major department offered a $21 grand scholarship for the top 5 female seniors in that major which I didn’t know about until I received it).
You don’t say what his tuition payments look like. I can understand, as a student at a private university, that tuition could be as expensive as $20 grand a semester, in which case a $10,000 loan is not necessarily a sign of poor financial habits but rather as a means of financing an education. If tuition is $5000 and the car loan is $1000-$2000, then that’s probably on the high end for living expenses.
I think the first step is to try and find employment. I know that many of my friends do online tutoring, music lessons, babysitting, driving around children, etc to earn enough money for textbooks. Even looking at a $400 or so textbook bill is doable with that type of side income. Does he qualify for work study? If so, he should be able to earn approximately the amount of his car loan through on campus student employment.
I personally believe in helping family out, particularly when it comes to education. There is nothing in that post that says to me that this is a financially irresponsible young man. Private colleges and universities are so expensive today that almost everyone, including those supported by well off parents, will end up taking loans to finance their education. While I understand the concerns about cosigning a loan (some of which I think put too little faith into this young man, not knowing anything else about his financial history), I would support a binding legal agreement between you and him that would pay his tuition and require repayment.
I do think its important for both you and him to draw up a budget you can agree on, and make the terms of the loan (from you to him) dependent upon that budget. There’s no reason to lend him alcohol money, but there is a legitimate reason (in my mind) to help with his tuition.
July 13th, 2007 at 9:10 am
Instead of using prosper.com which would still involve you being out the money immediately I would probably reccommend going to a bank first to do a cash secured loan.
Heres how it works, instead of giving him $10,000 you would take the money and deposit it into a CD at a bank. You would then allow him to take out a loan in his name only using the CD as collateral. This way if he doesn’t pay, or has late payments it doesn’t hurt your credit and you don’t have to be the one trying to collect from him.
The downside of this is that if he doesn’t pay for 90 days you will probably lose your CD. Usually rates on these loans are low, typically whatever interest the CD is earning + 2%, so he would get a good rate, and your money would be earning interest in the mean time.
July 13th, 2007 at 10:06 am
Tim, I posted above (#19) about using Prosper.com. You motivated me to write about some of the advantages here:
Loan money to family through Prosper
Let me know if you decide to go that route and I’ll throw in $50 to the cause.
July 13th, 2007 at 10:39 am
A couple of people are mentioning tuition. I didn’t mention the tuition details because through various grants and student loans, he already has tuition taken care of.
The $10,000 he’s asking for is for rent, car, food, books, etc.
Here is a small overview of why I believe he has poor financial habits.
First off, he had a horrible financial example in his father, who tends to rack up credit card debt, barely pay it off, then rack up a bunch more. Also, the “I’ll get this large sum of money, put it away for later, and use it only as needed for these particular things” routine comes directly from his dad as well, who would inevitably end up dipping into the pool for various other reasons, depleting the money much quicker than possible.
Back to my BIL specifically though. Despite the fact that he has little to no income, he continues to spend money on cigarettes, concerts, and other such entertainment expenses. He bought a car when he didn’t really need one, then when that one wrecked or broke down (I don’t recall which) he went out and bought another one. In general, he seems to be following closely in his father’s financial footsteps, which is unfortunate.
July 13th, 2007 at 11:28 am
What if you worked out just how much money he needs to get him through eight months of school? I’m guessing this is $500/mo for accommodation & utilities, $200/mo for food & cleaning supplies & toiletries, $75/mo for a bus pass, as well as $1000 for books. That adds up to $7200 right there. And perhaps I’ve underestimated how much he needs. He may also need help for July and August, which would add $1550 to my estimates. That’s almost $10k and it doesn’t allow for restaurants, concerts, drinking, cigs, haircuts or anything else. If he’s stuck with a meal plan for school, $200 may be too little for food. So $10k doesn’t sound like he’s going to town with your money, unless he’s already got enough from scholarships and loans.
I still vote for something like Prosper. If he legitimately needs the money and can’t qualify for further loans/scholarships, it’s the best bet. It doesn’t sound like he’s asking for enough money to party.
July 13th, 2007 at 11:44 am
I have a brother who is always in some kind of financial trouble. Some of it is bad luck, but most of it is just poor decision-making. Still, he’s family, and I like to help, so I can empathize with The Tim’s position.
Likewise, I can’t afford to *give* the money away, but I have found ways to supply money that’s in my long-term interest and still helps my brother.
Looking at The Tim’s situation, I’d suggest this: buy his car. Buy his car for the amount of his remaining loan, let him continue to use it and care for it; then he signs a contract to buy it back from you at a slightly higher price (interest, if you will). If he makes all his payments on time, he buys the car back at the end of the term. Otherwise as a worst-case outcom, you can return the money he paid you and sell the car — you’ll still lose some money, but not as much.
If you explain these things outright, and the reasons behind them (”If something happened and you couldn’t pay, I can’t afford to lose the money”), and the advantage to him (”You’ll have a smaller and/or deferred car payment, and if you do get in a position where you can’t pay, you’ll get instant cash back from me.”).
I’ve done this with some property for my brother a couple of times; once he paid everything back (first time he’s ever done that!), and once he had some bad luck on top of his bad decision and couldn’t afford to pay me. We’re still on good terms, and I only lost about $1000 instead of the whole $5000 I “lent” to him.
July 13th, 2007 at 11:46 am
There is no one case in such situations, you cannot generalize it. But I would make sure that he will not get a loan from me without he giving back something in kind. It may be somethink like his time for my work- secondly- no way will I give him a lumpsum, like in this case, for his car I will give him $500 monthly and see how it goes and move forward. Bottom line is I will NOT give him or co-borrow a big loan…
July 13th, 2007 at 11:58 am
These are all stereotypically male answers (my favorite kind). But don’t forget that just lending a sympathetic ear can also help people. It lets them know they are loved, that you care, and that you are sorry they are having difficulties. It also lets them get things off their chest, and maybe after enough talking and maybe ranting, they can figure out more alternatives.
Sadly, there are always some alternatives that people just won’t see or won’t consider until they feel desperate. Saying no to co-signing the loan without saying no to the guy can give him that stab of panic that may help him brainstorm more ideas.
So, another idea is to ask him what he thinks all of his options are. Getting this loan is not the only option; it’s just his favorite so far. (Another option would be suicide; I expect he can think of some more that he likes better than that!) This works on people who don’t take advice. Just keep asking questions like “Nothing else?” “That’s the only thing you could possibly do?” “Is there anyone at school you could go to for advice?” “What would happen if you didn’t have a car?” If you are socially skillful, you can set it up so that in order to save face and not come off as totally helpless, he will come up with his own ideas.
July 13th, 2007 at 12:06 pm
Assuming your BIL is of a typical college age, he is an adult in years but not in experience. And I’ll also assume that you are older with more experience about being in the real world. It’s easy to forget how different the college world is. Even if you’re working your way through, it’s different and I’m sorry I really can’t articulate that better. So, parent that I am, I can’t help but think this is such a great learning experience for him to have while he still has some sort of safety net. Whatever you decide, I’d encourage you to keep the ball in his court and not try and organize a solution for him. Remember, he’s made it this far on his own. Offer what you can monetarily. Offer unlimited hours of support and advice.
Surprise him with the occasional care package. But try and keep this his solution.
He’s made a good first attempt. And there’s a certain beauty to it: consolidate everything, add enough to cover x months of expenses, and only have one payment instead of several while he gets back on his feet. He retains his exact same standard of living as when he had a job. He also retains his sense of independence. Plus, he’s not working and has more free time. No worries!
But it’s not the best solution. It would be so easy for your BIL to unintentionally blow part of the money, or dawdle on finding another job, or default on the loan and then he’s in the same bind plus an additional 10k in debt. He’s better off with a student loan plus drastic cost cutting measures plus, perhaps, financial help from you.
Most of the financial aid is probably set for the coming school year, but student financial aid is going to be a great resource for ideas and reliable resources. Remember you don’t have to pay for any legitimate lists of scholarships and loans. And the Wall Street Journal just had an article about student loans too.
Good luck!
July 13th, 2007 at 12:50 pm
Actually, I must say that loaning money to a family member in financial trouble is not helping them but rather teaching them that they don’t need to care about their finances.
He/she will eventually need to fix their financial situation by himself/herself so education and realization is key.
July 13th, 2007 at 1:22 pm
Personally, I’d never loan to family, and I’d never take a loan from anyone except my parents. Too much possibility for conflict. If I were in your shoes, I would sit down and think about how much money I was willing and able to give him without straining my own finances much. However, based on your description of his financial skills, I would NEVER EVER give this guy cash outright.
Instead, I would ask him a few questions, then give him the money he needs in forms that can only be used to buy his necessities. For example, give him gift cards for the grocery store and gas station. Send the rent check directly to his landlord. Find out if his school offers a system where you can put money on his school ID card, which he can then only use at the bookstore and campus eateries.
Will this seem embarrassing and patronizing to him? Sure. But if he really needs the money, he’ll go for it. He’s (presumably) young and has plenty of time to recover his pride. Best of all, when he figures out that the cash for concert tickets and cigarettes doesn’t grow on trees, he’ll be back in the work force in no time!
July 13th, 2007 at 1:42 pm
The Tim,
yes, definitely don’t cosign a loan. definitely don’t add him as an authorized user. if you don’t want to give him a money gift, and don’t believe he can repay a loan, then i’d suggest what I just did recently. I asked for the person to set up a budget for me to see and a list of bills that could be paid directly by me, which in most cases is every bill out there. i asked for a list of the bills that could also be paid by credit card. Obviously the person did not need all the money right of way, and I wasn’t going to empty my savings account to give them money up front. I decided to do a month-by-month deal, because it would still allow me to help while not disrupting my financial situation. this did two things, I could pay their bills by my credit card so I could get cash back as well as have the grace period to continue earning interest in my account or i would use a 0% card to still get cash back but to defer paying so i could continue to earn interest. month-by-month, because i could ensure that the person wasn’t just going to blow the money and the money would be lost. more importantly, this forced the person to actually continue to look for a job and other means of getting their financial situation under control. if you give money, unless they are very responsible, chances are they will just blow the new found windfall rather than putting it towards their needs until they get another source of income. i didn’t pay all the bills, because they need a bit of motivation to look for a job. at the same time, i wanted to alleviate some of their financial anxiety.
for me, the money i used to pay bills was not a loan, it was a gift. i had established a set amount i was willing to give as a gift, but I did not tell the person how much it was. i said we would re-evaluate each month. i felt this was a way to ensure the money was actually helping the person rather than going to waste. i understand the arguments that if it was a gift, then the person should be able to do what they wanted with the money, and i was being intrusive. i don’t see it this way. they asked for help, i was willing to do so without being repayed (i was very clear on this point to them), but i wanted to help ensure the person got back on track without actually enabling the person to spend frivolously. i don’t see anything wrong with telling them it is a loan either and still do what i did.
rapidly running out of cash still implies that he has cash.
take a look at when bills are actually due. if tuition isn’t due, that can be deferred and not paid by you right away. things like rent of course probably are more urgent, but it’s monthly so 6 months of rent does not need to be given up front.
paying off the car shouldn’t be really a necessity. it’s a small amount, perhaps floating the car amount on a 0% credit card.
$10k for the situation seems really high and your gut feelings either by fact or not, seem to be warning you something is amiss.
just be clear up front that the money is either a loan or a gift.
July 13th, 2007 at 1:50 pm
last, sometimes people need tough love, saying no is always an option.
people may say, well asking the person for a budget, etc, is intrusive…well, so is asking someone to co-sign a loan or borrow them money. heck, he may decide that doing it on his own is easier than having to deal with The Tim wants to control his finances.
July 13th, 2007 at 2:02 pm
I know some people have suggested he get a job, but that’s not going to be enough to cover rent, food and books. $8.75 an hour x 40 hours a week x 32 weeks will be $10k. But this guy is trying to go to school at the same time. Even if he earned $15 an hour and worked two days a week, he wouldn’t make $10k.
That being said, he could be expected to work for some of the time.
I know many people are saying scholarships and bursaries abound. That’s not necessarily true. I had straight As and I found that I had to pay much of my own way.
July 13th, 2007 at 2:20 pm
I have been on the receiving end of a personal loan multiple times. They’ve all been smallish though ($200, $300, and $700). My former boyfriend (we were still together at the time) was kind enough to lend me the $700 I needed to cover rent and keep my bank account from being overdrawn. I’m glad that I have such kind and generous people in my life when times get rough. But while I am very grateful for the loans, I don’t think it’s something that I would do if the roles were reversed. Well, perhaps for the three people who loaned me money, but not for anyone else. Just causally passing money around like that makes me uncomfortable. I even felt uncomfortable borrowing money myself! I knew I would pay it back eventually (one friend is still out $300, but we both know that he’s not in desperate need for it and we both know that if he needed it immediately for whatever reason, I could get it to him immediately, we’re just both rather lazy, and he enjoys the fact that I’m calculating the interest that I owe him as well… which is probably going to be a couple of dinners), but not having any sort of binding agreement to follow made me paranoid that I would infinitely push off repayment. Luckily that didn’t happen, with the exception of one friend who is still out $300, but we both know that he’s not in desperate need for it. And we both know that if he needed it immediately for whatever reason, I would get it to him instantly. We’re just both very non-confrontational, and he enjoys the fact that I’m calculating the interest that I owe him as well… which is probably going to be a couple of dinners out on me, hehe.
July 13th, 2007 at 3:45 pm
No loaning. I’ll give them $20 for drinks if we are out & they haven’t hit the ATM. We’ve done the split cost thing on vacations & X-mas gifts. But I never kept track of it or worried about the money. Never lend or give money to family or friends if you ever care about having it back.
I once lent $5 to a co-worker. Never got it back. I didn’t worry about it. Only $5. But when he came around for the 2nd time, I said no because he didn’t pay me back last time. He seemed worried about this & didn’t recall. It didn’t bother me a bit. It was only $5 & the bank was now closed.
July 13th, 2007 at 3:50 pm
I had a friend who encountered this situation with an ex-girlfriend. He essentially said, “you’re telling me that you don’t know how to manage your money successfully and asking me to take over.”
He paid off the credit card debt that she was buried under and then really did take over. She gave him her monthly paycheck and he allotted all of her spending (including money to payhimself back.) This takes a LOT more involvement, but if you are close enough to someone for them to ask for a loan, hopefully you want to help them get their financial life on track. I realize that the destitute brother-in-law here doesn’t have income, but if The Tim decides to lend to him he should at least be allowed to directly control how all of the money gets spent.
I also agree that Prosper and CircleLending are great options.
Good luck.
July 13th, 2007 at 4:04 pm
Loaning money to friends/family is hard. If you don’t gift him the money, you’ll be bitter every time you see him behave wastefully. And by your description of him and his father’s spending habits, this sounds very likely. If he’s willing to accept financial advice, it sounds like he needs it. College is expensive and difficult, and it’s not at all unreasonable to expect him to miss out on things that cost money (e.g., concerts).
Getting a job isn’t that hard. I went to school in LA, and I found there were a lot of decent paying jobs, as long as I was willing to put forth the effort. Personally, I saw way too many people waste time and money living an image that compromised their financial futures. A financial analysis might be one of the best gifts you can give him.
If, however, you and your wife want to contribute something concrete, a friend recommended paying off one thing (e.g., the car) instead of putting yourself on the hook for $10K.
July 13th, 2007 at 4:16 pm
I might make the loan if all the following were true:
1. I would have no problem living without the $10,000 bucks.
2. I thought the relative or friend was worth it.
3. If they weren’t able to pay the loan back, I could.
4. He would find a job, at least part time, and he would send you evidence of paychecks and of responsible spending.
5. He would be willing to sign a contract saying that all finance charges, loan origination, and other extraneous costs associated with the loan would be re-paid by him if I was forced to pay, plus court costs if I had to sue.
6. I was willing to sue him to recover my losses.
I would do this because that’s pretty much what happens in the corporate world: If you get someone’s money, they get to dictate the terms. If I wasn’t willing to do all 6,then I would do my best to help him find a part-time job, and maybe give away some incidentals (toilet paper, towels, soap, ramen noodles) if I thought he were worth it.
If he’s not, then there’s not much you can do.
July 13th, 2007 at 4:50 pm
Even if you decide to give him money, I’d set it up as a loan through a site like Prosper. You can still (mentally) think of it as a gift, but there will be serious consequences for him if he messes up.
In lieu of that, I’d buy his car with an offer to sell it back to him at $X at some specified time.
But, really, only do these things if you have money to burn.
July 13th, 2007 at 4:55 pm
I just graduated from college in LA a month or so ago.
The part about the BIL still spending money frivolously (cigarettes, concerts) takes away my sympathy for him. He can always find a job in LA, he does NOT need to go to concerts and most likely does not NEED a car.
However, in this situation I think the one way to help, money-wise, is to pay off the car as others have suggested and send the BIL a link to craigslist to find a job! There are lots of gigs in LA, extras in movies, being a server at events. There are lots of opportunities if he just tries.
July 13th, 2007 at 5:58 pm
I have been on both the giving and receiving end (winning and losing at some point on both). I recently loaned a family member $2000, of which, he has paid me back all of it except $250.00 at reguler intervals, and I expect the final payment in a week or so. So, depending on the person it can work.
I am currently exploring a land purchase where I might need some financial assistance. I have been in discussion with family members with regard to additional funds (mind you I am credit worthy with mids above 800 and a solid income). We are considering using circle lending (http://www.circlelending.com)as a method of keeping it business relevant and minimizing the family angst. Should you have the means, you may want to consider one of their options.
… just a thought,
July 13th, 2007 at 7:41 pm
I was in this type of situation recently with my brother - he’s asked me several times in the past year for a loan. Been there, done that.
Just say no.
July 13th, 2007 at 8:30 pm
He might have to quit school and work for a while to save up the money. If he’s that determined, he’ll do it.
Heck, that’s why its taken me 6 years to finish my degree - I can’t afford to go full-time. Don’t loan him the money.
Of course I also say this as my brother was kind enough to loan me money when I was overseas, but we didn’t discuss terms or anything like that, then he acted like a prick and expected it back when I was unemployed. So, ya, I would say if you do loan, *expect* it back by signing a good agreement. But its easier just not to.
July 13th, 2007 at 8:53 pm
> Heck, that’s why its taken me 6 years to
> finish my degree - I can’t afford to go
> full-time.
Liz, I also took six years to finish my degree. I worked my way through, so that I wouldn’t have any debt.
You would not believe how many employers turn up their noses at this. I’ve been asked if I was unfocused, lost, not committed, in some sort of trouble…and so on. The last time I was asked this, I had more than 10 years of corporate experience (including time as a manager) and I had just graduated from an MBA (again, with no debt). I would say that 80% of the employers I’ve encountered see my 6-year stint as a sign of “personal issues”. I always answer that I worked my way through and I point out all the work experience on my resume (since I actually worked at career-related jobs). But many, many employers discriminate against people who take more than 4 years to do a degree.
July 14th, 2007 at 7:04 am
You are wise, The Tim. You’re not getting involved in this $10K loan scheme, because you know you’d only be financing your brother’s first trip down the path your dad took.
For that same reason, I would go easy on the financial advice too. He’s not going to take it, and every time he smokes a cigarette or buys a car, you’re going to take it personally that he rejected your advice. He already knows he’s being foolish about money.
What you could do is start a real conversation with your brother — about your dad. Tell him what you said here: The way your dad abuses money, it breaks your heart to see your brother start doing it too. And then leave it at that — don’t follow up with bank brochures or links to loan sites … just let him know that this issue goes deep with you.
July 14th, 2007 at 7:30 pm
Twice in 20 years I’ve loaned substantial amounts of money to my brother. The first time he paid it off exactly as he said he would. The second time was just a few weeks ago, so only time will tell, but I have full belief he will pay it off. However, in my mind I assume its money I’ll never get back. That way if I don’t, I’m not upset. And he is my brother, so I would lend it anyway, even if it entailed some hardship for me.
That said, I once “loaned” a friend $1,000 and never saw it again. As expected. Ah well, you ever hear of paying it forward?
July 14th, 2007 at 9:52 pm
[...] JD at Get Rich Slowly discusses some ways to help a family member in financial trouble without loaning them money. [...]
July 15th, 2007 at 5:51 am
My answer really depends on the situation. If it’s something unavoidable and unexpected, I will help if I can. If it’s something that arose out of bad spending and saving habits, no, anything BUT giving or loaning money.
Sometimes the only way to change bad spending habits in other people is to just let go and let them hit bottom.
July 15th, 2007 at 8:03 am
I’m in a situation right now involving my father, who is mentally ill. Over the last few years, he racked up about $30,000 in debt and didn’t tell anyone. He has tremendously difficulty keeping a job because he is unable to work with people (which all jobs involve at some point). Credit counseling refused to help him, since they require you to have an income. The way this situation was dealt with is that my mother (his ex-wife) paid off the debt and will recoup the money via a second mortgage on his house, as his house is really the only asset he has (he has no savings or investments as far as we know). In the meanwhile, I’ve lent him about $1400 for the past few months to cover his bills/food etc., but I’m not expecting to get it back. He’s recently qualified for disability social assistance, which isn’t very much, but will hopefully cover his basics. My current fear is that he will start using credit again (he is a very impulsive buyer, and in the past would freely indulge himself in things he doesn’t need - I remember back when I was a kid and having to pay for the dog’s food b/c he had already splurged his paycheck on other things). It is so frustrating that despite his mental incapacity, he is still allowed to sign up for credit cards. I’ve asked around and no one seems to know what we can do to prevent this (save from monitoring his every action, which would be impossible as we all live in different cities). My mother and I have access to his bank accounts, but there is nothing to stop him from simply opening another one and doing with that what he will. I’d like to not be involved and be allowed to say no, but he has neither the will nor the ability to take responsibility for his actions and it seems there aren’t any support systems available to help us (I am in Canada), which means the responsibility ultimately falls on my mother and I.
July 15th, 2007 at 9:16 am
I have a cousin and her family with even worse financial habits. her father and step-mother bailed them out over and over. Until the stepmother had had enough (they were eating fast food for every meal, buying huge numbers of CDs and DVDs, buying cars they couldn’t afford them getting them repossessed, the phone was shut off repeatedly for non-payment, etc etc).
Finally, the step mother said no more. She helped them find a finanical manager. Their paychecks go to the manager. She gives them a budget. Within a year their back taxes were paid up, their house painted, christmas funded, and extra money for a trip to visit gramma (after 11 years of no visits due to tight money).
Hook this guy up with a financial manager before he gets in worse straights.
He may have to go to college part time so he can work more. Yes, it adds semesters, but if he goes financially belly-up, he’ll be out of college entirely anyway.
July 16th, 2007 at 4:11 am
[...] was one of the questions raised in a Get Rich Slowly post Friday morning. I happened to be the first one to respond on GRS, and part of that was because this [...]
July 16th, 2007 at 4:38 am
Leant money to a friend scrambling to close a particular deal…should have seen the red flags. Since then I’ve notice that more money thrown at him, from several people, never seems to resolve any of his dire situations.
I don’t expect to see that money again.
July 16th, 2007 at 5:45 am
I would hate to say never loan money to a family member as I’ve both loaned money and taken loans from family members.
I loaned money to my mother when she was in a real financial jam and she never paid me back. But, my mother raised me and supported me, helped, along with my father, to pay for my college and helped me with pay a good chunk of my professional school tuition. So, once I had a good career established (possible with years of education financed partly by my mom) I helped my mom out a number of times. While I probably enabled my mom hold on to a failing business longer than she should of, its my mom, I had the money and I felt like I owed it to her. Mom is a good financial situation now and I’ve never asked her to pay back the money and never will.
I also helped a good friend in need for a couple of years, small sums that I considered gifts and she considered loans but she’s never paid them back and I wouldn’t expect her to do so.
My grandparents helped my finance living expeneses during my last year or so of professional school. We agreed that I would pay them back, we did not have a written agreement and they did not charge me interest or impose a formal repayment schedule. I did pay them back within a few years.
My father helped me finance the closing costs for my first home purchase. While I had the downpayment, I was not well informed on how much it would cost to cover the closing, tax, insurance costs so dad gave me a short term loan (2 months I think) and we did not have a written agreement and he did not charge me interest. I promptly paid him back.
Looking back I can see lots of opportunties for trouble in the loans I took from family, but it all worked out for the best.
I think that perhaps the writer should offer to assist his brother with coming up with a budget or areas that the brother could cut and should offer to, if he has the money, to cut checks directly to the landlord or to the college.
July 16th, 2007 at 5:58 am
Now that I’ve read the details from The Tim I would pay for and require that he take a personal finance class (inexpensive thru adult ed) before I would consider loaning him money. Sounds like he has some bad habits and lending him money is probably only going to enable him, buying a car and wrecking it and then buing another when he doesn’t need one makes me think he is a bad risk.
I might send gift cards and care packages but I wouldn’t lend him any significant monies until he has taken steps to improve his financial skills.
July 16th, 2007 at 11:27 am
I totally agree The Tim has valid concerns about the BIL.
I have had good and bad situations with loaning money. I have an ex who owes me 8K, which I never expect to see. That’s the bad.
On the good side:
I have a boyfriend who was in a bad work situation - underfunded computer startup. I fed him a lot; if we were going somewhere I usually drove, to save him gas and wear on his (old and troubled, thank God the man’s a decent mechanic) car. He has a GOOD job now, and is frequently picking up the tab for me. He also bought me a new DVD player.
I also bought a car and cosigned a lease for a friend. I had no ill affects from the cosigning. She now co-owns a duplex with her mom. At the time I bought her the car, her hubby had abandoned her and the infant for a couple months. During that couple months, she’d cut most of her expenses by over 50% (canceling phone services he’d insisted on, eating less meat, being more careful with hot water and such) and used the money to pay off outstanding balances hubby had run up. She was on her way to fixing her money problems - but her car died. She needed transportation for her and the kid to/from work and moving to an area with better bus service would’ve jacked up all her expenses. I also had the money to buy her a used Saturn which she is still driving over 10 years later. She got a job that subsidized the kid’s child care. When the kid got older, she got a better job and moved to a better neighborhood - which is when I cosigned the loan. So, that’s the good.
On the other side: My folks were eligible for a college loan program that I wasn’t. The loan was in dad’s name but I made the payments. (I also significantly improved his credit rating because I’m better at paying on time.) Later they co-signed a consolidation loan for some of the credit cards I’d run up in college, which I also paid on time.
My parents-in-law loaned my husband money for college tuition, which he paid back. Because he’s a smart aleck he paid in cash, and the last $1000 in $1 bills, but yes, he paid them back.
So, yes, it can work out. It can also not work out. I think a lot depends on the people involved. A personal loan or sizable gift of this sort is about investing in the person, and some people are better investments than others.
July 16th, 2007 at 1:50 pm
What’s up with all the non-repaying borrowers I’m reading about here? Are they just spending frivolously? Are they too lazy to work? I have chronic low earning power but I work hard and I don’t understand what’s the deal with all these other people who presumably have more earning power but don’t repay.
July 16th, 2007 at 2:14 pm
What good are “financial skills” if you have low earning power and a subsistence income?
July 16th, 2007 at 2:25 pm
[...] How To Help a Family Member Without Loaning them Money [...]
July 16th, 2007 at 3:39 pm
College can be a special case. I would lend money to a family member for college if they were a dedicated student with a real plan for how they’ll make their degree pay off. They would need to major in something with earning potential (because a degree in art history is a luxury — not an investment).
My parents took on debt for me, but it was an excellent investment for them, because my degree has paid for itself many times over in a relatively short period of time, and I took over all debt repayment the day I graduated.
However, in the given case, I would not give a loan, because you’ve already said this individual has poor money habits. I know too many people like that, and it would just enable them to make more mistakes without learning anything.
If I did give him money, it would have to come as part of a radical intervention, where I took control of his entire budget. Perhaps something like a prepaid debit card where I get the statements (like some banks offer for children).
I would make it his choice, and be very explicit about it: “I will help you out if you want, but here’s the rules…”
July 16th, 2007 at 10:45 pm
How would taking control of a borrower’s entire budget fix anything if the problem is NOT overspending but underearning?
July 2nd, 2008 at 12:48 pm
It’s been a year - any chance we could get a follow up on this and see how things are going?
July 2nd, 2008 at 8:02 pm
Update: My brother, to whom I lent 7K a year ago, has been gradually paying me back. It will take quite a number of years at this pace, but he’s doing it.