Ask the Readers: How Can You Help a Family Member in Financial Trouble WITHOUT Loaning Them Money?

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,

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.

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.

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.

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.

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.

What good are “financial skills” if you have low earning power and a subsistence income?

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…”

It’s been a year – any chance we could get a follow up on this and see how things are going?