Should You Bailout A Friend In Need?

The following is a guest post by Trisha Wagner. I copied this post from the Not Made Of Money blog.

What do you do if a close friend or family member comes to you in dire need of financial help? If you have not yet faced this situation, the chances are you might in the near future. The question of whether it is wise to lend money to loved ones is not a new one, however more and more people may find themselves in the position to request help or extend help. Banks are not really in the business of lending these days and people are losing their jobs and homes in record numbers, so it is no great surprise that some people are turning toward friends or family for assistance. Which leads us back to the original question, what should you do if you are approached by a friend in need? By answering the following questions you will be one step closer to knowing if this is something you can live with.

Are you in a position to offer assistance? Just because someone thinks you are in a position to help them, doesn’t make it so. Before considering loaning a friend money, take a hard look at your finances. Do you have the money to loan without adding financial hardship to your own budget? You should only consider loaning money if you have your own expenses covered and the loan will not affect maintaining your own household responsibilities.

Can you afford the financial risk of this loan? If this loan is not paid back or is paid back over a period of time, will it cause you financial hardship? Ask yourself if you can afford to give this money away? If you can’t afford to live without it if it isn’t repaid, you should probably think twice before loaning it.

Reason for needing the loan? Do not be afraid to ask what the money is needed for. You will know better than anyone if the person who is asking for the loan is one who has just fallen on bad times or someone who is always falling on bad times largely due to their own decisions. While you may feel obligated to help a loved one, you should also consider how this loan will help them in the long term. If they have previous issues handling finances or struggling with debt, loaning them money might not help them beyond their immediate needs. Are you OK with loaning money that might not really help them in the long run?

How much are you willing to lose? Are you willing to risk a strained relationship with this individual if the loan goes south? While both parties may enter the loan with the best intentions, life has a way of throwing a wrench in the best laid plans. Do you want to take the chance with your money and relationship?

If after considering the aforementioned questions you feel this loan is something you are interested in doing, please include a legal document as part of the process. Hopefully you will never need to proof the terms and conditions, but it is always better to be prepared.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

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