One of the hardest things to witness is a family member struggling with money related matters. Our hearts yearn to help them but sometimes I head doesn’t know how. Let’s look at six ways you can help your family member without hurting yourself financially. I know I’ve been in those situations where I really want to help but just don’t know what the proper steps of doing so are. Here are some suggestions.
As always, if you do anything that puts you in financial risk, make sure that you get a contract in writing.
1. Give the Gift of Cash
Cash can seem like an impersonal gift compared to a handmade sweater or savvy gadget but for those who are struggling to pay their bills, it’s the best option. First you have to decide how much you’re comfortable giving. Maybe you can afford one lump sum or perhaps you can only manage smaller gifts periodically. Regardless of the amount, the recipient will be pleasantly surprised to receive a gift they can put to use immediately.
2. Co-Sign or Guaranteeing
Proceed with caution when co-signing a bank loan for a friend or family member. The last thing you want is to ruin your credit history by co-signing for an unreliable person. Be sure to review the legal and financial implications in the event that the borrower fails to stay current on their payments. Before consigning, do the following:
- Get a copy of their credit report and monthly budget so you have an accurate picture of their financial abilities
- Have a honest discussion about the terms and agreements of the decision
- Ask the lender to notify you directly if the borrower fails to make payments
3. Help Them Create and Budget
Sometimes the best gift you can give is an education. Helping someone learn proper budgeting techniques and organisation is a tool that will reap benefits far past your existence. Remember the old saying “Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.”
4.Provide Employment
You may not be willing to co-sign a loan or be able to afford a fiscal donation but that doesn’t mean you can’t help your loved one in other ways. Do you own a business that could provide employment or know a friend who’s hiring? Help them get the job! The extra money will help them pay off their bills and teach them the value of hard work. It’s a win-win however you look at it.
5. Prepay Bills
If you’re feeling particularly generous or your loved one is in dire need of financial support consider prepaying some small expenses. This could be as small as their monthly phone bill or as large as their rent/mortgage.
6. Seek Professional Help
A credit counsellor may be the best option to get your family member on the right track. There’s no shame in asking for help and many debt consolidation organisations are willing to provide resources free of charge. Consolidated Credit is just one example of a debt consolidation organisation with trained professionals on site.
Whichever route you elect to take, make sure it doesn’t interfere with your financial security. Helping a family member is an honourable thing to take on so make sure it works in both of your favours.
I’d suggest being very careful when it comes to co-signing loans… especially student loans. I’ve heard stories of people who had their social security garnished because they cosigned a student loan. I would say the only time you should cosign a loan is if you are able to make all the loan payments yourself.
That is an excellent point!
Helping them learn new financial skills is a great way to help! My wife’s done this for some of her friends in the past. They know she’s good with money and have asked for her help. They’re now doing much better financially!
I get those requests now, too!
Honestly the biggest thing can be helping them learn to manage their money better (if they are open to it) as well as discussing ways to make money. There is a difference between someone who is working two jobs and struggling and someone who has a lot of free time but isn’t willing to work at a job they see “below” them.
I totally agree. So what are your thoughts on the person who is working 2 jobs?
Education is the key. Learning financial skills will have a big impact. I will consider to cosign a loan with a reliable person.
Interesting. I think a lot of people feel that way.
I have to agree with Michael. Never co-sign a loan. There are way too many pitfalls that can bite you from wrecking your credit, to having your wages garnished. I would vote most for Step #1, if necessary, and then give them a book or two on saving, personal finance, and investing. I would recommend Dave Ramsey’s Total Money Makeover for starters to help them get out of debt. Then perhaps the Bogleheads’ Guide To Investing for when they are out of debt. If you do give them money, tell them it is a one-time deal. You do not want to be an enabler.
Fair enough. I think the point here was to only have lend money to family and those you trust anyway.
I would still not co-sign a loan. I have some family members whom I love, but they are terrible with money. I know I would get stuck with their loan if I co-signed. As I said, I would give them money to get them out of trouble. Or I would loan them money and think of it as a gift, which I have done in the past. I was pleasantly surprised when they eventually paid me back many years later, sans any interest, of course.
I think the best thing you can do is give them knowledge that they can use in the long term. The problem though is that must people want the quick fix which usually means money. I am not sure if I would co-sign for anyone at this point. To much risk no reward. Creating a budget is great if you can get them to follow it.
I hate the feeling that most people assume that everyone who is down on their luck is not good to repay a loan back.
Another option is to let the loved one live with you if you have the space. If you opt for this though, there have to be VERY clear guidelines (a rental agreement/rules of the house/etc) so that it helps your relative…but, also keeps them motivated to eventually move out. This option can also be influenced by culture as well. Some cultures naturally use this option because giving cash might not be an option.
Giving them a place to live is GREAT IDEA!
The other thing to remember about co-signing is that the debt you co-sign for will be counted against if you when you apply for a loan or mortgage. It doesn’t matter if the other person is making the payments.
I’ve known families who had to put their home buying plans on hold because they co-signed a loan for someone else.
That’s an excellent point, and I would hope that people would only sign a loan if they are financially secure themselves.
I’ve had a very negative experience co-signing loans. If possible, I always try to give cash – not lend because it causes too much havoc to lend family or friends money and expect it back. I’ve also had family live with me until they are back on their feet.
I love the idea of helping them create a budget. I wouldn’t have been able to do this a few years ago when I was clueless about my own budget, but these days it’s something I push on my family and friends even when they don’t want to hear about it 🙂
I feel like knowing how to budget is a great skill
I had a niece that asked me to co-sign a loan because she was unable to qualify on her own, she was pretty irresponsible at the time. I had no problem in saying no and I would most likely have been on the hook for the loan. It’s tough with friends and family because you want to help them but sometimes bailing them out is not the answer.
Cases like that make it easy to say no, but what if it was your brother or sister and you knew they were responsible?
I like all of the ideas as far as helping them learn to budget on their own. I would be a bit nervous about the cosigning or pre-paying bills for them. Might be a bit of the “give a fish vs. teach to fish” scenario. Totally agree that it is hard to see a loved one go through financial issues.
Exactly, and if its someone that you care about, you would everything you can to help them.
Hi i would like to share some of my ways…..
1.Cut spending to the bare minimum – (It can be tough to shift from normal spending to frugality, especially if you’re accustomed to middle-class luxuries and a middle-class lifestyle. But when facing a financial crisis, it’s imperative to reduce spending as much as possible and as soon as possible.)
2. Consider drastic measures – ( If you’re in a financial crisis, you may have to take drastic action, maybe even selling a car — or your home. Most people are unwilling to consider steps like these, which only leads them further into debt).
3. Be brutally honest – (Try to take an objective look at your situation. Get outside advice from friends and family. Be willing to listen to what they tell you. Sometimes others are better able than we are to see the slack in our budgets).
4. Avoid touching retirement savings – (Your retirement savings are there to provide for you when you’re no longer able to provide for yourself. They’re not an emergency fund).
You have excellent points.
all of the recent experience that we have had with creating and sticking to budgets, probably makes that the best thing that we can offer to a family/friend who is having financial troubles.
That can be priceless.
I think that there’s definitely some value in helping a family member. Of course it has some risks attached to it, but that person is somebody you love and want to see succeed. I think it’s just important to have a conversation with them about it before hand.
Agreed!
Just wanted to second your cautionary note on cosigning for a family member. If a family member is in debt I would use cosigning as a last resort. Employing the family member or giving the gift of cash are the best places to start. I would only cosign for their debt if I could afford the entire balance in the event they default.