Many of us would do anything for our friends and family, especially if they are in a bind. But it is important before we step in to help financially to think about two things: who are we helping and whether we can afford it.
The first point — who are we helping — may not fall within clear definitive boundaries. Friends and family members don’t always share the same status in our hearts, but that is not everything. When it comes to financial help, it is critical that you know more about the person than just the fact that it is a dear family member. In reality, many of us may not be aware of their close family members’ financial discipline or sound decision making. Rushing to extend a helping hand without this basic knowledge may be leading this person into deep trouble — and dragging you along.
The second point — whether you can afford it — is also critical. Extending help to someone in a way that will get you yourself in financial trouble isn’t smart. In addition, if your help is in the form of providing financial guarantee or cosigning on a loan, you need to be sure that you actually have the ability and resources to take this responsibility, regardless of whatever the creditor says.
To be sure that you’re doing the right thing by helping a friend or a family member, remember the following points:
Time to think
It is hard to see a close person in a bind, and it may be your first instinct to say “yes” to whatever can help them out. By doing so, you’re committing financially to something that you don’t fully understand. Train yourself to express your willingness to help, pending more information. Before you agree to lend money, cosign on a personal loan, or pay off debt, get the details and also use the time to review your financials. Although the person may be slightly disappointed, you are doing both of you a favour by taking a calculated step.
Do you want to do it?
If it doesn’t feel right, probably it isn’t. In addition, if you don’t want to do for no clear reason, you should just bail. Getting involved financially with family and friends can bring many frictions, and you must be willing to handle these gracefully, which may not be possible if you start with a set of observations or reluctance. Similarly, everyone — spouse and adult children — who would be impacted by this decision should be on board.
The borrower’s record
It may be crude to ask too many questions at this point, but you have to get a full picture before you get involved financially. Why is the borrower in a tough situation? Some answers may be straightforward and involving typical life difficulties such as job loss, low income, etc. But, in some cases, people who are asking for help may be in a downward cycle of debt and more debt. They may be struggling financially as a result of their lack of financial discipline, bad habits or a combination of both. If your money is feeding this spiral, you’re not really helping out. Try to get as much information as possible before your committing.
Repayment plan
Again, when you’re dealing with family or friends, you may not be keen on bringing up how the debt will be paid off; but that discussion is inevitable. Lending money without immediately setting a plan for repayment is just wrong. First, you should have a clear idea on the term or the number of months or years that you could do without that sum. Second, the borrower should be willing and able to repay it within your target period. Without talking it out upfront, you’re setting both of you for an awkward discussion at a time when backing out isn’t an option.
Rania Oteify, a former Gulf News Business Features Editor, is a Seattle-based editor.
