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It's a piece of wisdom as old as time – money and relationships rarely mix.
In a perfect world, you would never be in the position of being asked or asking for money from friends and loved ones. But circumstances beyond our control have a way creating less than ideal conditions. So, its entirely possible you or someone close to you will encounter a crisis where there seems to be no other option.
Whether acting as the debtor or creditor, transacting within personal relationships comes with significant risks. It's important to set clear guidelines and boundaries and implement systems of accountability for each party to abide by. This will help to minimize the pitfalls and maximize the chances you will both emerge on the other side as close and trusting of one another as ever before.
Of course, the greatest risk of lending or borrowing money within a personal relationship is something will happen that prevents the borrowing party from repaying the loan in a timely fashion, if at all. This can, and frequently does, result in spite, eroding trust and the permanent souring of seemingly rock-solid friend and familial bonds.
Choosing how to move forward depends on each party honestly answering one very important question:
Lenders – Ask, "Would I feel comfortable never seeing that money again?"
Be completely and shamelessly honest with yourself. Unless the answer is an unequivocal, unconditional yes, you may want to reconsider moving forward.
Even if you love that person with all your heart, trust them completely and are certain they will do everything they can to return the money, it's impossible to predict the unforeseen circumstances that could prevent them paying you back within a reasonable timeframe – if ever. It's also impossible to predict how you'll react to every dollar they spend and every interaction you have with them thereafter.
Borrowers – Ask, "How much of a priority will I make paying the money back?"
Unless you would be willing to put yourself in a genuinely uncomfortable position (e.g. foregoing meals, missing numerous social opportunities, rationing heat and electricity) to avoid betraying your friend or family member, you may want to reconsider asking for money.
It's not that they would ever expect you to make those kinds of sacrifices – but unless you care more about the relationship than you do your own comfort and wellbeing, it's likely not worth the risk. As above, you cannot predict the future and the potential obstacles that could derail your repayment schedule. If you're not willing to go to the ends of the earth to maintain their trust, it's likely best to find another way.
Guidelines, Boundaries and Accountability
Assuming you've answered the above questions honestly and thoughtfully and decided to move forward, the next step is to establish clear guidelines and boundaries to the lending or borrowing process.
From both a practical and emotional standpoint, there are several other considerations both lenders and borrowers will need to make when deciding whether to ask for or lend money to a friend or loved one. These include:
If you've found yourself in a position where you cannot afford to pay your bills and worry family and friends may be your only option, a Licensed Insolvency Trustee may be able to help. During a no-obligation, Free Confidential Consultation we will review your financial situation to determine your best path to a debt-free future and financial fresh start. Whether that means a Life-Changing Debt Solution or simply offering much-needed budgeting advice, we can get you back on track without putting unnecessary strain on your relationships.
Based out of Toronto, Mary Plahouras is a Manager at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 416.515.3879 or toll-free at 310.DEBT (310.3328).
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*310-DEBT doesn’t operate in MB, NW ON and QC.
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