3 Ways To Protect Your Finances If Lending Money To Other People Has Gotten Out Of Control
Lending to friends and family is often a bad situation to get involved in. This is because it’s one of the biggest causes of friction and tension, especially when it’s a reoccurring issue that doesn’t show signs of stopping.
Yet there are instances where you simply need to help those you love. It’s a risk many are willing to take, as the well-being of a friend or family member usually takes precedence, but there are ways to make lending easier on everyone involved.
The best way to achieve this is to take some steps to ensure your finances are protected before you lend to them. This covers your end of the deal and should make it clear that the loan isn’t just being given in good faith.
1. Only Give Cash
Its simple yet effective – your lending should only ever be in cash. It’s easier to control and allows you to give an amount you are comfortable lending.
This doesn’t mean you can’t wire cash online – it’s still cash after all! – but rather avoid signing up for anything in your name. For instance, a sibling might ask you to co-sign a loan or even open a credit card in your name to help them out, and you should be very cautious about doing this.
Basically, always avoid lending if it may jeopardize your own credit due to the actions of someone else. It’s not usually a risk worth taking, no matter how much you trust them, plus it ensures your financial future remains intact.
2. Never Lend More Than You Can Afford
This one goes without saying, but it’s easy to forget when you are constantly lending to the same people – do not lend more than you can afford to. While it’s nice to assume you’re getting the money back, this is never a guarantee, so take this step to protect your finances.
After all, when you only lend what you can afford, it ensures you don’t go into debt because you loaned out money to someone! Consider whether you are truly comfortable lending the money knowing you may not get it back, thinking just how bad your finances would be should you never be repaid.
If the loan amount is going to kill your finances if you never get it back, simply explain you cannot afford it – protect your own finances first!
3. Get the Loan in Writing
This may seem excessive to some but drawing up the loan in writing before you give the money goes a long way to protect your finances. Include the amount you are given, an interest rate (if applied), and how the repayment is going to work.
Not only does this protect your finances, it provides a clear example of what you are lending and that you expect to be repaid, avoiding any miscommunication from either party about what is expected.
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