An 8-step list to help you navigate loaning money to loved ones
Do:
- Think twice before lending (or borrowing) money. Consider how it will affect your finances, and your friendship.
- Discuss other options—there may be another way to help without going into your wallet.
- Be clear about expectations. Draw up a schedule for payments and talk about what happens if the loan isn’t paid back.
- Get it in writing. Use a contract to set ground rules so everyone knows what’s expected.
- Charge interest. This can help inspire a faster loan repayment. Just remember to claim the interest income on your tax return.
Don’t:
- Expect to get 100% of the money back. “Go into a family or friend loan situation with the mindset that you’ll never see the money again,” says Mary Kelly, author of Money Smart.
- Ignore problems. If payment is 30 days overdue, discuss it.
- Co-sign a loan unless you’re sure the other party won’t default and leave you holding the debt.
Source:
by Romana King November 22nd, 2016
From the November 2016 issue of the magazine.
