SAN ANTONIO — The coronavirus pandemic has forced many people to make tough choices in their day-to-day lives and how to secure their finances. If you have a family member or friend who may be in a bind, is it a good idea to lend financial help? Here’s how to be money smart about your next move.
According to one survey by Bankrate in 2019, one-third of Americans have regretted lending money to a friend or family member. They reported losing the money, facing a damaging credit score, or their relationship with the borrow was harmed.
“I’ve seen many relationships in families broken up because of money,” said Karl Eggerss, senior wealth advisor and partner of Covenant. “It enables somebody to continue to ask for money. Once you lend them money, you know you’re willing to do it. They’re probably going to come back and ask for more and more. And it’s hard to say no.”
Eggerss said you could draw up a loan agreement but recommends helping the individual out in another way. He pointed to one fictitious scenario where you could loan a friend your car or drive them to work, instead of giving them money. If you’ve exhausted your options and decided to give them cash, Eggerss said expect to never get it back.
“Assume it’s a gift, right? Don’t assume you’re going to get paid back. If you can mentally get there, then if they don’t pay you back, you’re okay. But it does threaten the relationship and when it’s a family member, it’s really difficult more so than a friend.”