It is important to set clear rules about how money is treated in family relationships so that you do not get into serious debt trying to help someone out.
There’s always a risk that family members won’t consider it necessary to repay a financial loan; after all, you’re family! Eunice Sibiya, head of consumer education at FNB acknowledges that many of us have had to lend a helping hand at some stage, even if it meant getting a personal loan or using your credit card.
“Before making funds available to a family member, always make sure that helping out will not severely compromise your financial position. If you need to take a loan to help them, it’s important to budget so you ensure that you can afford the repayments and use a trusted credit provider that will not charge you far more on interest than what the law prescribes,” she advises. “Similarly, if you decide to use your credit card to help, you must be able to afford the monthly instalments regardless of whether or not your family member pays you back. The last thing you want is to default on your own commitments.”
Factors to consider when lending family money:
- Lend what you can afford. While you might want to help a family member who is in great financial need, you must be careful not to lend more than you can afford.
- Set clear rules from the beginning. Lending money to family may be a good gesture; however, it must be done within a set of rules to ensure that commitments are honoured to preserve the relationship. Prior to handing over money to a family member, both parties must agree on a repayment plan and commit to it.
- Learn to say no. If you feel that lending your family money will do more harm than good, be honest in order to protect your relationship. Sometimes saying no may be the best way to keep harmony in the family.
- You offer them an easy way out. When you constantly lend your family money when they are not able to make ends meets, you are giving them an easy way out instead of encouraging them to work through their financial challenges. Encourage them to see a qualified professional who can help them manage their finances properly.
There is no harm in helping out a family member if you can afford to, and if it doesn’t become a habit.
Source: FNB. Image: Pixabay