Financially Supporting Your Family – It Isn’t Always A Good Idea
When you see a loved one faced with financial difficulties, the natural response is that you want to help them.
The obvious solution would be to lend them some money.
In reality, though, it’s a move that often generates more problems than it solves.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
Reasons To Avoid Financially Supporting Your Family
It’s not hard to understand the incentives for wanting to help a loved one overcome their financial difficulties.
The motives for wanting to lend money to a loved one are reasonably transparent, including:
- Remove the burden of stress from their shoulders;
- Help them to reduce overall payments by clearing compound interest;
- Allow them to start a new financially responsible chapter;
- Show how much you care.
While it is admirable that you want to help a loved one, there’s a reason that they say money is the root of all evil.
The harsh reality is that, even when both parties enter any agreement with honest intentions, unforeseen circumstances can cause unnecessary animosity.
In most situations, the risks are far too vast to ignore.
Consider the following scenarios, and you’ll soon see why financial support isn’t always a viable option.
What If Your Financial Situation Changes?
The first question you must ask before loaning money to a loved one is whether you can afford it.
Lending money should be avoided at all costs if it will put you under financial strain.
However, even if you can afford to cope with the financial hit right now, you must also consider whether unforeseen changes could change that.
If losing your job would mean that you need the money repaid far sooner, for example, you must learn to say no.
Otherwise, you may inadvertently set yourself up for a financial nightmare.
What If Your Loved One Doesn’t Repay You?
Even if the terms of the agreement work for your finances, you must consider the fact that your loved one may be unable to meet the scheduled repayments.
Like you, they could lose a job or encounter another financial problem.
Or, as their past behavior has shown, it’s possible that they will fall victim to poor financial decisions.
Aside from the financial stress it may cause, it’s likely that the sense of betrayal will harm your relationship – especially after you went the extra mile to support them.
What If Another Loved One Needs Money?
Even when the direct relationship between lender and borrower is OK, there are outside relationships to consider.
If you’re a parent lending money to a child, will their siblings feel jealous or hurt by this decision.
Furthermore, how will you feel if you are unable to help a loved one through a genuine financial disaster, such as paying for medical bills?
Sometimes in life, you need to view the bigger picture and respect your list of priorities.
Financial reserves should be held back for the very worst scenarios.
What If The Relationship Changes?
Are you considering the thought of lending money to a spouse?
In any of these cases, it is a genuine possibility that the relationship could change over time.
If you were to get divorced, for example, it’s likely that your ex-lover would make it difficult for you to claim back the funds you loaned them.
Lending money to a friend or relative uses a completely different dynamic to official loans between banks and customers.
Assuming that your link will run as smoothly would be very naive.
How To Financially Support A Loved One
Lending money to a loved one comes with significant risks, but there are still several situations in which it might be the right option.
If you are planning to lend money, even after weighing up the pros and cons, you must do it in an appropriate fashion.
Finding a solution that is least likely to cause unwanted drama isn’t always easy.
However, under the right circumstances, these ideas may work:
- Gift the money – when you give the money to a loved one without any expectation of repayment, it is unlikely to cause any strain on the relationship between borrower and lender. However, you still need to take the feelings of other family members into account.
- Set up a payment plan – lending money to a loved one can work out well if you are certain that the funds will be repaid. Setting a condition in which you will only transfer the money after a direct debit has been established can remove the uncertainty.
- Acquire collateral – the thought of asking a loved one to put down collateral may seem extreme, but it can provide the financial protection you need. As long as they make the repayments, they will keep hold of the assets anyway.
Even with the above options in place, financially supporting a loved one is often ill-advised.
This is especially true when other financial solutions may be available.
Help your loved one discover the various avenues at their disposal by contacting Bankruptcy Canada today!
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?