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How to Help a Loved One in Debt


This is a guest post by Samantha Peters, who is a regular contributor on Paid Twice a personal finance blog, where she writes about practical ways to reduce personal debt.

My older brother had been in dire financial straits for sometime, and was far too proud to ask his little sister for help. It’s a standard personal finance rule to resist getting involved in the money messes of relatives, but of all the money management rules we’re meant to follow, this one is broken the most. So if I was going to decide to help my big brother get out of debt, how was I going to go about it without getting myself in trouble or robbing him of his self-respect?

I decided to sit down and devise a series of rules and regulations to follow. Not only have they helped to minimize risk while maximizing my ability to get involved, they’ve also helped to reduce the embarrassment my brother doesn’t want to experience, which was one of the main reasons he wasn’t seeking help in the first place.

The following is my very own how to help a loved one in debt manifesto, which so far has been working out quite well:

Demand to See Everything

I decided that before getting involved financially with my brother’s debt problems, it was imperative that I have a complete understanding of his entire situation. By asking my brother to fetch every shred of paper proof of his total debt, he actually discovered he owed a little bit more than he thought he did. While it would have been an innocent mistake, his underestimation could have potentially made any efforts of mine to help utterly irrelevant.

Exhaust All Third Party Resources

Upon talking with my brother about his debt, I discovered he hadn’t even bothered to call his student loan lender, let alone anyone else he owed money to. I wanted to make sure that all the obvious moves had been made before getting myself involved any further than as an acting advisor. You’d be surprised what people won’t do simply because of pride.

Provide Tools and Offer Limited-Risk Options

Before I lent any money, I wanted to makes sure that all other non monetary options had been explored. I was willing to offer a spare bedroom if my brother was willing to sell hi home to pay off his debtdebt. I had a used compact car that I was willing to sell at discount to him if he was willing to sell his brand new truck to reduce his debt. While my brother didn’t take me up on all of my offers, it gave me the opportunity to explore options that didn’t mean a cash hand out plus see how serious he was at getting rid of his debt. I think it’s important to see if these sorts of options can solve a loved one’s personal debt crisis before choosing to lend cash instead.

Write up a Contract if Money Is Exchanged

I decided early on that if the only way my brother was going to get out of debt was if he borrowed money from me, that we would get it in writing. While it may seem as though such a formal agreement would alienate a loved one looking for help, I found that a personal loan contract had the opposite affect. My brother was ashamed of his debt and he felt as though a contract made it less like charity and more like a business transaction.

Virtually every personal finance guru out there tells you to avoid helping relatives get out of debt at all costs. But the honest truth is that when loved ones that are close to you need help, it’s almost impossible to say no. With that being said, it’s critical that you take the proper steps to ensure that such assistance actually helps and that it doesn’t put you at risk for getting into debt yourself.

We are always looking for interesing, motivational and real life personal debt stories. If you have a personal debt story that you’d like to share, feel free to contact us so that we can share it with all the readers.


  • Reply Jeremy @ Modest Money |

    You do have to be very careful in a situation like this. Some people may be more proud than others and more resistant to help. Plus you definitely don’t want to make your offer of help turn into a long term problem between each other.

    I think another important step is talking about why your relative got in debt and how they can avoid it in the future. It won’t do much good if you help them out only for the debt to build back up right away.

    • Reply Samantha Peters |


      Thanks for the thoughtful comment to my post.

      As you mentioned, it is very important to look long and hard about the reasons for being in debt. Once you develop an understanding of how the the debt was accumulated it can lead to a better understanding of how this type of situation is avoided in the future.

      In my brothers case, a combination of student and personal loans, living slightly outside of him means, and not earning enough led him to this situation. Offering help to family members can be very challenging and stressful but as with anyone you love, you want to see this successful and happy.

  • Reply scarr |

    I am posting my experience to a very similar blog post from another site:

    One of my good friends was in some financial trouble about a year ago. She didn’t have credit cards, she just had problems making her car payment, student loans and phone payment along with living expenses. She just started a new job and was going to be short for the month. She did not ask me for money, I just offered her $200 . She accepted, and the terms were that she were to pay me back only if she could – car payments and phone payments were more important than paying me back – and that she could make small payments. Two weeks after I gave her the money, I say gave because I did not expect it back, she paid me $100 back. She is a hairdresser, so I told her if she gave me two cuts and one color I would consider the debt paid off. She did and I have no weird feelings about helping her.

    At the time, I had just paid off the bulk of my credit card debt and I had a good amount of money saved and I remember being in that same position but with credit card debt on top of everything else. We lived in North Dakota, where there is winter most of the year and the thought of her not having her car because she couldn’t make the payments or not having a phone or even heat scared me – she could not live without those things. When I decided to offer her the money, I made it clear to MYSELF that this was a gift not a loan and if she paid me back $1 or $200 it didn’t matter because I wanted to help her. Also, $200 was not going to break me if I never saw it again. I’m not saying $200 isn’t a lot of money, it is, but our friendship is worth more than that.

    I don’t know how I would feel if a friend asked me for money over $100. Again, even though $100 is a lot of money it is not enough to break the bank or break a friendship. I think if you give money to a friend or relative, consider the money a gift and not a loan, because you may not get it back and it could hurt your relationship. Also, never give more than you can afford to. I could have given my friend $400, I had the cash to but that would have lowered my emergency money and I just wasn’t comfortable with that.

    Like I said earlier, my friend was a hairdresser, so I let her pay me back by doing my hair for free (if you go to the salon you know how expensive a cut a color can be). If you give money to someone and they know how to do something you can’t do, ask them to use that as their repayment. Maybe your friend or relative knows how to change the oil to your car or has other useful skills like organizeing or decorating. And of course, if you just aren’t comfortable giving money to a friend just say no and maybe you can find another way to help them.

  • Reply Marianne |

    Sorry if I missed something but did he end up asking you for help eventually or did you just go ahead and offer?
    I have found that I am best not to give unsolicited advice even if a family member is complaining to me about a problem. It helps me to not feel resentment when they don’t follow said advice. In the past, I would make suggestions about how to fix a problem when family members would vent about their money issues. Now I just nod and listen (and certainly try to avoid the conversations) because I have realized that they don’t want to change just yet and they think their problem is everyone else’s fault.

  • Reply Samantha Peters |

    It took a little while but he did end up asking me for help. Although before just writing him a check I tried to offer some alternative debt reduction solutions.

    I agree with you that sometimes it is better not to give unsolicited advice. However, I personally believe that there are times when you do need to get involved.

    Not always an easy call to make though.

  • Reply David |

    I know its hard but be careful on helping him by providing more money (advice, sounding board, good meals, friend are valuable). Based on what you wrote (he is not willing to give up his new truck) it does not look like he is ready to really change. The reason most financial people do not do loans to relatives is that they have experience (either personal or as an adviser). Good Luck.

So, what do you think ?