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.
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