Asking your friends and family for money can be a dangerous proposition. Here are some best practices to ensure it won't end in tears and anger.
Unless you live in a post-capitalist society, you’ll probably run into a financial emergency at some point. Hopefully, you have an emergency fund already prepared for something like this, but if not, you may need to borrow money to get through it. This is especially true if the financial emergency affects your car or your health, or anything else that’s vital to your day-to-day life. If your credit is in a good place, you can take out a loan with a relatively low interest rate. If your credit is in a bad place, your options are more limited.
But there’s one way to take out a loan with zero-to-reasonable interest rates, even if you have terrible credit. It’s called the First Bank of Friends and Family. It can be incredibly uncomfortable asking loved ones for help, but it’s an option worth considering as long as everyone involved has clear expectations.
Asking for help is common.
While asking family and friends for help may be difficult, you should always consider this option before taking out a payday loan. Friends and family aren’t likely to charge you interest or fees and won’t demand repayment within two weeks.
With their support, you can repay them over time while keeping up with your everyday expenses. On the other hand, payday loans can devastate your financial future, eating up more of your income than you can afford.
Asking for help is a more common financial strategy than you might think; more than one-quarter of survey respondents said they offered financial assistance to support the everyday expenses of a person outside their immediate household, according to research from Pew Charitable Trusts. And less than half of higher-income households viewed their financial gift as a burden.
If your request is respectful and you demonstrate a repayment plan, you may find that your friend or family member will be happy to help--especially if your only alternative is a trip to your local payday lender.
1. Determine your needs.
To avoid asking for more or less than you need, write out the exact amount you need and what you need it for.
If you can trim your budget or put any of your income towards your own cause, show how you plan to do that and determine the amount of assistance you’ll be asking for.
2. Explain your efforts so far.
If you’ve made unsuccessful attempts to help yourself, explain what you’ve tried, and your friends and family will be more likely to assist you.
For example, you might explain that you’ve tried to get a second job, asked for a personal loan from a bank, or applied for government assistance.
3. Develop a repayment plan.
You’ll feel better about asking for help if you’re not asking for a handout.
Develop a repayment plan to illustrate your intent to borrow the money for a specific period of time. Be realistic about how long you’ll need. You can even write a written loan agreement to ensure that both parties are on the same page.
Prepare a budget for your expenses and subtract that amount from your income to get a reasonable monthly payment. Even if it is just a few dollars each month, you’ll know you’re on your way to financial independence.
4. Give help in return.
While asking for financial assistance, consider offering your free time to help friends and family.
If you can’t find a second job to cover your financial needs, but have a few hours on the weekend, offer to babysit, clean, cook, or mow the lawn for the person helping you pay your bills.
You’ll feel better accepting their help if you can offer something in return.
5. Be respectful.
Give your friends and family time to consider your request, and leave them with notes about your current needs and plans to gain financial independence.
Follow up the discussion with a friendly visit that’s not about finances. If you do receive help, find a way to show your gratitude.
Finally, check in frequently to let them know you haven’t forgotten their gift and you’re on your way to paying it back.
6. Get it in writing
It might be uncomfortable to write out a contract with a friend or family member, but there’s a reason so many financial transactions require them. Jeff Campbell of NewMiddleClassDad.com shared a personal experience of his own to emphasize the importance of written contracts:
“I lent my father a very large sum of money ten years ago after he filed bankruptcy and had nowhere else to turn and had to go through the process of realizing he would never pay me back and how that impacted our relationship. The key to entering any business arrangement with family or friends is to be crystal clear and transparent about everything.
"Putting the agreement in writing really helps; that way, there’s no gray area and no surprises. It’s even better if the person lending the money looks at it more as a gift than a loan. When you have no expectations of getting repaid, then there’s no disappointment when the family member or friend falls short of their agreement.
"Ultimately, I had to look at my own loan to my father as a gift. If I hadn’t, I would have forever been resentful of his failure to repay it, and it would have tainted my final years with him. In the end, I’d rather have those years than those dollars. Inevitably, business agreements and partnerships fail because one person has a different expectation than the other and instead of discussing, one just expects the other to do what they would do in that situation.
"At the very least, having a specific written agreement eliminates the possibility of confusion or misinterpretation.”
Article contributors
Jeff Campbell (@middleclassdad1) blogs on all things Personal Finance, Parenting, Relationships & more at MiddleClassDad.com. He is a Dad, Husband, and Martial Artist and worked for over 2 decades as a leader for Whole Foods Market.
