Your mother-in-law offers to clear your debts completely, which will have a big impact on your family’s financial situation. The catch is that he wants to come over to your house for a week every month and visit with your kids.
You know how this goes; when he comes along, all the rules you and your partner have established go out the window. Dirty coffee cups were left all over the place. Wet diapers are thrown under the couch and forgotten about. He promises to help watch the kids, but you find his feet on the couch with a sleep mask over his eyes as he sleeps while your kids empty your potty mess all over the floor.
Always your house is turned upside down within hours of his arrival, you stress out just thinking about it and your partner goes into short fuse mode.
But the money sounds so good. Can you put up with his condition?
Don’t get me wrong, nine times out of 10 when a client or student of mine says they are being paid, I mention the news. But every once in a while the money is seriously not worth it.
Sit with these considerations before accepting cash loaded with terms that don’t feel so good. And, if you are a lender, turn these considerations into a lending perspective.
How desperate are you?
Are your creditors calling you? Is there not enough money to cover rent and food? How much money do you have in savings? Has a professional financial advisor or money coach helped you explore all of your options and they tell you that your situation is dire?
Managing your finances yourself is almost always the strongest option. However, if you are in financial trouble, you may need to accept the terms and take the money.
Set the terms together and negotiate
Write it all down and be extra focused on what is being asked of you if you accept the money. Does your lender require you to disclose your entire financial situation each quarter? Will they require you to seek credit counseling? How much autonomy do you have if you need or want to shop? Is there a change in your lifestyle that will be required? Are your spouse and children involved? What are they thinking? Is that fair? Are these conditions healthy for your family? Do you need a refund?
If something is wrong with you, say something. Ask for what you need and want and try to reach a cooperative agreement.
I’ve dealt with dozens of these lending situations and I can’t recommend getting it all down on paper, every detail.
My positive advice is to include an exit ramp in your written agreement so that if things go south, you and the lender have the ability to exit the arrangement. Chances are, neither of you will want to throw your relationship away completely, which can happen when clear boundaries aren’t carved out.
What’s the game plan if you have to return the money?
The benefits of a personal loan with a family member or friend are that you can usually save money on interest, adjust the repayment period to suit your cash flow, and find a payment amount that you can actually afford. If you don’t see these types of benefits, you can also go the traditional lending route through a financial institution and avoid the emotional discomfort of borrowing from a loved one.
The broader question here is whether you can afford to repay the money over time. If you simply can’t, borrowing money from your friend may not be a good option for you unless he is willing to forgive some or all of it. If you can afford it, you should know exactly how the repayment plan will work. payment amounts, frequency, interest rate, start of payments, etc. You then need to factor all of this into your budget and make the necessary adjustments. Add all of this to your written agreement.
Say no if you simply cannot accept the terms
You don’t have to agree to borrow money from someone if it will ruin your life for the next few years. Just say no. This will come down to how you can adjust the wiring, and frankly, if you can handle the motivation behind the wiring. If you can’t handle that, it’s time to work on creating a money plan (with a professional) to get you where you want to go without relying on anyone else.
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