Dealing with deadbeat friends or family members
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If the loan is to a child, a third factor enters the picture: responsible parenting.

"Our job as parents, whether our children are 2 years old or 42, is to find a way to help them be the healthiest people they can be. Does this help them become healthier, or does it put a Band-Aid on something they need to deal with?" says Hayden. "I have four children, and my response would be a little bit different with each."

Don't even think of co-signing a loan, Hayden says.

"I would rather the parents gave the money outright to the kid than entangle their credit," she says. "I just worked with a couple, and he has co-signed for two of his sons, and she's having a fit because they're not making the payments, which is hurting his credit history because they're late by the time he hears about it. Co-signing is more dangerous than losing the money. I would rather have the money gone than have the credit history go."

Now comes the hard part: "How much risk do you want to take? How important is the money to you? If it's going to make you crazy for the rest of your life every time you see that person, we have to figure out a way to deal with it."

Hayden says the best solution is obvious: "I can't lend you $5; I'll give you $100 and it's a gift." If you lend the family member money, and circumstances prevent them from repaying you, a fallback plan would be to take it out in trade: baby-sitting, yard work, painting projects and the like.

Once it is established that you've got a deadbeat for a relative, a frank and honest discussion of the situation may spare you years of bitterness, acrimony that can poison generations to come.

"I think sometimes you let it go dormant for the sake of the relationship, to hold some semblance of family," Hayden says. "Let's assume that they are two brothers and the parents are very concerned about it. I think there should be a conversation and say, 'Look, you do owe me the money, and if you ever want to be really clear with me, you need to pay it back. And, you're my brother.' You need to name it as a character issue.

"That the relationship has been dinged is absolutely the truth. That's the part that everyone has to tell themselves the truth on. There is a character issue here and a trust that will not be there, and it will hurt. But you can move on and still hold the family together. Still, a lot of people don't. A lot of families are torn up over this."

Despite our many modern sources of credit, or perhaps because of them, the old saying, "he who lends money to a friend stands to lose both," still holds true today.

Jay MacDonald is a contributing editor based in Mississippi.