Borrowing from family or friends

Debt Management Basics

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debt

By Bankrate.com

Table of contents

Ch. 1: Understanding your debt

Ch. 2: Using equity to consolidate debt

Ch. 3: Reorganizing finances

Ch. 4: When to seek debt help

Ch. 5: The bankruptcy option

When people find themselves in a money crunch, sometimes the natural reaction is to turn to family for help. Parents, grandparents and siblings often are willing to lend a financial hand via a loan.

If you are asking for a loan of more than $100, you need to know the answers to at least three key questions:

• Why do you need the money?
• How do you expect to pay this back?
• What are you doing so this doesn't happen again?

If you can't answer these questions honestly, you are not ready to ask for a loan.

If you can answer these questions, you need to know how to minimize the potential for resentment and destructive situations. These tips will help.

Know from whom you borrow

Ask yourself, "If I lose the money, what will be the outcome?" Relatives for whom money is an obvious emotional issue or those who really can't afford to lose anything are not good lending candidates.

Put everything in writing

It may be sufficient in a very simple transaction to write a letter that specifies the terms of the agreement. But the best way may be to get a lawyer involved, particularly if it is a significant sum of money. That protects both sides.

Guide for setting up a pay-back plan

While a short-term loan of a couple hundred dollars might be arranged with a hug or a handshake, larger loans should have a more formal structure, say financial experts.

When you record the loan, make sure to include: