Avoiding Financial Setbacks Part 1: Personal Loans

This is a five-part series designed to educate readers on Avoiding Financial Setbacks.
These will not be displayed daily but as time passes on.

Probably 6 or 7 years ago, my brother asked to borrow $100. Even though I knew it would be a strain to my own financial situation, my first thought is that he was family and I wanted to be there for him. So I drove to his house and gave him a check which he immediately cashed and put it towards what he needed it for. It was probably after the first or second year, I got tired of asking for the money back. Now that those 6 or 7 years have passed, I still have not seen that money. When I see him, we never talk about it so somewhere down that line that loan turned into a gift.

I have an even better story for you. I read an article where the husband of a married couple of 35 years loaned his children money without his wife’s knowledge, though he was told that they couldn’t afford it. The husband was so stuck on the principle of “family is more important than money” to where he cashed out of his retirement funds, savings, and charged credit cards to where the total amount he lent to his children exceeded $1 million dollars! I guess it’s pretty obvious that when the wife realized this she was, well, excuse my French, pissed. She had to refinance the house that was almost paid for to pay off the debt that incurred. Worse, a marriage that lasted so long came to a sudden end.

I, too, believe in that same principle the husband believe in. Family is more important than money. It is the reason why I lent my brother the money he requested. But the husband gave away everything but the kitchen sink and in the end lost a family member of his own, his wife. Was it worth it? I think not. And what are the odds the children will get together and provide that husband with a $1 million dollar check?

Has this ever happened to you? Even if you do have the money to where family and friends asked you for the money regardless? How much have you lent out? A little or a lot depending on your financial situation? Personal loans can be a financial setback regardless of how much you loan out. Even if your loans are paid back to you, you may have to wait for days, weeks, months or years. Or maybe some loans will turn into gifts just as it happened in my situation. How can you avoid this?

Avoid Lending Money All Together
Yes, this one is pretty obvious but remember you are on your own personal financial journey. You are attempting to better your life for yourself and your own family and now is the time to avoid any interferences or setbacks that will delay your goals. You have to learn how to say no. Yes I know, it’s easier said than done. Especially when some family members have to ability to be assertive or have a habit to make you feel guilty for not providing for your own blood. Believe me, I’ve been there. It can be hard to say no, just try to remember that it’s only two letters. If for any reason it is hard to say no, then consider some other options if you do decide to provide some help to your loved one.

If You Must Loan:

Set Limits
Can you afford to loan $3,000? More than that? If not, then don’t do. Loaning what you can’t afford will set you back significantly because the longer it takes for you to retrieve that money, the longer it will take for you to get yourself back in order. In fact, if you MUST loan, loan less than you can afford. For example, if someone asks for $3,000 but after seriously piercing into your finances you realize you can only afford to loan $2,000, then loan $1,000. You don’t have to follow that formula exactly but I want you to grasp the point that by giving less you run a lesser risk of damaging yourself. And remember, some help is always better than no help. If someone isn’t appreciative of receiving part help as compared to full help, then they do not deserve the help at all.

Be Assertive
Remember when you were in heavy debt and right at dinner time you receive a call from your credit card company or a collection agency almost trying to force you for payment? If they can do it, why can’t you? Without taking it to such extremes, consider conspiring some similar tactics to retrieve your payment. In a polite conversation, try to imply a repayment date. Or even reverse the roles in a conversation, and tell them how the loan has affected your own financial situation. There are hundreds of tactics you can consider when being assertive for repayments. Don’t let them take advantage of your kindness.

Charge Interest
Another route I like to take is charging interest on personal loans. Think of it this way, if they want to treat you like you’re a bank, then treat them like you’re a bank. I charge 10% direct interest on the amount loaned but I don’t do this entirely for profit, but primarily psychological. When charging interest on your loan, they’ll tend to ask less and less for loans, especially if you lecture them a bit on the amount of interest they’ll end up paying after so many loans. Don’t worry about feeling guilty. I can honestly say with the loans that I have charged interest on I am still in good standings with those individuals.

Consider yourself first before loaning out money. If you can’t avoid lending and you really can’t say no then give an affordable partial loan at an interest base. This way you’ll reduce your own risk and setback while at the same time maintaining the relationship of your friend or family member.

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