Financial hardship rarely just results in credit ruin and property loss. Overwhelmingly, tough financial times leave individuals with so much stress that they often end up with conditions such as depression and anxiety. However, such situations can quickly become far worse when these individuals rely on bad financial decisions, such as payday loans and other scammy financial practices.
Fortunately for many people in these situations, the family serves as a safety net and support structure for financial assistance and emotional support. In fact, most of us feel obliged when we learn that a relative has fallen on hard times. Whether we provide a loan or simply offer a place to crash for a few nights, many of us feel that charity is our responsibility when loved ones are at risk financially.
However, it can be difficult and strain our relationships to continue supporting relatives who seem to “take advantage” of us, or those who always seem to need more no matter how deep out-of-pocket we are. To avoid getting into this kind of relationships, here are three types of financial support that should only be offered to the most trustworthy of friends and relatives in need.
Recurring or large loans
While a small amount here and there may not amount to much, relatives who are dealing with collections agencies and angry debtors might need more to support themselves on a month-by-month basis than your average financially challenged individual. This is also true for relatives who are struggling to keep a business afloat. To these people, an interest-free family loan can be too tempting.
However, these kinds of arrangements leave a great deal to chance – which is never okay when your money is on the line. If your family members seem to always need more money than they or you can manage, it’s important to look past just this month’s bills and figure out what solutions might exist for them to end the vicious cycle. For example, many businesses offer debt consolidation services which can drastically reduce the interest being paid over time.
Cosigning for rent or a loan
For individuals with poor or no credit, it can sometimes be necessary to find someone to cosign their lease or agreement. This provides a “vote of confidence” from someone with better credit and provides you with financial liability. What makes this extremely dangerous to your personal finances is that negligence on their part can cost you severely through your credit. Worst of all, this leaves the individual needing the loan able to get off scot-free if they default and leave you footing the bill.
Nobody wants to assume the worst about someone in need, but this can leave your finances at grave risk. Since you’d be liable for this debt and are agreeing to whatever terms are being laid out, always read them and know what’s between the lines. If you can’t afford to cover the costs if your relative defaults on their loan, don’t think twice about offering this kind of assistance. While nobody wants to say “no” to a relative in need, both of these practices can drag down your finances as well while potentially damaging your relationship with your loved ones.
Author Bio: Frank McCourt is a student of McCarthy, but applies his hard lessons of the south to the world of finance. It's a wild world out there.