Dealing With Deadbeat Friends or Family Members

Money trouble is not only the primary cause of divorce in America, it also breaks up friendships and families when a borrower fails to pay back a personal loan. Most of us have known a deadbeat friend or family member. We just can't figure out what to do about them.
According to the money etiquette survey conducted by Ipsos market research and commissioned by PayPal, 63 percent of respondents have seen someone skip out on paying back a friend, and 57 percent have seen a friendship or relationship end because of it.
We are more likely to lend money to immediate family members (71 percent) or relatives (57 percent) than to friends (54 percent), co-workers (30 percent) or roommates (20 percent). Nearly half of us (48 percent) typically lend $100 or more. But getting paid back is another matter -- and more than half of us (55 percent) have been stiffed.
Good intentions

There are perfectly good reasons to lend money to friends or family, of course. We like to be able to help out a friend or loved one faced with a health crisis, job layoff, divorce, business startup or college tuition shortfall. Unfortunately, our best intentions can quickly turn into hard feelings when the borrower fails to repay us.

Kim Izzo and Ceri Marsh, authors of "The Fabulous Girl's Guide to Grace Under Pressure," say handing over the cash without a repayment plan is a prescription for disappointment.
"Where people are too casual is, they don't state the terms of the agreement in advance; that's where you get into trouble," says Marsh. "I think people are a tiny bit embarrassed to finish that conversation, to say, 'OK, so when do you think you can pay me back? Great!'"
Izzo agrees. "They don't want to sound cheap," she says.

At the very least, capture these points in writing, even if it's on a cocktail napkin, before emptying your wallet, jot down:
* The loan amount.

* The date of loan.

* The date or schedule of repayment.

* Rate of interest (if any).

* Collateral (if any).

* Both of your signatures.

Deadbeat decorumIzzo and Marsh have studied the deadbeat ways of their young, single crowd closely. Guys, they say, are more inclined to be lenders so as not to appear cheap, while women tend to be more concerned with being fair. The biggest change from the previous generation may be that you're more likely to have friends in need of a loan today.

"Your social circle is a lot wider these days, and there is a lot more disparity now than maybe there was in the '60s," says Izzo. "Now, with women being in careers, and with guys too, one friend might be a doctor and one might be a checkout guy at Safeway. I think that's changed the relationship to money. Where do we go for dinner? How do we entertain ourselves when we don't make the same amount of money? It's all money-driven."

Feelings sometimes get frayed the longer a loan remains unpaid.
"To me, a month might seem like just around the corner, but if Kim is waiting for that $100 she lent me, that might seem like a long, long time," says Marsh Fortunately, there is a means today to remind an unresponsive borrower of their obligation without creating hard feelings: e-mail.

If you made your loan through PayPal, the payment company will remind the borrower on your behalf to pay you back.
"I think an e-mail is nice initially because it's less confrontational," says Izzo. "If you're using PayPal, you can use their great reminder service so they can't pretend they didn't hear you or they forgot."

If your e-solicitations prove futile, a frank exchange may be your only recourse.
"It's not actually rude just to come out and ask them," says Izzo. "The longer you wait, the more you brood, the more resentment builds. I hate to say it, but after two or three times of asking, you may just have a deadbeat on your hands. You might have to write it off, and write off the friendship, and that's what happens. If they don't have the money or they're just unwilling, then what kind of a friend is that?"
Family deadbeatsIf a deadbeat friend is bad news, a deadbeat child or sibling can be even worse.
"It's a huge problem, and it happens a lot," says Ruth Hayden, a financial counselor and educator and author of "Your Money Life." "It's a topic that comes up frequently in my office, probably more among family than friends. It's very troublesome because it hurts your relationship. You can't just go and find a new family."

Hayden recently counseled a couple who had been married more than 30 years. The wife learned that the husband had secretly lent money to his brother, who had failed to pay back a previous loan years ago. Suffice it to say the wife was livid.

"There's a secret issue here, a money issue and a family issue. It gets very complex," says Hayden. "We split it up into issues. First, there's the trust issue between the two. We need to solve that first because that's more important than money and more important than the brother."
Hayden says the first test is obvious: Do you have the money -- or, more to the point, could you afford to lose the money?

Then she applies the hesitation test: "Do you absolutely know that this person will pay you back? In the majority of cases, the truth is in their hesitation. Do you absolutely believe this person will pay you back, based on past history? If the answer is hesitation, I encourage them to really think about it."

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

Source from : bankrate.com