What do you do when a family member becomes unemployed and suffers in financial difficulty and can’t work or has insufficient insurance to cover mounting medical bills? How do you respond when you learn a loved one can’t pay their bills?
By: Hitesh Khan/
Let’s take a look at a few options you can consider to help your family members in financial difficulty – without hurting yourself financially.
1. Give a Cash Gift
If your loved one is having a short-term cash flow problem, you may want to give an outright financial gift. Decide how much you can afford to give, without putting yourself in financial jeopardy, and then either give the maximum amount you can afford all at once (and let your loved one know that’s the case) or perhaps give smaller gifts on a periodic or regular basis until the financial difficulty is resolved. Make sure it’s clearly understood that the money is a gift, not a loan to be repaid, so you don’t create an awkward situation for the gift recipient.
2. Make a Personal Loan
Your family member may approach you and ask for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and have both parties sign it. This will help ensure each party is clear on the financial arrangement they’re entering into.
3. Guarantee a Loan
Your loved one may be interested in obtaining a loan or line of credit (LOC) to help with short-term financial needs, but what if his or her credit requires getting a co-signer? Would you be willing to co-sign on a loan or LOC from a bank, credit union or online lender?
Before simply saying “yes” and essentially lending a family member your good credit, it’s important to realize there are legal and financial implications to co-signing on a loan. The most critical thing to understand is that you are legally binding yourself to repay the loan if the other borrower fails to do so. The lender can take legal action against you and require that you pay the full amount, even if you had an agreement between you and your family member that you would not have to make payments.
4. Create a Bill-Paying Plan
Often, people in a financial difficulty aren’t aware where their money is going.
If you have experience using a budget to manage your own money, you may be able to help your family in creating and using a budget as well. To break the ice, you may want to offer to show them your budget and your bill-paying system and explain how it helps you make financial decisions.
As you work together to help them get a handle on their financial situation, the process will point out places where they can cut back on expenses or try to increase their income to better meet their financial obligations.
5. Provide Employment
If you’re not comfortable making a loan or giving a cash gift, consider hiring your family member to assist with needed tasks at an agreed-upon rate. This side job may go a long way toward helping them earn the money they need to pay their bills, and help you finish up any jobs that you’ve been putting off. Treat the arrangement like you would any other employee – spell out clearly the work that needs to be done, the deadlines and the rate of pay. Be sure to include a provision about how you’ll deal with poor or incomplete work.
6. Give Non-Cash Assistance
If you’re uncomfortable or unwilling to give your family member cash, consider giving non-cash financial assistance, such as Fairprice vouchers. You’ll have more control over what your money will be used for, and you can easily buy vouchers in varying amounts at most stores.
7. Prepay Bills
You may want to consider prepaying one or more regular bills your loved one receives to help them during their current financial difficulty. Offering to do something, such as making their utilities payment, may help them avoid a short-term crisis and give them the little extra time they need to work out of their situation.
8. Help Find Local Resources
You simply may not wish or be able to provide your family member with financial assistance or hands-on help. But you can still play a key role by helping them find local professionals that can steer them in the right direction, such as lenders who can provide short-term solutions.
The Bottom Line
The most important step is sitting down with your loved one and asking specifically what help they need to work their way out of their current situation.
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