Updated on 03.04.09

Personal Debts: Should They Come First?

Trent Hamm

Sharon writes in:

I created a debt repayment plan just as you suggested, but I had one real problem. I borrowed $1,000 from my mother with no interest, which would mean it should be the last debt I repay on that plan, but every time I see my mother, I feel guilty knowing I’m repaying another debt first. Should I talk to her about it? What should I do?

My belief is this: unless you have a very clear and explicit understanding with a friend or family member that you’ve borrowed money from, repaying that person should be the highest priority of all of your debts.

Most of the time, that doesn’t make sense on paper. Quite often, loans from family members are interest free, which means that you’re money ahead by paying off those debts last, only after getting rid of all other debts.

But the nuances of life aren’t always reflected on paper.

When you borrow money from a family member, you’re borrowing more than just money. You’re also borrowing against the trust and understanding that you’ve built up in that relationship over time. By turning your friend or family member into a lender and transforming yourself into a borrower, you put a new dynamic into that relationship, one that is bound to strain it over time whether you see it or not.

That relationship is a valuable one. If you have a relationship with someone that’s filled with enough trust that the person is willing to lend you money so flexibly, that’s a relationship you need to keep strong because it will provide value to you throughout your life in many, many ways.

Their choice to lend money to you wasn’t a business decision, calculated based on your credit. It’s based on the strength of your relationship. Thus, you should always repay such loans in good faith and in reasonable time.

Sometimes, though, it’s not that easy.

If you can’t repay the person right now, let them know. The worst thing you can do if you’ve borrowed money from someone is to give them the impression that you’ve forgotten about that debt. Quite often, the other person is wondering if you’re ever going to get around to paying you back. Thus, the best solution is to bring up the debt occasionally and let the other person know that you haven’t forgotten about it, but that your financial situation isn’t in order yet. Take this upon yourself – your relationship with that person deserves it.

If you’re feeling resentful (or feeling other emotions you don’t like) when you think about the debt, that’s a very clear sign that you need to repay it soon. If this happens, the money is introducing an element to the relationship that is damaging things. Don’t let that happen – take care of it as quickly as you can, and realize your emotions on the subject are actually much more complicated than they seem at first glance.

My rule of thumb is that lending money doesn’t mix well at all with personal relationships and should be avoided at all costs. If you’re in a situation where you have borrowed money, make a concerted effort to pay it back – or at least make it clear that you’re not just blowing off the debt. It’s the best thing you can do to ensure that your relationship survives the loan.

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  1. Saver Queen says:

    I would tend to agree with you, as our personal relationships have value, and guilt has a tremendous cost. Having this come between you and a close member of your family, is a big loss, so I would see this as a priority as well.

    But I don’t that it should necessarily be paid off first, before other debts. Rather I think that a plan to get it paid off, which is mutually agreed to, can be just as effective. Providing post-dated cheques is a good way to make sure it gets paid off regularly.

    I think having the terms written out is a good idea as both parties can easily misunderstand the agreement or even forget.

  2. Johanna says:

    I think that this sort of miscommunication or noncommunication is at the root of almost all of the supposed evils of loans between friends or family members. When resentment and guilt start to crop up, it’s not because a borrower/lender relationship is fundamentally incompatible with a personal relationship – it’s because both people are making assumptions about what the other one expects, because they haven’t bothered to talk about their expectations clearly.

    So yes, Sharon, talk to your mother. Give her an idea of where your financial situation stands, and let her know that you’d like to work out a time frame for repaying the loan. Suggest something that works with your budget – maybe $100/month for ten months. See what she says.

    Look at it this way: While you’re funnelling most of your money toward your high-interest debts, you’re not ignoring the low-interest debts entirely. You’re either making a minimum monthly payment, or else you’ve arranged with the lender to defer them. So it should be with your interest-free loan from your mother: Either pay her back something every month, or come to an agreement with her about when you will start paying her back something every month.

  3. Mike says:

    I borrowed $10K from my parents when I bought a car 2 years ago. They told me that they get paid last, and any amount I wanted, but that they wanted regular payments. I’m paying them $67 per month, and my aim was to increase it by the $200 car payment when my car was paid off, but my car will probably not be paid off when I had originally projected.

    They have offered to loan me another $10k to help with closing costs on a house which I’ll hopefully buy this year, and they will want me to come up with another repayment schedule. I’m pretty certain the terms are flexible. If I want to start repayment 6 months after we close on the house, instead of 1 month after they make the loan, I’m sure they’d go for that. So by making a payment plan, and sticking to it, I have no guilt whatsoever.

  4. Steve says:

    Guilt and other relationship damage is like a kind of interest. It’s not as easy to quantify and thus compare to your other interest rates, but that doesn’t make it zero.

    I borrowed money from my mother for college, but then after I graduated and tried to set up a payment plan, she just forgave the debt. I should send her a thank you note or something.

  5. MB says:

    I agree with these comments. I would be the same though, I HATE to owe people money. Even if it’s a dollar. Drives me nuts. Even if they’ve forgotten, I still remember. That being said, small amounts owed to me don’t bother me at all. Weird, I know.

    Anyway, talk to her, set up a payment plan, knock that debt out. Your relationship is worth FAR more than $1000.

  6. SJ says:

    I think my basic thought process is the same as steve’s.
    Definitely consider all costs with open loans/debts; Awkwardness in the relationship has to go somewhere…

    But opening lines of communication is prolly the biggest thing.

    Oh and you def should thank your mom =) I guess I will keep defering until after grad school (lol…)

  7. ziggy says:

    I am just about to loan my parents $5000. My mother found it really difficult to ask me, but I said yes straight away, after having them both support me through school and university over the years.

    I know that I will get the money back, but I won’t get it straight away. They are going thru a difficult time, and it wouldn’t of been obvious if she hadn’t asked me. There was no way I could say no, and see my parents battle while here I am, comparatively thriving.

    I know that not only am I loaning money, I’m also losing the potential to earn any interest on that $5000 as well, and this should be kept in mind for the person who the original article was written about (I don’t resent my parents for losing that interest-earning potential – I just think it should be something that should be considered in the grander scheme of Debt Snowballing)

  8. SteveJ says:

    I mentioned this on another post, but my brother and I’s relationship was pretty rocky after I loaned him a few big chunks of money. It wasn’t until we actually talked about it that I found out he assumed I wanted it all back at once. I like Mike and his parents approach, don’t put yourself out, but pay something regularly. Paying $1000 back at once is a big deal, paying $10 or $20 a paycheck might be more reasonable and may pay it off sooner than you think. Especially if you’re waiting until the day that you have $1000 ready to go. Even paying that small amount for the next year or two while you pay off other debts might help your whole financial situation. But definitely talk to your mother about your plans, and you might even ask her advice about your debt repayment plan if you value her opinion on such things.

  9. Adam @ Checkbook Diaries says:

    I’d take it a step further. I feel that it is also important to prioritize small/local businesses ahead of larger corporations. I wrote an article about what bills I pay first, and in it outline that if I have an outstanding bill from my plumber (due to a major renovation) I will pay him before putting extra money towards accelerating credit card repayment. Even though he isn’t charging me interest on the balance, he needs it sooner/more than a credit card company.

  10. Mule Skinner says:

    Use this as an opportunity. Don’t borrow from or lend to those relatives you want to keep close; and definitely lend to those you want to push away!

    Indeed, the relative who wants to borrow from you, and who keeps annoying you for money is probably one who is not in your best interest to keep anyway.

    There are “friends” who fit this profile just as well. We recently lost a “friend” when we declined to sell them a car on time payments or alternately front them the money to buy one elsewhere.

  11. KC says:

    I can say from experience that many parents don’t care when you pay them back – that’s part of being a parent. They probably want to be paid back, but they’d rather you pay them last. However, as the borrower, you feel obligated to pay them first for the reasons that have been mentioned. When I borrowed money from my parents I had a set payment plan that fit my budget. Dad said he simply didn’t care how I paid him, but I did. So I set a certain amount that I simply paid him each month. I did pay him off earlier than planned, but he certainly would have been comfortable waiting.

  12. Brent says:

    Here is a suggestion… If you are comfortable sharing your payment plan. Simply ask… Where do you want to fit onto this? Ask for a completely arbitrary min payment and a position for when you should pay it off(rather than rate). Say after the 11% card but before the college loan. You should even be able to estimate the amount of time that will take. Or you can go the easy way and ask for a deadline and set it correctly yourself. I should start putting more conditions onto my personal loans, They don’t strain me much, but I would like to see the money again before I need it. Maybe asking for $10/paycheck min would be enough of a reminder.

  13. From watching other people, I’ve learned that sometimes, as long as you’re indebted to someone, that person feels like they have a lot of say-so in your life. If I was in a situation like that, I’d make that debt a very high priority if at all possible.

  14. Charity says:

    Well said – thank you!

  15. Mary says:

    I actually had to borrow $500 from my sister last month to cover me until the end of the semester. She has already commented on my spending choices since then. Although our agreement is that I will pay her back when I can at a 4.5% yearly rate (making this a good investment for her money), I want to pay her back asap because I don’t like the “power?” she feels entitled to. I had asked her for the money so that I wouldn’t have to liquidate some savings bonds, but I don’t think it was a good idea. I’m currently debating whether I should go and cash in some bonds and get rid of the debt so that she stops nagging me.

  16. Shakeahand says:

    This is precisely why I paid my mother back first when I took on the debt repayment plan. It wasn’t the lowest debt, and it was interest free, but it was the most important to pay back for me.

  17. imelda says:

    Completely agree that paying off friends or family who have been kind enough to lend you money should come first. They’re not in business to lend money; they took it out of their pockets because they care about you–the least you could do is prioritize paying them back.

  18. Robin Crickman says:

    When I bought my first home, it was an older house
    and in need of several significant repairs, most
    notably, new electrical wiring. My parents loaned
    me the money to pay for that upgrade of the house.
    I had my credit union set up a schedule for repayment with an interest rate which my parents
    and I negotiated (they wanted less, I felt it should be market, we compromised). Each month I
    sent the payment along with a letter to my parents
    about how my life was going. My mother claimed for years that this was the best investment she
    ever made as they not only got return on the money
    but also got me to write home regularly. If you
    can find a way to enhance a family relationship,
    a loan is not necessarily a bad thing.

  19. Joan Garneau says:

    As a parent who has lent money to an adult child going through a really bad divorce, I told my son that I didn’t need to be paid back until his other debts were taken care of first. However, when I gave the money, in my mind it was a gift although I didn’t tell my son that. When lending money to family, call it a gift and don’t expect to see it again. My son needed help and I was glad to help him.

  20. SteveJ says:

    @Robin Crickman – Great story! Thanks for sharing it :)

  21. J says:


    You needed $10K for a car loan (that you haven’t paid back) and now you need $10K for closing costs on a house (that you are going to pay back … sometime).

    You might want to think about taking on the responsibility of owning a house …. and be sure the parents are going to float you the loan when you need to fix something expensive or buy a lawnmower.

    Also, the bank may have your parents sign a legal document saying it’s a gift and not a loan.

    But I agree totally with Trent, personal loans should take precedence, and actually should be generally avoided unless you really need them.

  22. anna says:

    I see it this way. Such loans are not really interest free because the friend/relative you have borrowed from are losing interest on the money they gave you. The longer you hang onto it, the more they lose. So it’s interest free for you maybe. It’s not such a good deal for them.

  23. Trent I totally agree with lending money and personal relationships.

    My Philosophy:

    If someone close needs money, I give it to them as a gift, if they give it back great, if not, i’m not worried it was a gift.

    I gladly help out my close friends and family. But money and friendship doesn’t mix. Make it a gift instead of a loan. If you wouldn’t give that much money, then you shouldn’t loan that much money.


  24. thisisbeth says:

    This is somewhat related, but a distant relative of mine–a 50-something bachelor–said he told his nephews he would never lend them money. If they desperately needed money, he would give them money, but he would not lend them money. He didn’t want to deal with the emotional side of things if the money didn’t get repaid (and he was pretty certain that would end up happening, as does all too often).

    Me? I’d put personal loans towards the top of the debt snowball in that situation. The guilt is probably the highest interest rate you’ll ever pay.

  25. I also have 0% interest from my Mom, and I have long paid off all other debts, plus have much more cash than what I owe her but I will keep paying minimum ($100/month) on what I owe her. I have always paid according to our original agreement, so why should I feel bad?

  26. Ken says:

    I agree totally about paying family first. I wrote a similar post about how to handle this if you are the lender instead of borrower. It’s touchy when it comes to family.

  27. T'Pol says:

    Last year a friend of mine (let’s call her Jane) gave 5000 TL (roughly about 3000 USD) to a friend of hers who had borrowed from Jane before and paid within two months. Jane’s friend told her she was going to pay her a.s.a.p but 6 months passed and needing the money, Jane decided to ask for the loan. It took her at least a month to decide to ask for HER money back. Her friend told Jane that she cannot pay her at the time but will do her best to pay in another 2-3 months. After the 3 months, the friend called Jane to tell her that she was wiring the money the next day. When Jane controlled her account, she saw that there was only half the money she loaned. For a moment she even doubted herself as to the amount she loaned. She then sent an e-mail message to her friend thanking for half the payment and that she needn’t rush for the second half and that she can pay whenever she can. Jane still didn’t get the rest of her money and it’s been a year almost.

  28. T'Pol says:

    I don’t know what I did, half of my story posted itself. Anyway, I asked Jane why she told her friend that she could pay the rest whenever she wanted and she said: “I wasn’t sure if she remembered the amount correctly so I just wanted to make sure she knew the real amount and I just couln’t bring myself to ask for the rest because I understand she is in true trouble”. I understand Jane but what I do not understand is why does she have to support someoneelse’s lifestyle? As far as I know her friend spent a lot of money to get pregnant, has a husband who sees every job beneath himself and quits his job very frequently. Yet they still own two cars and two apartments. They are renting the apartment they are living in because it is more spacious. Go figure! My friend Jane fully owns her place, has no consumer debt and is a very responsible person. I believe, their friendship took a big hit and the relationship will never be the same again whether she gets the rest of her money or not.

  29. tightwadfan says:

    Just talk to your mom and do what she prefers. Maybe she would rather get a lump sum than dozens of small checks. Maybe she would prefer to see you pay off your other debts first, that’s how my parents are.

    If you talk to her, she will at least know that you haven’t forgotten about the $1000 and are serious about paying it back.

  30. sam says:

    I think this is always going to be a tough situation, borrowing money should be something that you do as a last resort, you should make money yourself, I realise that sounds a little harsh but I have been bought up to not rely on people bailing me out and to make sensible decisions with money, I understand that sometimes you just cant do this as you lose your job etc and then these are the time when you see if you can make money from home or get a part time job and ask for a little help.

  31. Jennifer says:

    Two things come to mind:

    1) Debt is debt. If more people felt the “guilt” on debt they owe to financial institutions, that they profess to feel when a friend/family member loans them money, perhaps our economy wouldn’t quite be where it is currently.

    2) From the stories I regularly read and hear about where personal debt isn’t re-paid, it seems as if the “guilt” really doesn’t do much anyway to make the debtor truly follow-through and pay back that personal debt.

    Sometimes the best lessons learned are when you have to figure out a way to do it on your own without the help of a friend/family member or through the use of credit.

  32. jreed says:

    Pay your mother back…with interest…first. why? because she is your mother. This action will show respect to her, respect to yourself and help you to grow up. If it didn’t already bother you, you wouldn’t be asking the question. Why are grown adults taking money from their elderly parents and then questioning repayment?

  33. “Repaying that person should be the highest priority of all of your debts.”

    This says it all, Trent. You go to family or friends because you need the money “right now.” After they come through for you, there should be no hesitation on your part to get the money repaid as soon as possible. Why risk letting someone down?

    Excellent topic, buddy

  34. cherie says:

    I call this ‘psychological interest’ and I think it is as important a consideration as monetary interest

    Every single situation is different and only the borrower can determine what this sort of interest is . . . it may not be a family loan either, it may be a debt owing from a previous job or apartment or service experience that left a lot of bad feeling – having that hanging on only keeps those negative feelings with you – undermining you every day.

    So it should definitely be the one you pay off simply because it’s making you feel the WORST!

  35. K says:

    Mike – I agree with J that borrowing $20k from your parents to fund your lifestyle is a lot different than borrowing $1-2k to get you through a rough patch. You should definitely start taking responsibility for your own finances and stop buying things you can’t afford. And J is correct that the bank will want to see all your bank statements and a large deposit like $10k will be questioned and they will ask your parents to certify that it is a gift that doesn’t need to be paid pack. They don’t want you to have to choose which debt to pay back first.

    I agree that this debt should be a high priority if it is causing you guilt but it’s likely that your mom would rather you pay off your higher interest loans first and may even consider it a gift. I would have a talk with her about when and how she expects to be paid back so there’s no misunderstanding.

  36. Diane says:

    “..lending money doesn’t mix well with personal relationships and should be avoided at all costs”

    This is a excellent post and so true. In October, one of my siblings borrowed money to buy a car. The agreement was $50 a month, interest free. We received two payments and then they stopped. When I complained, they paid an additional $10. Another sibling borrowed some money due to dire financial straits, with the agreement that they would get the money from someone else after the first of the year and repay us. It’s March, and no money yet. When my husband and I owed money we paid it back as soon as we could. I feel hurt and taken advantage of and if I could go back I would never have lent the money. I had a close family and this has definitely driven a wedge in our relationship.

  37. plonkee says:

    I’d just like to point out that in the event that you are involved with bankruptcy proceeds or a formal credit repayment agreement, you are generally not allowed to favour some creditors (like family) over others.

    I agree that it’s probably better all round to create and stick to a repayment schedule. Feeling that you need to come up with the whole amount at once is probably quite stressful in and of itself.

  38. Nancy in Jersey says:

    More friendships and family relationships have been ruined due to loans. I speak as the lender, not the borrower. Pay it back, even if it’s $10 a week. Make the effort, even if you don’t really want to.

  39. Daria says:

    I am helping an elderly women with her finances who keeps giving to her daughter and grandchildren because they keep calling her for money to pay their bills. This women is $20,000+ in debt with credit card debt and paying for student loans that she foolishly co-signed and then a grandchild defaulted. She says that she can’t say “no” because then they will think she doesn’t love them. She wanted to add to her credit card debt $1000 to give to her daughter but believes that God helped her when she found that she had more money in her savings account than she thought. Her rent is going up $195 per month next month and I laid out for her all of her fixed bills and the minimum payments on these debts. It’s left her very little for groceries and medicines but she won’t listen that she should come first. Since she had a father who was a pastor and a brother who is a pastor and she teaches sunday school, I tried to reason with her by showing her that the bible warns against debt but she bristled at my advice so I backed off. She has a son whom she gave (or loaned,not sure which) $70,000 that has not talked to her in 10 years so giving a child money did not ensure a good relationship.

  40. ChrisD says:

    When I did one year of unpaid work on my PhD my Mum lent me money interest free, but I considered this support for my education and didn’t worry about it (and of course paid it back as soon as I had a job).
    But for any reasonable sized loan, I would always bear in mind that the person is losing interest on their savings and would consider it essential to cover that. Or say, my sister was paying credit card debt at 17% and I lent her money to cover it. If she paid me at 6% , then that would be a win win situation. But when an otherwise responsible friend had racked up credit card debt while finishing their PhD, I didn’t volunteer this idea as I thought it was better not to get involved.

    Lending in families can definitely work with clear agreements. My parents borrowed quite heavily from family to buy their house. Because the family was in Switzerland where interest rates are very low, the interest on this debt is the cheapest my parents had (therefore was paid last), yet the family made a fortune compared to what they would get on savings. My parents were vulnerable to currency fluctuations, but on the whole this was a good deal and everyone still gets on well.

    Just watch out for what happened to my Dad. He lent a friend money and the friend paid it back in dribs and drabs, in the pub. With all that cash, my Dad always ended up buying the drinks so in the end the savings where paid back, but were still lost.

  41. Leah says:

    My policy has become that I will GIVE money to family and friends, but not LOAN it. Not worth the trouble and lost relationships.

    I lent $2,000 to a friend, who shortly thereafter fell off the edge of the earth. In the last year he sent $100, which was a nice gesture and may well have helped save the friendship (maybe) since it shows he was at least acknowledging the ongoing debt, but it’s still very irritating.

    A cousin was lent $3,000 as a “short-term loan” that, frankly, I’ve just written off in my head, after much resentment.

    The problem with loaning money is, as others have said from the borrower’s standpoint, that it is impossible for me to have someone fail to repay my debt, and then ignore their foolish spending in other areas. The cousin? He has 2 houses, and 2 cars! A former roommate who couldn’t pay her rent to my best friend/our landlady somehow had the money to buy new clothes and purses and shoes, and she had a nicer car than either of us. That chafes! It’s not a sign of a small mind, as some have indicated, it’s human nature to see family/friend debt as having priority before buying fripperies.

    I agree with the above article – PAY OFF FAMILY & FRIENDS BEFORE ANYTHING ELSE! Otherwise you may well not have a relationship with your family and friends for either good or bad times.

  42. Erin says:

    I agree with those who suggest some sort of re-payment plan. Even if your mother says not to worry about it or that she’d prefer one lump sum, you can at least set up a savings account to put some aside for that purpose on a regular basis… $10-$20 / paycheck auto-deducted into a savings account will at least let you pay her back in a known quantity of time.

  43. Mike says:

    A number of people have commented about my parental loans, including the obout them helping to fund my “lifestyle”. The fact is, I could have afforded to but the car on my own but my payments would have been about $250 a month, so instead of $22k at 6.25%, my loan was $12k at that rate, and $10k at 0%. In another year, I’d have the $10k for closing costs on a house, but then I’d miss the $8k tax credit for this year. So they aren’t “funding my lifestyle,” just accelerating it on a way that makes financial sense.

    Paying a family member’s loan last doesn’t mean paying off all your other debts first, it means paying it with what’s left each month after paying your other monthly obligations, but before paying for “wants.”. “Reasonable and affordable” is a phrase that comes to mind.

  44. J says:

    @Mike —

    The next thing in your list will be “10K to get into the stock market now while it’s at record lows”.

    The bottom line is that there is always some good reason you can rationalize to spend money (yours or someone else’s). The problem is that you are borrowing, and it’s likely killing your cashflow. What it also is likely doing is creating the potential of a strained relationship with your parents/family. You are adding in the potential of alienating yourself from your family when by your own admission you can afford to do without hitting up the parental bank.

    For your car example, why didn’t you just buy a used car for $12K? Or for your down payment, you still have till the end of this year to make it … and you could buy in December.

    Of course, I don’t think that incurring debt makes much financial sense at all … and I (and my family) are learning that lesson the hard way — in living in fear of a layoff, not being able to choose our destiny in life, and so on. We are making strides at getting out of debt hell, but if we could turn the clock back, we’d not do it the same way again.

  45. Margaret says:

    I have loaned to someone who agreed to a payment schedule and then always had a reason why she couldn’t pay ($50/month). I would have agreed to ANY consistent payment (even $5/month), but she would not deal with it. It was eventually repaid, but only after harsh words were spoken and the relationship is definitely one of cool civility now instead of friendship.

    My mom loans money to her kids all the time, and it is great. We always sign a promissory note, pay iterest, have a minimum payment amount, and give her postdated cheques (for a long term loan, one year’s worth of postdated cheques at a time). I have no doubt that if one of us defaulted and there wasn’t a really compelling reason why she should be compassionate, she would, in a very business like manner, sue us or do whatever to legally collect on the debt (I’m sure she would give us more leeway than a regular bank, but eventually she would deal with it). On the other hand, she recently reduced the interest amount on my loan because she loaned some money to my brother, and he got a lower interest rate than I had agreed to, and she wanted to be fair. She also had a GIC mature recently, and she offered to loan it to me to pay off my student loans, but I told her our company had recently taken a loan and if she wanted, she could loan it to repay that and we would pay her the same interest rate we had been paying the bank. She agreed to that, but she will not take the bank rate — she is just making it prime plus one because that is more than she would get otherwise. I always offer to pay an interest rate equivalent to any other loan, but she always sets it up a bit less. I think this works well in our family because we all see this as a reasonable and fair transaction. Also, my mom doesn’t make any judgements about our spending as long as we are adhering to the terms of our loan. Well, she’s our mom, so she says things like get out of debt, but she would say that anyway.

    One thing — if you are paying back a loan, make sure you document your payments and provide copies to your lender (unless they are tracking it themselves, as my mom does). I think it is better to pay a bit at a time, but it is awfully easy to lose track, and if they did you the favour of a no or low interest loan, you can take responsibility for making statements:

    Loan: $1000
    Mar 5/09 -$50 950
    Apr 5/09 -$50 900

    Doesn’t have to be fancy, but keep track.

  46. Louise says:

    This post sadly reminded me that we need to make yet another attempt at recovering money we loaned to a “friend” several years ago. At the time, he was a friend. Now, after zero repayments, he is a bad business deal that cost us thousands of dollars.

    Ask yourself this: do you want someone thinking about YOU the way we think about this guy?

    It was an expensive lesson for us. “Neither a borrower nor a lender be.”

  47. PF says:

    My parents loaned us 20K during our homebuilding process. We agreed to an interest rate, but no payment plan because until our house was done, we couldn’t pay anything.

    They were great and never mentioned it, but as soon as our house was done and converted to a regular mortgage, we got a HELOC to pay them back. I always felt like I would feel funny telling them about going out to dinner, or taking a vacation if we still owed them money. It was a huge relief to pay it off. I’d pay off any personal loan as quickly as possible.

  48. Jim says:

    She should talk to her mother. Its possible her mother needs /wants that money back sooner. Or its possible her mother is happy if she pays off the other higher interest loans first and the 0% loan from mom is meant to help her in general. She really needs to talk to her mother about this.

    Personally I’d pay back mom first too.

  49. dave says:

    i “lent” $1300 to a friend so that him and his pregnant girlfriend wouldn’t be evicted from their apartment. i haven’t heard from him since. i put it down to money well spent and a good lesson learned.

  50. AnnJo says:

    When a child borrows from a parent, the siblings’ view of things needs to be considered too.

    I’ve seen a lot of family ties strained or broken because one child was favored with loans or gifts when the others weren’t, or one child is asked to help out an elderly parent who is still owed money by another child, or there’s an informal “loan” still outstanding when the parent dies and it complicates (emotionally) the division of the estate.

    The kind of resentment these things can cause sometimes last for years and never really heal. All good reasons to pay back personal loans as quickly as possible.

  51. Jen says:

    Excellent point AnnJo! I am a child not equally favored, and I do find myself resentful. I have good relationships with my mother and siblings because I keep those feelings to myself.

    My mother has 5 children. Three older (39 to 35), and 2 younger (20 and 21). She has funded the youngest 2 (different father) each with a HUGE college fund. I am much older than them, and have large student loan debts. Though I am an adult, I am still her child. I find it extremely unfair that 2 of my siblings have this opportunity, while I am saddled with debt.

    Additionally, she has purchased houses (in her name) that my other 2 siblings live in rent and mortgage free. One of these 2 is 100%, fully supported by her, and hasn’t worked in years. The other tries to be self-sufficient at least, but as a single mother to 4 children working in a very low income job, it’s not possible. So my mother is constantly bailing her out and has gifted her much more than the rent free house.

    In the past I have borrowed from her, and ALWAYS repaid her, which she accepted. There was one time she gifted me with money to move to a new city, until I could get established. Though I am grateful for that opportunity, it is a pittance compared to what she has done for every other sibling I have.

    It’s really hard for me! My friends who know the situation always say, “You should feel honored because she knows you’re ok and can take care of yourself.” WHAT? Let’s just say that “honored” is not how I feel in the least! Now if she ever pays off my student loans, then I would feel equally favored.

  52. Sam says:

    Without a doubt, this is your best blog post yet. Money issues are MUCH more that what’s reflected paper. Good job.

  53. Karen in Oz says:

    This post reminded me that it was time to set up a repayment schedule for a loan from my parents. I rang my Mum to tell her and she was so pleased, as she said “It’s not about the money”.


    Why is it hard for you? Your Mother loves you all, does it really matter that she is supporting your siblings financially?

    Do you think she loves the younger two more? This problem is not about money but about your relationship with you Mother.

  54. kitty says:

    I also think family and friends come first. BTW – when I lend/borrow to friends we always agree on an interest rate equal to what we’d get on a CD. This way we don’t make money off each other yet nobody loses. So far I’ve had no problems, but both I and my friends are financially secure, it’s usually the situation of needing cash “now” because of something unexpected, but having money locked in a CD. When I totaled my car, a couple of friends called me and offered to lend me money. I didn’t need it as I had a large enough check from insurance that I only needed to add 5000 for a new car, the money I easily had at hand. One time in the past when my parents’ car broke down, and I gave them mine, a friend also offered a loan at normal CD interest that I took. Again, I had money, just not in cash. I repaid it as soon as the next CD matured, earlier than this friend expected.

    Parents are a bit different because a lot depends on the relationship. Most parents want what is best for their kids, but if a grown-up kid is irresponsible, it’s a different story. Also even if the relationship is close and parents tell you they can wait, you need to consider their financial situation. I lend and sometimes give my parents money interest-free whenever they need it; my parents do the same. Sometimes, I just offer to buy stuff for my parents: they have always been (very) frugal, but having come to the US in their 40s and with almost no knowledge of English, they hadn’t had enough time to save as much as I had. When I was young, they just gave me the money when I needed it; they allowed me to live with them rent-free when I was an undergrad, they bought me a (used but good) car after I got out of grad school and started working. So now, it is my turn to help if or when necessary. I also expect to take care of them when they can’t take care of themselves. If I had been in debt, my parents would want me to pay other debts first, would probably insist on it. At the same time, I’d want to return the money back to my parents first too. But then I grew up in another country and we are much closer to our parents than many Americans. At least my generation.

    “I also have 0% interest from my Mom, and I have long paid off all other debts, plus have much more cash than what I owe her but I will keep paying minimum ($100/month) on what I owe her. I have always paid according to our original agreement, so why should I feel bad?”
    Maybe because you love her and want what is the best for your mom? Or is this too strange a concept?

  55. I am with you on this one– personal debts have a higher priority. The interest paid on these debts are more dear than some credit card– the interest is the value of relationship that could be lost . . .

  56. j6z3 says:

    I have learned never to loan money with the expectation of getting it back. I don’t loan what I can’t live without. Loaning money, or providing help (such as a place to live) can cause resentments, so you really need to evaluate if you’re willing to live with the costs, monetary or otherwise.

    I have one friend who I felt very resentful toward until she acknowledged the debt, and since that time, we’ve been able to come to a barter deal for the repayment…I hope now we are both good with the situation.

    And I have one ‘friend’ who is always verbal in her resentment of my monetary ‘good fortune’ not taking into consideration that I practice ‘good husbandry’ of my funds. Needless to say, I NEVER loan her any money!

  57. Roger says:

    Wonderful post, as always, Trent. The psychological cost of owing family members money, whether from a loan as a result of rent, can cause immense amounts of psychological strain. I had to borrow some money from my mother not too long ago (to pay a bill I didn’t have enough money in my checking account to cover), and as soon as I could transfer the funds, I made sure to pay her back. While I’m certain she would not have pressed for the money back, the simple knowledge that ‘I owe my mother money’ led me to pay it back as soon as possible. And I certainly seem the better for it.

  58. Ilah says:

    Don’t ever loan your children money!! We gave our son about $50,000, which we really didn’t have to loan out. It will never be repaid. Job problems and then he got married and has a baby with another one on the way. We are fine with it being just gone, we realize it will never be paid back and have just dealt with it. He, however, feels guilty and it has affected our relationship, no matter how many times we tell him to let it go. Plus, his sister and brother would be very angry if they knew how much it was! We are going to put it into our will, so that, dollar wise, they will be equal when we are dead. But in the ensuing 30 – 40 years it will be an albatross around his neck.

  59. With all the recent news of the economic downturn and the decline of the dollar, what would happen in case we’ll have another “Black Friday” like it was in the late 1920s? If the US economy crashes and maybe the dollar as well? What would happen to any personal loans, like student loans, or credit card debt? Would it disappear as well if the banks shut down and the dollar is worth nothing?

  60. thribble says:

    I’m working on a big bid at the moment and our team has a coach working with us once a week (there will be workshops and interviews and such so we need to perform as a team). A couple of weeks ago the coach asked nearly exactly that question – what was your first job and what did you learn from it. We all found it a fascinating insight into each other, and a really good question to put time into thinking about an answer for. Everything from checkout chick at a supermarket (learning how to talk to everyone at every level) to feeding the maggots at the maggot farm (tenacity!). As my first job wasn’t my worst job, I’ll re-think my answer. My worst job was one where I was employed as proposals engineer, to win a job and then be the project engineer running it. I can do the second part, and wanted to further my skills in that, and was prepared to give the first part a go but needed a lot of learning there. Unfortunately I joined a company who were really struggling to win work. I was the youngest, and the only female. Nobody had any confidence in me and I got boring tasks with no responsibility. I learnt that you only get out what you put in – I didn’t ever work out how to prove I could do stuff, so I never spoke up, so I never got anything better. Definitely a lesson for life.

  61. Tordr says:

    I had an old high school friend who was in dire needs. He needed to sell his old house and move to a new one and needed the pay double rent and deposit. I was foolish enough to lend him money, so I am out $10k at the moment, and have seen no repayment.

    Fortunately he is not such a good friend and the loan was brokered through a mutually good friend. So I now have a contract with some pretty steep terms and a some co-signers. So I am in good shape legally. I might loose a not so good friend, but I will gain some good experience, and with the contract I will eventually get my money back.

  62. Bankruptcy Saskatoon says:

    This is a great article on the topic of personal debt. It is something that one usually forgets while charting out a debt repayment plan. The key is to remember the costs of not choosing to repay your family or friends at the right time which are detailed in this post.

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