Personal Debts: Should They Come First?

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.