In difficult financial times or when the economy is good, your family member may experience financial difficulty. Regardless of whether she normally manages her money well and is going through an uncharacteristic money crisis or she doesn't manage her money wisely, she knows she needs your help. You may be reluctant to risk too much of your money or your own good credit rating. If you decide to help her, make sure you fully understand her situation so you can make the best decision possible for the both of you.
Step 1
Talk to your family member and request a detailed accounting of their finances. If they have been spending responsibly, but an unexpected financial crisis has made it difficult for them to meet their monthly obligations, let him know what you can help him with, says Katie Adams, financial author, writing on Investopedia.
Step 2
Extend a personal loan to your family member. Make it clear to her that the loan is short-term. Put the terms of the loan on paper, including the amount, the interest rate you are charging her, payment due dates and whether you will loan the money in a lump sum or in payments dependent upon satisfying specific conditions. Include language that discusses what will happen if she doesn't make scheduled payments, recommends Adams. These include increasing the interest rate, not making any future loans or taking her to court.
Step 3
Develop a budget with your family member and include a bill-paying system. Use your own system to show her how you manage your money and pay your bills in full and on time every month, advises Adams. This is helpful, especially if your family member does not have experience in drawing up a budget based on her income and obligations.
Step 4
Draw up a contract with your family member. Find an intermediary who will administer the loan (See Resources). Virgin Money, for example, sets the loan terms based on what you and your family member agree on and electronically withdraws the payments from his bank account. This way, you do not have to be the bad guy when it comes to making sure your family member honors the terms of your agreement, writes Liz Pulliam, writing on MSN Money.
Step 5
Prepay one or two bills for your family member. This tactic is most helpful if the crisis appears to be short-term, allowing them the room to recover from the crisis, says Adams.
Step 6
Buy gift cards or gift certificates if you don't feel comfortable giving your family member cash. If your family member is unable to manage money wisely, this is a good helping solution, enabling you to help your family member with specific amounts, for specific purposes, while avoiding the risk that your family member will spend the money on something other than an overdue bill, writes Adams.
Tips and Warnings
- The first and most important step for your family member is to have a frank discussion with you about his money troubles. Customize your financial assistance to the type of financial issues your family member is experiencing. Adams recommends helping him with finding a second job if he needs to earn more money.
- Don't lend money you can't afford to lose, writes Pulliam.
Things You'll Need
- Financial resources
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