Avoid loaning money to family and friends
September 21, 2007
According to a debt advice agency in the UK it could be detrimental to both the borrower and the lender in cases where people are lending money to friends and family members in order to get them out of financial hot water.
Officials from the Debt Advice Bureau claim that it is far better for consumers to offer sound advice to their friends and family with regards to their financial situation than to actually bail them out financially, as this could result in financial losses for the person lending the money and fails to teach the borrower any lessons with regards to staying out of debt and managing their finances.
Officials state that those borrowing the money can easily slip into a mindset that they will always be bailed out whenever they have a financial problem. One official stated: “You don’t want to be laying the groundwork that every time they have a slight cashflow problem, you come to the rescue.”
He added that this could make the problem worse in the long run, and could lead to bad financial habits, as well as resulting in the person that has lent the money getting only part – or sometimes none – of it back.
Figures indicate that around 70% of consumers have loaned money to members of their family and only 58% had been repaid by the family member. According to the figures around 59% have loaned money to a friend, and out of these only 27% had been repaid. Such situations can often put a strain on the friendship or relationship, which is another downside to this type of lending.
Alan Wright
21st September 2007
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