What do you do when someone you love asks to borrow money or wants you to co-sign a loan?

The question reminded me of when I had a sibling asked to borrow money – and it temporarily ruined my life.

The Awkward Ask

When I graduated college, I started making a bit of a salary that allowed me to rent comfortable apartment in a nice area of the city and drive a car that wasn’t a beater. Then my mom asked me to allow my brother to move in with me for a few months. He was coming back to town to get a fresh start. Thing is, I was living in a studio apartment – so not a lot of space. But he was family and I felt obligated.

Then the Financial Abuse

What resulted was nothing short of financial abuse. I “loaned” him money for car repairs and gas, and paid for food. The cost of supporting two people on my salary became a burden. I finally asked him to leave. It was then that I came home from work one day to find all my electronics and the jar where I kept the grocery money – about $80 gone. Back then, that would have bought two weeks worth of food.

Over the next few weeks, I discovered he’d run up the balances on my credit cards. He ordered pay-per-view movies (this was before streaming services were a thing) at about $15 each. He charged upwards of $800 in long distance calls to my home phone (this was before mobile phones). But that wasn’t the worst part.

I’d trusted him to drop the rent checks off at the leasing office. Instead, he changed the name on the checks and cashed them. I was three months behind. After all was said and done, I was more than $8000 in debt. At that time, I was making a modest $32,000 a year. After taxes, it was closer to $27,000, take home.

Taking Responsibility for My Role

I had to sit back and think about was my part in this fiasco. and the answer was simple. I let him know how much I made and what I could afford. Important financial information – my credit card statements were left where he could find them. I also failed to lock down my accounts. He only had to make a phone call to change my access to my phone, utility, and cable accounts.

What makes me sadder is not that he grifted me out of my savings, but he irrevocably damaged our relationship. That sick feeling of betrayal has never gone away. This was my brother, a person I thought would protect me but instead took advantage – and walked away. That was the bigger gut punch for me.

What to Do If a Family Member Asks to Borrow Money

You may want to help a struggling family member or friend, but you have to stop and ask if forking over cash is the best move.

1. Consider if you have the money to lend. If it will compromise your financial health, then the answer is no.
2. Think about whether this person routinely has financial problems. If so, then lending them money won’t help them deal with the root cause of their issue.
3. What happens if they don’t repay you? If you give a friend or relative money, do it with the expectation that you will not be repaid. Consider it a gift.
4. Help them find other sources of income that aren’t you. That might mean a short-term, part-time job or a bank loan (that you don’t co-sign for).

The Rules

Whether to lend money should be a part of your financial boundaries. Here are the conditions under which I will give money to a friend or relative if I can afford it.

1. Immediate health and welfare of someone.
   Example: To get a taxi to get to a medical facility or to purchase medication
2. Secure or maintain shelter when there are children or a vulnerable adult in the home Example: A job loss has created a short-term cash flow to pay rent or mortgage for a space – or keep utilities connected where there are children or a vulnerable adult dependent on shelter
3. Remove someone from an unsafe space
   Example: Help a friend to leave an abusive domestic partner
4. Obtain food when children or vulnerable adults are in the home
   Example: Purchase groceries when there are children or vulnerable adult in the home who might otherwise not get a meal

Going forward, I can help them secure a permanent income to fund these priorities, whether it is through a social service program or community help.

You have to get past the thought that it is being mean or selfish. People do fall on hard times and need help but you’re not required to be that person when other sources of assistance are available. Your financial solvency is critical when you’re living on a budget. Perhaps when your income is bigger and you have a category in your financial plan for giving, then helping someone can be more of a priority.

A Word about Co-Signing Loans

You might be asked to co-sign a loan for someone. Typically it is for a car loan or consolidation loan to pay off debt. Here is the word about co-signing loans: NO. No explanation needed.

What the person is asking you to do is to sign a contract that could impact your credit score, your savings, your financial reputation. It is a MASSIVE ask and the answer should ALWAYS be NO.

Financial guru Dave Ramsey had the.best response to co-signing ever: A fully qualified financial institution backed by the Federal Deposit Insurance Corporation and likely a billion dollars in assets has deemed this person unworthy of getting a loan, but you, with limited resources are going to say yes?

Yeah no. You will lose a lot of money AND your friend.