If you do loan money to family
Consider the reasons for borrowing: Before you loan (or give) money to family, you should consider why it is being borrowed. Is the person borrowing the money generally responsible or is he or she a bad money manager. If the borrower is usually responsible and has just had a bad set of experiences, you might feel more inclined to help out.
Don’t respond to guilt or manipulation: When you think of family bums, parents are not usually who you think of. But parents are not only borrowers, but they are also some of the most effective family borrowers. Liz Pulliam Weston, MSN Money contributor and author of Easy Money,discusses this phenomenon in her article, “Should you bail out spendthrift parents?” Sometimes this is because of cultural reasons, for example immigrants sending money back home to their parents, but other times it is simply a matter of parents having a sense of entitlement. They might feel that parents are supposed to look out for their kids when they are younger and in return the kids should look out for them when they are older.
Don’t loan money you can’t afford to lose: You should not loan money to someone that you can’t live without. If you can’t afford to lose the money, don’t loan it. Plain and simple.
Document the loan: If you do decide to loan money to a family member or friend, draw up a contract and make it official. You don’t have to hire a lawyer for this, you can find legal documents at www.nolo.com or other sites that you can print out and use. If the loan is for a large amount, it would be best to consult a tax advisor and get legal counsel.
Set up a loan through a social lending company: You can also consider setting up a loan through a social lending site like ZimpleMoney.com. Zimple Money is a website that sets up loans between family and friends. What is great about using a social lending site, is that they take care of the collection process, eliminating some of the stress from family lending. This way you can visit family functions without feeling like the family bill collector.