It's natural to want to take care of your friends or family in their time of need. But David Sant, Chief Marketing Officer for Cyprus Credit Union, says before you write that check or cosign a loan, make sure you take these factors into consideration.
TREAT LIKE BUSINESS
Even when friends and family are in the mix, any decisions you make regarding your money can't be an emotional one. Before saying yes, separate yourself from the situation so you can take some time to think about it.
CREATE REPAYMENT PLAN
Depending on the amount loaned, it may be helpful to sit down and come up with a repayment plan prior to beginning the transaction. This will ensure that both parties are on the same page and you'll have something tangible to refer back to down the line. This repayment plan should include the total amount loaned, any interest that may be charged, and a payment schedule.
Co-signing on a loan or allowing someone to use your credit card may have a negative effect on your credit score, making it more difficult to receive loans or additional lines of credit in the future. Once your score drops, it can take months, or even years, to raise it back up again. Use caution when helping out friends or family, especially when your credit is at stake.
PLAN FOR THE WORST
Ultimately, when loaning money to a friend or family member, you need to be okay with the fact that you might not get paid back. Never lend more than you are comfortable losing, regardless of your relationship with the person. If loaning that amount could potentially damage your finances, be honest with this person and perhaps try to help them out in a different way.
You can find more great financial tips at cypruscu.com.