what to do if lend money to friends

What to Do When Friends Don’t Pay You Back

Does your BFF owe you money? Read this.

By: Noah Lehava

Talking about money is weird. It shouldn’t be, but the topic of finances and cash flow always comes with a side of awkward. It amplifies tenfold when you want to help out a friend and lend them some cash in a time of need, but getting that money back can be tricky. Maybe it’s a dinner here, or a couple hundred dollars there—but how do you navigate lending money to a friend when you’re just not sure if you’ll get it back? We consulted our friend and finance pro, Kathleen Entiwistle, SVP at UBS Wealth Management, to give us some cautionary tips when it comes to shelling out cash to our BFFs.

 

The Reality of Lending Money

“If you are the one being asked to lend money to a friend, you really need to think about it. Unless it is a crisis situation or it is a result of a hardship, chances are your friend just doesn’t have a good understanding of how to manage money. Chances are they will be irresponsible with the money you lend, too. If you do decide to lend money, make sure you are comfortable with the chance that you may not get that money back. In fact, you need to consider that it is a gift and not a loan.”

 

Consider Your Own Bank Account

“You should also consider how giving away your money will affect you and your financial situation. What are you taking away from yourself by giving away money to a friend?”

 

Will This Be the Only Time?

“Additionally, you should consider that this person will probably come back again for more money, and it could potentially turn into a toxic situation. What will that mean for your friendship?”

 

Could It Enable Bad Money Behavior?

“You are not helping a financially irresponsible person by ‘lending’ them money. You are actually enabling them to continue their poor money habits. It may be hard to see, but I believe that the best gift you can give someone who is irresponsible with money is to say no. They really need to figure this out on their own.”

 

There Is One Exception

“The exception is the person who has fallen into a difficult situation and is typically responsible with their money. Then you may want to consider a loan. If you are to lend money, get a lawyer, sign a contract, and make sure the terms are clear.”

 

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