F.Financial experts tell you to avoid borrowing money from your family and friends. And, for good reason. Even the strongest and strongest relationships can be trapped by financial problems. At the same time, when you are in financial trouble, there may not be a better place to turn your close and close friend.

For starters, if you are in a difficult situation, it is the quickest and easiest way to get a loan. Putting a check into your account can be as simple as that. Second, it is a much more affordable option – from 35.99% for interest rates up to 199% for an astronomer.

But what happens when the shoe is on the other foot? In other words, a family member or friend asks you to borrow money from them. Well, here are 8 smart ways to get the most out of your money without breaking the bank.

1. Lie on it.

Most of us recommend that we ‘sleep on it’ before making a big decision. but why?

John M. Grohol in Life Science: “By ‘sleeping on it’ we cleanse our minds and immediately (and the anxiety that accompanies it). “Sleep helps to organize our memories, process the information of the day and solve problems.

Moreover, research has proved to be more effective than ever when we make poor decisions. Researchers have found that thinking without realizing it – like sleeping on it – can be beneficial.

How does this apply to mortgages? Well, when someone asks for a loan, you may feel obligated to say “yes”. What if you feel like you are in the right place at the right time or in the wrong place at the wrong time? However, you should tell them that they need time to finish and crush the numbers.

2. Lend only to people you trust.

There are many valid reasons for not lending money to your family and friends. For example, payment may not be a priority for them. Eventually, this may damage the relationship. In fact, one-third of borrowers and lenders report negative results, such as resentment or injury, in the credit tree survey.

The quick solution? Loan only for those who are responsible. And, more importantly, you trust them.

For example, you have a friend who has a good history of not repaying people. They have a short temper that makes them move from job to job. In this case, why do you believe they will repay your $ 500 loan?

Also, and this is very painful, if the borrower is struggling with addiction, you should reject the request. This may seem like a daunting task, but it is not without its challenges. My parents learned of this difficult situation when my sister was struggling with oxycodone addiction.

3. Ask why.

Another way to make a decision to lend money to friends or family? Ask them in advance why they need the money. In fact, as a lender, you have every right to know where the money is going.

At the same time, if someone asks you to borrow a small amount, for example 20 or 50 Birr, that will probably not hurt you financially. Because of this, you probably do not have to cook them. But ask for a larger amount.

For example, if you know you are in financial trouble and can’t pay your bills and you want to borrow $ 1,000 for a vacation, the answer is simple. It is very difficult. But if you want that money to replace the furnace as winter approaches, that’s another story.

4. Do not borrow too much.

When one practices meditation in Buddhism, one begins with oneself. As Troy Erstling explained in the middle post, “You say ‘May’ No be happy. May No Be free from anger, hatred, animosity, resentment, and hatred. May No Seek true peace, true joy, true love. ‘

“Once you do that, you can say the same thing to your friends, your family, and finally to strangers and all living things,” says Erstling.

Starting with yourself may seem selfish, but it is an important principle in life. And, it certainly applies to lending to others.

Suppose you have recently lost a source of income or are in the process of receiving emergency medical care. In these cases, you may not be in a better financial position to help others. So, you do not want to put any extra money on yourself.

As a general rule, the following should be above the mind; “If you can’t afford to lose, don’t borrow.”

5. Execute a loan agreement.

A written record helps to avoid misunderstandings when giving loans to friends or family. If you decide to sue the borrower to get the money back, it will be easier for you to do so. After all, you have agreed to a loan agreement and this may be legally binding.

The loan agreement must include at least:

  • Both you and the debtor’s name
  • Date of loan
  • The amount borrowed
  • Payment terms, such as minimum payment amount and expiration date
  • Interest rate, if you are paying
  • Reimbursement during non-payment. These may include additional costs on the loan, ownership of the mortgage, or legal action.

In the case of large loans, you may need an attorney to arrange the contract on your behalf. And if you plan to charge interest on the loan, consult a taxman.

The interest rate to be paid must be based on Federal Rates (AFR). FYI, loans over $ 10,000 are taxed on interest. And, whether you pay interest or not, if the money is not paid, you still have to report it as a gift.

6. Understand tax and tax results.

Are There Legal Barriers to Sending Loans to Friends and Family? Not so. In other words, it is perfectly legal to borrow money from someone else. Still, there are gaps that need to be addressed – especially if you are lending money to your adult child.

Patrick Simasco, a lawyer and property conservationist at Mount Clemans, Michigan, told US News: Medicaid treats it as a gift.

“You also need to think about internal income services,” said Niel Shah, a certified financial planner and owner of Beacon Resource Solutions in Monroe, New Jersey, and a property planner for Shah and his associates.

As a general rule, the IRS believes that no one will get anything in vain. When money or valuables are passed on to a friend or family member, it becomes a gift, a loan, or a sale. Each of these will have tax consequences associated with it, ”Shah said.

7. Build within your budget.

If you do this regularly, do not forget to budget for these types of loans. And, when you give cold, hard cash as a gift, this also applies.

Although this may seem unnecessary, there is a good reason to build loans within your budget. The gift or loan you are offering can be planned in conjunction with your other financial obligations and goals. Also, this will prevent you from spreading too thin, which could endanger your own financial security.

8. Think of options.

Make no mistake. Lending money to family or friends can be a bit of a hassle – at least.

Because they care about this person, they want to help in any way they can. But, on the contrary, it can put pressure on relationships.

A.D. According to the 2019 Bank Accounting Survey, 60% of respondents lend a way to help a loved one. Unfortunately, there is also a high probability of producing negative results (46%). Of those who borrowed money from relatives, 37 percent lost money, and 21 percent said that their relationship was broken.

What options do you have other than borrowing money? Well, of course there are many options for you to choose from.

First of all, you can still borrow money – not as much as you asked for. For example, if your brother asks you for a $ 1,000 loan and you are not comfortable with that. Instead, give him $ 500.

Another idea? Help them improve their financial knowledge. Examples include teaching them how to budget, what tools to use, and what financial resources they have.

Finally, you can go out and sign a loan from a financial institution. Or, to reduce that risk, you can suggest moving to peer lending sites such as lending clubs and pros.

By John Rampton for Due.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.