What do you do when a family member becomes unemployed? Or suffers an unexpected injury and can’t work or has insufficient insurance to cover mounting medical bills? How do you respond when you learn a loved one can’t pay their bills?
Let’s take a look at a few options you can consider to help your family members in trouble - without hurting yourself financially.
1. Give a cash gift.
If your loved one is having a short-term cash flow problem, you may want to give an outright financial gift. Decide how much you can afford to give, without putting yourself in financial jeopardy, and then either give the maximum amount you can afford all at once (and let your loved one know that’s the case) or perhaps give smaller gifts on a periodic or regular basis until the situation is resolved.
Make sure it’s clearly understood that the money is a gift, not a loan to be repaid, so you don’t create an awkward situation for the gift recipient. If you’re considering giving them a substantial sum of money, you’ll need to keep an eye on the annual gift exclusion set each year by the Internal Revenue Service (IRS).
2. Make a personal loan.
Your family member may approach you and ask for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and have both parties sign it. This helps both parties be clear on the financial arrangement they’re entering into. Some loan details you’ll want to include are:
- the amount of the loan
- whether the loan will be one lump-sum payment, or if it will be divided and paid out in installments upon meeting certain conditions (i.e. securing another job, paying down existing debt, etc.)
- the interest rate you will charge for making the loan and how it will be calculated (i.e. compound or simple interest)
- payment due dates (including the date of full repayment or final installment due)
- a recourse if he or she doesn’t make loan payments on time or in full (i.e. increasing interest charges, ceasing any further loan payments, taking legal action, etc.)
If you are going to lend more than $10,000 and/or you’re going to charge an interest rate that is substantially different than the going rate for most borrowers, you may want to talk to a tax professional. There can be unique tax implications for low interest loans among family members.
If you’re worried about potentially straining your relationship by having to administer the loan (i.e. collect payments or call when the payment is late), consider using a service, such as Prosper.com or VirginMoney.com. These companies can draw up the contracts and even collect automatic payments from your loved one’s bank account.
3. Co-sign on a bank loan.
Your loved one may be interested in obtaining a loan or line of credit (LOC) to help with short-term financial needs but what if his or her credit requires getting a co-signer? Would you be willing to co-sign on a bank or credit union loan or LOC?
Before simply saying “yes” and essentially lending a family member your good credit, it’s important to realize that there are legal and financial implications to co-signing on a loan. The most critical thing to understand is that you are legally binding yourself to repay the loan if the other borrower fails to do so.
The lender can take legal action against you and require that you pay the full amount, even if you had an agreement between you and your family member that you would not have to make payments. This delinquent loan will also now affect your personal credit. So if your sister/brother/uncle fails to make payments on the loan on time and in full the lender can report the negative account activity to the credit bureaus to file on your credit report which, in turn, can lower your credit score.
Co-signing a loan is serious business. The fact that your family members need a loan co-signer means that the lender considers them too great of a risk for the bank to take alone. If the bank isn’t sure they’ll repay the loan, what guarantees do you have that they will? It may also mean that you could have more difficulty getting a loan for yourself down the road, since you are technically taking on this loan and its payment as well.
Before co-signing for a loan, make sure you:
- Ask for a copy of your family member’s credit report, credit score, and monthly budget so you’ll have an accurate picture of his or her finances and ability to repay the loan.
- Meet with the lender in person (if possible) and be sure that you understand all the terms of the loan.
- Get copies of all documents related to the loan including the repayment schedule.
- Ask the lender to notify you in writing if your family member misses a payment or makes a late payment. Finding out about potential repayment problems sooner rather than later can help you take quick action and protect your own credit score.
4. Create a budget and help create a bill-paying system.
Often, people in a financial crisis simply aren’t aware where their money is going. If you have experience using a budget to manage your own money, you may be able to help your family in creating and using a budget as well.
To break the ice you may want to offer to show them your budget and your bill-paying system and explain to them how it helps you make financial decisions. As you work together to help them get a handle on their financial situation, the process will point out places where they can cut back on expenses or try to increase their income to better meet their financial obligations.
5. Provide employment.
If you’re not comfortable making a loan or giving a cash gift, consider hiring your family member to assist with needed tasks at an agreed-upon rate. This side job may go a long way towards helping them earn the money they need to pay their bills, and help you finish up any jobs that you’ve been putting off.
Treat the arrangement like you would any other employee – spell out clearly the work that needs to be done, the deadlines and the rate of pay. Be sure to include a provision about how you’ll deal with poor or incomplete work.
6. Give non-cash financial assistance.
If you’re uncomfortable or unwilling to give your family member cash, consider giving non-cash financial assistance, such as gift cards or gift certificates. You’ll have more control over what your money will be used for and you can easily buy gift cards in varying amounts at most stores. Â
7. Prepay bills.
You may want to consider prepaying one or more regular bills your loved one receives (i.e. rent/mortgage, utility bills, insurance premiums, etc.) to help them during their current financial crunch. Offering to do something, such as paying their car payment may help them avoid a short-term crisis and give them the little extra time they need to work out of their situation.
8. Help them find professional assistance and local resources.
You simply may not wish or be able to provide your family member with financial assistance or hands-on help. But you can still play a key role by helping them find local professionals that can steer them in the right direction, such as:
- Career counselor and employment agencies
- Welfare agencies and similar services
- Credit and debt counselors
- Lenders who can provide short-term solutions
Conclusion
As always, the most important step is sitting down with your loved one and asking specifically what help they need to work their way out of their current situation. From there you’ll have a better idea of the type of information and assistance they need. For example, if they need to make more money you could help them lookg for jobs and update their resume. If they need help repaying credit card debt, you could call local credit counseling agencies to learn what services they offer, how much it costs and how it could benefit your family member.
Family members and money aren’t always a good mix. But, in tough economic times or when faced with unexpected emergencies, your loved ones may truly need your financial assistance. Before you commit to helping, be sure to think through what you can and can’t afford to do. Remember, if your own resources are limited, there are meaningful, effective, and creative ways to help your family member(s).
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8 Ways To Help Family Members In Financial Trouble
SEARCH ENGINE KEYWORD RESULTS :
You know the part of the classic wedding ceremony in which couples vow to stick together “for richer, for poorer”? Well, a lot of spouses lately are really putting the latter part of that promise to the test.
Blame the economy for shaking up once-solid unions. Marital roles are shifting as onetime breadwinners adjust to long bouts of unemployment. Husbands and wives are blaming each other for bad investments and onerous debt. Spouses who once smoothed over spats with a little shopping therapy can no longer afford to fill that prescription. “It’s the biggest stress on married couples in the past 60 years,” says Margaret Shapiro, a clinical social worker in Philadelphia.
How are you and your spouse coping with the challenges you’re facing? And what can you do to ensure you pull together to solve those problems instead of being torn apart by them? The following quiz provides insights into the specific ways the economy may be affecting your marriage, plus the steps you can take to strengthen your relationship — and your finances.
Question 1: Your company reduced salaries 10% this year, and you’re looking hard for ways to cut your family’s expenses. But your spouse insists that you’re exaggerating the financial difficulties and resists attempts to ratchet back your lifestyle. Every conversation about money is turning into a battle. What is most likely to result in a lasting solution to the tension?
A. Let your spouse pick one splurge each month and enjoy it.
B. Together, take a look at the numbers in your investment and checking accounts.
C. Split up your finances so you don’t have to discuss every purchase.
Answer : B. While some couples might benefit from dividing their money or looking the other way when one makes an occasional indulgent purchase, one of the biggest breeding grounds for arguments is simply that most spouses appear to be operating under different sets of “facts” about the resources they have to work with.
According to a study by Jay Zagorsky at Ohio State University’s Center for Human Resource Research, the typical husband reports that the couple earn 5% more and have a net worth 10% higher than his wife thinks they do. And men believe household debt is lower than their wives do.
Moreover, the gap between what husbands and wives say their household earns, saves, and owes gets bigger the longer they are married. (The study didn’t reveal which spouse is usually closer to the mark.)
Rather than fight about whether you can afford to take a ski vacation this winter or whether it’s necessary to ditch your premium cable-TV channels, get the facts you need to make an informed decision. Block out time to sit down together and sort out the basics.
At a minimum you both need to know — and agree on the numbers for — your income (look at last year’s tax return and this year’s most recent pay stubs), your assets (check your account balances online and get a rough estimate of your home’s market value at zillow.com), and your liabilities (add up your most recent loan and credit card statements to see how much you owe overall and do a back-of-the-envelope total of your monthly expenses). That way you’ll know for sure whether you need to cut back and what extras you can swing.
If the exercise reveals you can’t afford the slopes in Vail, find a compromise. Ask your spouse why the trip matters so much: family tradition of a big trip? Relaxation? Love of snow? Then see if you can find a cheaper way to fulfill that goal.
Question 2: It’s been a tough year. The value of your home and your portfolio are way down (even after the recent surge in stock prices), and the payments on the big home-equity loan you took to buy that new motorboat are starting to feel out of reach. Which of the financial issues you face is putting the greatest strain on your marriage?
A. Your plummeting portfolio.
B. Your eroding home equity.
C. Those oversize loan payments.
D. Trick question. They’re all stressful — duh! There’s no way to rank this kind of financial pain.
Answer: C. Sure, a sharp decline in the value of your most important assets can easily put a damper on your relationship — it’s depressing, after all, to watch your savings shrink, and depression doesn’t exactly put you in the mood for love.
But studies by Utah State University professor Jeff Dew show that so-called bad debt, such as balances on credit cards or installment loans, has a much more direct effect on marital happiness than issues with assets, and the impact is largely negative: The more bad debt a couple have, the more likely they are to argue and the less likely they are to be satisfied with their marriage.
By contrast, “good debt” — such as student loans or mortgage payments — doesn’t seem to affect how they feel about each other. And while having more savings and investments can certainly help alleviate feelings of economic pressure, it doesn’t stop the fighting.
So if you’re looking to improve the state of your union, the course is clear: Pare down on the amount you owe.
Feel free to reward yourself along the way — say, a small dinner out to compensate yourself for all the ones you’ve skipped. Or be silly — put stars on the refrigerator, just like you got for your third-grade homework.
“It marks and commemorates that you did it together,” says Lili Vasileff, president of the Association of Divorce Financial Planners. That way you can enjoy a pat on the back while you whittle down your debt — for a double dose of marital contentment.
Question 3. Your spouse was laid off a few months ago. You’ve cut out the housekeeper and family vacations, but your emergency fund is still dwindling, and your partner has no job prospects in sight. In the scenarios below, who suffers the least?
A. Your spouse, the laid-off husband
B. Your spouse, the laid-off wife
C. You, the husband of the laid-off wife
D. You, the wife of the laid-off husband
Answer : C. Losing your job is tough for both men and women, especially if the man strongly identifies with the traditional role of provider. But the effect of your spouse losing his or her job is different for the sexes.
Various studies indicate that women are likely to feel depressed when their husbands are laid off — an increasingly common occurrence nowadays, with male unemployment rising faster than women’s. Yet husbands don’t seem to take it so hard when their wives lose their jobs.
Any negative feelings can easily aggravate the strain couples are already experiencing owing to loss of income, says Scott Stanley, co-author of the book “Fighting for Your Marriage.” The laid-off partner may feel too low to put all his or her energy into looking for work, especially given how discouraging the job market is — or even to prepare a meal or pick up the dry cleaning (chores that also serve as a reminder of the stay-at-home spouse role).
The employed partner, meanwhile, may become frustrated by the spouse’s lack of get-up-and-go on the job and the home fronts. Both partners may find themselves more critical of their spouse than before, which in turn makes them unhappier with their relationship.
If this describes your household, it’s time to alter the pattern. The best way to avoid arguments about changing family responsibilities is to set a few ground rules about how much housework the unemployed spouse should be doing and how much time he or she should spend looking for a job. Then focus on upholding your end of the bargain, not micromanaging your partner’s.
“It doesn’t matter how you arrange things, but that you both agree to it,” says therapist Shapiro.
Question 4. You and your spouse were counting on retiring in 2011. But the 30% decline in your portfolio last year is forcing you to rethink. Now you’re constantly bickering about when you’ll be able to stop working and what kind of lifestyle you’ll have once you do. What’s the most important step you can take now to improve the odds you’ll eventually have a happy retirement?
A. Aggressively pump up the amount you’re saving in your 401(k) and IRA.
B. Start practicing the kind of lifestyle you’d like to have once you retire.
C. Bite the bullet and plan on working for five more years, possibly longer.
Answer: B. Money does have an effect on how happy you will be as a couple in your later years, according to a 2005 study in the International Journal of Aging and Human Development. But the size of your nest egg is not nearly as critical as the quality of the time you spend together.
Studying more than 100 upper-middle-class couples (average age: 69; average length of marriage: 42 years), the researchers found that disagreements about leisure activities were the biggest downer, cited by nearly 40% of couples in unhappy marriages.
Intimacy problems — both emotional and physical — were a distant second, and finances came in fifth, behind health and household issues like home repairs.
So by all means, be aggressive about saving and work a little longer if you can. But you and your spouse also need to lay the groundwork for hanging out together for longer periods and having fun together.
The next time you both have a few days off, make it a staycation. Visit a museum. Find a sport or activity that the two of you can learn together. Playing at retirement should help reduce the friction now and contribute to greater happiness later on.
Question 5. You can’t help it: You think the financial pickle your family is in now is your husband’s fault. After all, he insisted that you buy a too-expensive house, which drove up your expenses by a third. He, on the other hand, says it’s your fault for poorly managing your IRA s, which lost almost half their value last year. Which of you is to blame?
A. You. You should never have loaded your IRAs with risky stocks.
B. Your husband. Digging out from a financial hole is tougher than waiting for the market to bounce back.
C. Both of you are equally to blame.
D. Neither of you should feel that it’s your fault.
Answer : C or D. Ultimately it doesn’t matter who was responsible for your financial predicament; what’s important is that you don’t get hung up on finger-pointing.
Stressful situations often lead couples to lay blame, says Barbara Mitchell, a clinical social worker in New York City who specializes in money issues. “There’s a tendency to scapegoat one another, which starts a real downward spiral,” she says. Researchers have consistently found that the more “negative interactions” you and your partner have — and laying blame for the family’s financial woes certainly qualifies — the worse your relationship will be and the more likely you’ll start thinking about divorce.
Instead of criticizing each other, fault the true culprit, the economy, and form a united front against it.
Schedule regular weekly meetings in which you and your spouse discuss financial problems and possible solutions calmly. That sort of quarantine will prevent your financial gripes from infecting the rest of your day-to-day interactions. Defuse the emotion by focusing on the task. Instead of arguing about who wanted the McMansion more, look into refinancing to lower your costs or trading down to a smaller house.
Question 6. All you and your spouse seem to do these days is fight about money. Even though you hate to admit it, your marriage has reached the breaking point. Given how tough the economic crisis has been on relationships, you have plenty of company, right?
A. No, the evidence suggests that fewer people are getting divorced.
B. Yes, the divorce rate typically spikes during a recession, and this one is proving no different.
C. No, there’s been no change in the divorce rate, which historically has not been affected by the economy.
Answer: A. First things first: It’s a myth that money problems are the leading cause of divorce — infidelity is far and away the biggest predictor. In fact, although official stats aren’t in yet, there’s mounting evidence that the recession is keeping couples together, not breaking them apart.
In a survey by the American Academy of Matrimonial Lawyers, 37% of the divorce attorneys polled reported that they see a drop in cases during recessions, nearly twice as many who said their business grows.
However, the dropoff in divorce doesn’t indicate that marriages are any happier these days, but rather that many would-be exes believe they can’t afford to split up (think about the hit you’d take selling your house in this market or how costly it would be to maintain separate households). The number of these too-poor-to-divorce cases has increased in the past year, say 63% of the financial pros recently surveyed by the Institute for Divorce Financial Analysts.
If, after trying to work through your problems with your spouse, you’re both truly convinced you should call it quits, at least try to split up economically. Hiring lawyers to hash out a settlement can be expensive: Boston attorney David Hoffman, studying nearly 200 divorce cases at his firm over a four-year period, found that the median cost per couple was about $54,000.
Alternatively, look into mediation ($16,000), in which a neutral expert helps a couple work out their own agreement. Or consider what’s known as a collaborative divorce ($39,000), in which each spouse has a lawyer but both sides pledge to negotiate respectfully and share information about assets.
Find pros who can help at collaborativepractice.com or mediate.com. No matter how bitter you are, work hard to avoid a contentious split (typical cost of a courtroom divorce battle in Hoffman’s study: $155,000). After all, while true love is priceless, divorce can get really expensive.
Source:
Is the economy ruining your marriage?
