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 :
Laura Rowley
Banks are squeezing customers with historically high fees and penalties, from overdraft charges to account service fees to new surcharges on foreign debit transactions.
But the pressures that have prompted the fee war with consumers started well before the financial meltdown, according to Jo Preuninger, a former management consultant who spent more than a decade in the consumer banking arena.
I asked Preuninger for a little history, as well as some of the tricks of the trade that banks would prefer to keep secret.
Secret #1: For many banks, the most profitable customers aren’t the mass affluent — they’re “Joe Lunchbox.”
In 1999, the Gramm-Leach-Bliley Act allowed banks, insurers and securities firms to merge, breaking down barriers that had been in place since the 1930s. Following the new law, “if you took all the (deposit) checks written for $10,000 and above, most were written to institutions such as Charles Schwab, Fidelity or Merrill Lynch,” says Preuninger. “They took the best customers. The banks were becoming more like Laundromats, where you put money in for a short period because you still needed to pay with a check or (get cash).”
At the same time, loans provided little profit as interest rates remained relatively low, prompting banks to seek consistent, non-interest income. “The focus was on how banks could not only identify fees they could charge, it was how to do a better job of collecting their fees,” says Preuninger.
Middle-income customers presented the greatest potential to harvest fees. “There’s certainly a customer segment that could be called ‘Joe Lunchbox,’ who expect to be nickeled and dimed,” says Preuninger. “They are managing money from paycheck to paycheck. It’s someone who would prefer to pay an overdraft fee to get their mortgage covered rather than get hit by a mortgage provider with a late fee and a ding on their credit score.”
Last year, overdraft and insufficient-funds charges totaled nearly $35 billion and comprised about 90 percent of banks’ consumer-fee income, according to a study by the consulting firm Bretton Woods Inc. Three-quarters of banks automatically enroll consumers in their “overdraft protection” programs without formal permission, and more than half of banks manipulate the order in which checks are cleared to trigger multiple overdraft fees, according to a Federal Deposit Insurance Corporation study.
“They are going to try to turn the best profit they can, which is why they post in the most attractive way they can while avoiding and minimizing legal exposure,” says Preuninger.
Someone who overdraws a checking account a few times a year should choose a bank with a program that makes it easy (and free) to shift funds from savings to checking to protect against overdrafts.
Secret #2: Banks hope frequent overdraft customers don’t understand the alternatives.
The banks deemed overdraft protection to be a customer service convenience that provides an alternative to payday lenders, says Preuninger. And yet some of those customers might almost fare better with loan sharks. The Bretton Woods study found 80 percent of overdraft fees are incurred by 20 million households, who paid an average of $1,374 in overdraft fees.
These customers should consider ditching traditional checking account in favor of a prepaid debit card, which typically cost $70 to $80 a year ($10 upfront with a $5 monthly fee). Users direct-deposit their paychecks onto the cards (the money is FDIC-insured) and can do point-of-sale transactions and pay bills online. There are no overdraft fees; the purchase is declined if the card is empty.
Secret #3: Those helpful new customer set-up kits, designed to make it easy to switch banks, also try to make the account “sticky.”
“I did a lot of work in customer attraction and retention,” says Preuninger. “The biggest barrier to new accounts was switching. There’s a higher tolerance; a bank may have a lot of long-term customers — that doesn’t mean they love (the service).”
Most banks have a kit to assist customers in switching services. But do it yourself instead. Enter your regular bills in the bank’s online billpay site, rather than signing up with each biller’s website. If your new banking relationship goes sour, the account is more transportable. You won’t have to log into a dozen different biller sites and change the account and routing numbers.
Secret #4: Long-term relationships matter.
“Know what you want in the way of a bank and stay as long as you can because tenure does matter,” Preuninger says. “If you’ve been with a bank three to five years, they treat you differently than if you are there six months. If you direct-deposit your paycheck and have a (savings) relationship, they think of you differently than if you have free checking with $100 in it. Tenure and relationship does matter.”
So if you incur the rare fee now and then, always call customer service and ask (politely) for it to be removed. Emphasize your long-term relationship with the bank and ask for a supervisor if the initial effort fails.
Most customers aren’t profitable until they’ve been with a bank a few years because of the high cost of customer acquisition — sales compensation to branch managers, IT infrastructure, documentation and account setup. “It’s a long time before they break even, especially if they goose it with $100 to you to open the account,” Preuninger says.
Secret #5: Banks want you to enjoy the “advantages” of paying with credit, debit, check and cash — because it will make you more likely to lose track of your money.
“One of most dangerous things going on with consumers is they are not paying attention to the variety of ways they are paying. They are balancing money back and forth because it’s too hard to account for,” Preuninger says. “If you pay seven different ways, you’ve just added complexity to your life. Consumers shouldn’t say to the bank ‘you’re responsible to tell me what I’m doing with my money.’”
But more banks are moving in that direction. PNC Bank, for instance, launched an account called Virtual Wallet that presents account information in calendar form, focused between today and the account holder’s next payday. A “danger day” appears on the calendar in red if the account is at risk of an overdraft. The user can either move bills later in the month, or shift money immediately from the savings portion of the account at no charge (the account does it automatically if the consumer doesn’t). Statements are only available online and the bank charges 50 cents per check for writing more than three a month.
Best bet? Simplify. Get a free checking account with no fees and a low minimum balance requirement, pay major household bills online, and then stick to cash. You’ll think twice about purchases, and avoid getting caught in the widening web of bank fees.
Read more from the original source:
Five Secrets Your Bank Doesn’t Want You to Know
It is amazing how a little personal attention goes a long way.
I just talked to two people that were so grateful just for the fact that I listened and was willing to help them.
What is even more amazing is how rare that is these days.
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A Human Touch
