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How to help someone facing financial hardship

March 28, 2024
min read

Lending money to a loved one is a very personal decision. Only you can decide what’s best for your unique financial situation, and the relationship with your friend or family member.

Two people holding hands for support

Between high interest rates and the increased cost of living, people from diverse backgrounds are facing financial pressures.

If a friend or family member needs to lean on you for help, your first instinct may be to support them no matter what.

But supporting someone else can impact your finances, too. You may want to help, but you don’t want to compromise your financial health in the process.

Before you lend money to a friend or family member, here are a few points to consider:

Can you afford to offer help?

How much money does this person need – and is that an amount you can afford to part with?

Consider what might happen if you don’t get your money back. Would you still feel comfortable giving out the funds, or would it jeopardize your own financial position?

Remember: Never lend more than you can afford to lose. Doing so puts your own finances and credit score at risk.

What’s the root of the problem?

Another point to consider is how your friend or family member got into this difficult financial position to begin with.

Is it a temporary hardship caused by an unexpected life event, like losing a job or falling ill?

Or is it linked to a pattern of behaviour, such as a gambling problem or overspending?

If it’s the latter, other solutions (such as meeting with an advisor) may better address the root of the problem.

Can you help in other ways?

If you don’t feel comfortable mixing money with your family or friendship, look for other ways you can offer help that don’t involve lending funds.

How else can you ease the pressure on someone facing financial hardships? For example, you could:

  • Sit down with them to discuss budgeting and financial literacy.
  • Put them in touch with a Cambrian Advisor who can offer other solutions. For example, if they’re dealing with multiple sources of high-interest debt, they may be better off with a PayOff Loan.
  • Offer to support them in ways that doesn’t require lending money. You could drive them places, watch their kids/pets, or cook them meals.

Is it a loan or a gift?

Is the money a gift, with no expectation of repayment, or is it a loan? If it’s a loan, when do you expect the money to be repaid by?

Consider what might happen if the person is unable to pay you back by the date you’ve agreed upon. Would you charge interest or late fees on the amount owed?

It may be uncomfortable to have these conversations. Still, it’s best to talk through these topics ahead of time to ensure you’re both on the same page.

Write up an agreement

When lending money to a loved one, you may want to set clear deadlines for when and how it will be repaid. Before moving ahead with it, create a written agreement that outlines:

  • How much you’re lending
  • When you expect to be paid back by
  • What happens if they are unable to pay you back

Then, make sure both of you sign the agreement.

Having it in writing may reduce any uncertainty you feel about lending money. It also ensures both you and the person you’re lending to are on the same page about the conditions of your loan.

Consider the emotional pressures of the situation

Lending money can put a strain on your relationship– especially if the person has trouble paying it back. Is this something you’re prepared to deal with?

You may need to tell them you don’t feel comfortable lending them money. While that can be a tough conversation to have, the alternative is agreeing to something that could damage the relationship further.

Talk to an advisor

Our advisors are here to help when you or your loved ones are facing financial difficulties. From debt consolidation to tweaking your budget, we can help you find solutions to improve your financial situation. If you’d like to talk through your options, book a meeting today!

Today’s Rates

*All rates and yields subject to change without notice.
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