Financing From Friends and Family to Pay Off Debt
If you're currently in a situation where your debt payments are increasing, and you’re struggling financially, you need to take action. You can tackle debt in many ways; one way is to get financial help from friends and family. In this article, we talk about the benefits and drawbacks of using friends and family to help pay off your debt.
Advantages of friends and family financing
There are several great advantages and reasons why you should jump at the opportunity to lend money from friends and family to pay off your debts. One of the main advantages is the lack of interest rates; most friends and family won't charge you interest on the money you borrow. In addition, they’re likely to be more flexible; if you struggle to pay back the agreed monthly payment one month, they’re unlikely to get annoyed or frustrated unless it becomes a regular issue. Your family and friends will already know your personality well and your circumstances, so they are unlikely to question you or ask for a credit score. When used correctly, paying back your debt with the help of your friends or family members can be achievable and beneficial.
Disadvantages of friends and family financing
There are some worrying disadvantages of using your friends and family to help pay off your debts. Instead of minimising your debt, you will just be owing someone else; this won’t help if you can’t afford to pay back the money you owe. If your issue is around being unable to afford the interest rates and the person you’re borrowing from is happy to charge 0% interest, then it can be beneficial. Another disadvantage is your relationship could break down; one of the key reasons that people fall out with friends and family members is money issues. If for some reason, you’re unable to keep up with your repayments, then you might find you get into arguments, and your relationship becomes strained. Think about if you’re willing to risk your relationship with your friend or family member before asking them for money.
In some circumstances, the family member or friend that’s lent you the money might need it back more quickly than they expect. This can leave you in a tricky situation; you’ll be pressured to pay them back and might not have enough money for your essential needs. The person that’s lent you money might regret the decision and become frustrated and annoyed when you’re unable to pay them back quicker than you first agreed.
Even when you’re paying off a debt, you’ll occasionally want to purchase things that might not be strictly necessary. If you’re close to the person that’s lending you money, they could scrutinise all of your spending habits. This could make you feel guilty for every purchase and change your whole relationship.
Other options
There are plenty of other debt solutions, including applying for an IVA, declaring bankruptcy, using a debt management plan, debt relief orders and administrative orders. Many of these options will actually reduce your total debt, which can be a big help if you have a lot of debt to repay. Many people also find they’re better able to stick to a repayment plan if it has strict rules and no flexibility. When choosing a formal debt solution that doesn’t rely on borrowing money from family or friends, you’re not risking the money that your friends and family have worked hard to earn. More importantly, you’re not risking any breakdown in the relationship between you and your friend or family member.
Borrowing money from friends and family can be beneficial, but it should only be used as a very temporary solution if you’re fully committed and a hundred percent sure you’re able to pay them back on time. If a friend or family member offers you money as a gift, this is also fine, but make sure you properly discuss and ensure they’re financially stable without that money. If you go into a longer-term loan agreement with a friend or family member, you should draw up terms and conditions like any other loan. You can use templates online to ensure the documents include all of the required information.