Should I Ever Loan Money to Family Members?

Q: Should I ever loan money to family members?

Rachel: My short answer to that question: No!

But before you call me heartless, let me explain.

When Uncle Jim approaches you for a $500 loan for his new business opportunity, you have three options:

First, you can loan him the money. As a result, your uncle will be in debt to you, and every time you see him from now until he pays that money back will be an awkward experience. Thanksgiving dinner taste different when a family member owes you money.

Second, you can politely decline to loan him the money. You might tell him that, even though you’re out of debt, the budget is still tight because you’re saving, investing, and planning for your kids’ college. There’s absolutely nothing wrong with making that decision.

Finally, you can just give him the money. Don’t loan it; give it to him. If you’re out of debt and you have the money, then there’s nothing wrong with blessing your Uncle Jim with a $500 gift—especially if you think his business idea makes sense.

It’s great to bless other people who could use a little push. So, if you can do that financially, then go for it! But don’t put yourself in a hole or stretch your own budget out of some sense of guilt and family responsibility.

Rachel Cruze Growing up as Dave Ramsey's kid, Rachel Cruze learned the basic principles of money at an early age. She travels across the country teaching those same principles, in a personal and passionate message of money and hope, to teens and young adults. To find out more about Rachel, visit www.daveramsey.com/speakers or follow her on Twitter at @RachelCruze.