Four Fatal Financial Favors

Several years ago my credit rating was above 700 and card offers poured into my mailbox. Then I agreed to loan a long-time friend $2,000 for one month. One month stretched to six months and the friend had disappeared. Needless to say, I never got my money back. 

Offering to make the loan was just the beginning of my stupidity. I'd used one of those blank checks that credit card companies like to send to good customers. Not only did I end up paying extra fees  but "someone" at the bank replicated the check and lifted another $2000 from my account. They only got $500 and I got a big ding on my credit report for bouncing the second check. I couldn't prove the second check was a forgery and, because my credit rating had slipped to 699, the bank wouldn't give me a loan to repay the $2,500 at a lower interest rate.

Whine, whine, whine, right? Obviously, I learned a big lesson and have never been stupid enough to loan a friend more than $5. 

Sooner or later, a friend or family member will ask you to do them one of the following four financial favors. When this happens, remember the wise counsel Polonius gave his son in Shakespeare's Hamlet: "Neither a borrow nor a lender be, for loan oft loses both itself and friend."

1. Lending Money
Are you ready to change the entire nature of your relationship by lending to family and friends. If so, go ahead and consider it a gift. That way, if you get the money back, you'll be happily delighted.

2. Co-Signing Loans
Parents frequently co-sign loans for their kids and, when the fruit of their loins reneges on the debt, end up paying off the balance. Remember co-signing a loan means you're equally responsible for repayment of the entire debt. If it doesn't work out, your credit rating could be severely damaged, leading to interest-rate increases across the board. (BTW: The same premise holds true for co-signing your child's lease.)

3. Secondary Card Use
Here's another mistake parents often make. You give your child an "emergency only" card and suddenly the bills start to look like they're dining on delivery pizza every night. Authorizing a family member on a card means you're allowing them to charge whatever they want. If necessary, give them a pre-paid credit card for a set amount.

4. Sharing Your Home
This is a story as old as Dear Abby's column. Parents allow an unemployed child to move in and don't charge rent because they're unemployed or underemployed. Or your BFF wants to bunk for "just a few days" that stretch into months. 

Once there, they can be more difficult to remove than an impacted wisdom tooth. It may see harsh but it's best to get a signed agreement, perhaps even a full lease with an established end date.

Photo by alvi2047