I’ve been in a lot of one on one meetings with people about their financial lives. When we discuss debt the usual culprits jump out, house, credit card, car, etc. But what often happens later in the conversation is they remember, oh yeah, I also owe my Grandma Phyllis $5,000. I guarantee you if that $5,000 was owed to anyone but family it wouldn’t be an afterthought.
Family loans don’t “count.” What with medical debt and store credit cards and student loans, who has time to pay back family? They loaned it to you with no terms, so it’s your last priority. These last three sentences are junk by the way. Loans from family should actually be a very high priority because they are owed to people you love.
By borrowing money from family you’ve made your financial problems the problem of someone you care about. It’s just an all around bad situation to get into. What’s worse is that the longer you don’t pay back these types of loans the more likely whomever loaned it will just let the money go. They feel too guilty to ask you to pay it back, and the stress of it all burdens the relationship, so they tell you to keep the money. It was a gift, not a loan after all. Neither one of you believe this, but you accept it because your financial life is a mess. And maybe even some part of you feels like you deserve the money, that your family member did the right thing by letting you keep it. Which is completely not true of course.
It’s time for a reality check. Loans from family members are exactly that. They are loans. Which means you need to prioritize paying them back. Here’s your plan, write them a note. Yeah, I know it’s the 21st century but as far as I know people still occasionally write notes. I wouldn’t know from personal experience, but then again I don’t owe money to family so I don’t have to write notes. In your note, apologize. Yes, apologize. You took money from them to fund your own issues. Next, tell them your intentions. From now on each month you will be making a $50 payment on your debt until it’s paid off. That’s it, that’s the whole plan. Treat this debt like any other. It should be “due” on a certain date of the month. You’ll be amazed what writing a letter and making a payment on your loan will do to your relationship with the person you borrowed money from.
For more reasons why paying back family is a top priority, check out my segment on Fox59 here:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.