Loaning money to friends is bad idea

  • By Dave Ramsey
  • Friday, October 17, 2014 1:30pm
  • Business

Dear Dave,

I loaned some money to a good friend recently. He’s going to help me with a job I’m working on, so do you think I should pay him for the work or just forgive the debt instead?

Charlie

Dear Charlie,

The big question is whether or not you’ve already agreed to pay him for the work. Another is how he views the situation. In his mind, he may just be helping a friend and looking at it as he still owes you the money.

If you don’t already have an agreement, my advice would be to ask him what his expectations are. Just talk to him, find out what he’s thinking and figure out what seems fair to you both. The big thing at this point is that you’re on the same page. If you have already agreed on a certain amount, and the value of the work is pretty close to the amount you loaned him, you might talk to him about the possibility of knocking out the debt that way. He could work off the debt while helping you on this project.

There’s really no right or wrong answer to this question, Charlie. However, I would recommend not loaning money to friends or family in the future. Sometimes things work out and everyone’s happy. But in most cases it changes the dynamics of the relationship. The Bible says that the borrower is a slave to the lender, and there’s a lot of truth to that statement.

I’ve seen situations like this go bad and even ruin friendships. It sounds like you two are good buddies and have a great bond, but if someone close to you really needs help, and you’re not enabling bad financial behavior in the process, just make the money a gift. Sooner or later this kind of thing will mess up a relationship.

—Dave

Follow Dave Ramsey on Twitter at @DaveRamsey.

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