Credit & Debt Problems in Family Relationships

It is expected of family members to help out one another by giving emotional support and also in many cases, financial support too. If the debt is just between “friends and family,” any issue that may arise from failure to pay on time would be local to the family. What if a third party is involved, like a lender or a creditor? Then the liabilities for the debt and the obligations to pay for them cease to be just “among friends and family.” The issue becomes more serious as the worst case scenario may involve a legal battle in court or jail time.

There are many scenarios in the family that may cause one to incur debt. It could be a son that has racked up credit card debts while away at college, it could also be the consumer’s mother and/or father who found themselves stuck with a mortgage or a medical bill that they can no longer afford, it could be a sibling who is neck deep in debt and borrowed from the consumer to pay his/her debt off…the list can just go on and on but the bottom line is that those were not debts incurred by the consumer himself/herself—but he/she is liable for them somehow. If it is a onetime deal then there is nothing to worry about, but if it is a recurring theme in the consumer’s life, then changes have to be made.

What are some of the positive ways to approach debt problems in the family?

• Open communication seems to be the key. When a relative or a loved one runs to the consumer to borrow money, even if he/she has something to lend, it might be best to first find other ways to help out before signing or co-signing anything that pertains to debt.

• The best thing about relationships and debts is that everything that would be said is going to be taken personally—meaning that the consumer, if he/she refuses to lend money, can find out what is causing his/her loved to incur debt. Meddling is part of the deal. While the consumer may not be able to write a check to help pay down a family member’s debt immediately, he/she can invest his/her time to get his/her loved one on the right track again. He/she can perhaps give some budgeting lessons or help him/her sort through other debt management options, or even suggest income generating projects.

• If, on the other hand, the consumer can afford to refinance a loved one’s mortgage, or hand over a loan, he/she should make sure that the transactions are official, that everything is in writing, that if it is a big amount—a lawyer be present. Both parties must agree to the payment and other terms and to the interest rates, if there are going to be any.

How can debts in the family be avoided?

It is almost funny how a simple step by step budgeting can help maintain peace and harmony in the family.

• Define family priorities. The whole family should be involved in deciding on what issues to prioritize.

In families with children, the children automatically get the top priority, funds and time wise, even as the parents/consumers are working full time. If there are no older children to leave the kids with or there are no other relatives that could pitch in to help, when the children are below 7, the consumer may just leave the kids in a daycare. If the consumers, on the other hand, do not feel comfortable with that idea, and if they can afford a private nanny or sitter, then they should choose that option. It may be a bit of a luxury to spend on a private sitter but for a hard working couple, that cannot afford to take turns looking after the children, it is a necessity.

In a family of adults, even if the planning or the discussion of which aspect of their lives is going to be their focus, the participants should always designate a minute taker or a scribe. All the agreements should be listed down and signed. This record (agreement paper) is meant to be posted anywhere where everybody can see them--to remind and encourage one another to keep with the budget.

If it really was not the practice before to work on a common goal, after that meeting, it should be expected now that all of the family's activities are going to be centered around their set goals. Expenses for get together lunches or dinners should be diligent recorded. All expenses, incomes, and transactions must be tallied to see if they are on the right track. This is to find out which goals are working and which needs revision.

One of the major changes in a consumer’s life is when the kids go away to college or is shifting careers. Of course, those decisions that are going to affect the whole balance in the house, but the consumer can try to view it as a chance to re-evaluate priorities.

It should be really stressed that many financial problems or debts arise from bad relationships. There is a strong desire to escape from the world literally whenever the consumer is having negative feelings and that escape does not come cheap. If it started cheap then there is no other way for it than to become more and more costly. If the family members are open they would not hide from one another the bills and loans that they have to pay and together they can find the best solution.

Other articles about relationships and debts:

Debts and financial problems in marriages and divorce
Debt problems for businesses