Should I Help My Brother Out of Debt?
When you want to mix finance and family, it’s essential to understand the risks.
My brother is in really bad debt; he doesn’t have a job and he needs help. I want to help him, but I also don’t want to ruin our relationship by mixing money and family. It’s not like he’s lazy or he’s a moocher – he just can’t find work right now and he’s really struggling. I know he wouldn’t have come to me unless he was desperate and how hard this must be on his pride, but knowing all of that is just making this decision harder.
What should I do?
There is no easy answer to this question and I can give you advice on how to weigh the decision, but it’s going to come down to what you choose to do on a personal level. What I can do is help you weigh the pros and the cons so you can make your decision from the most informed standpoint possible.
You’re absolutely right – lending money to family can be a recipe for disaster. Still, it doesn’t always turn out that way and as long as you go into it with your eyes open, you may be able to help your brother and still enjoy holidays without a lot of tension and fights over debt.
First, it sounds like even you believe that your brother’s situation is temporary. Given enough time and effort, he should be able to find full-time employment – especially now that our job outlook is getting stronger and stronger every month.
That’s a completely different situation from just lending to a family member who doesn’t want to work. However, it’s still fraught with some financial risks that you need to understand before you start funneling any money his way.
Consider what you said about the hit to his pride in having to ask you for help. That probably means that he explored every other possible avenue before he came to you. So his savings is drained, any investment or retirement options are probably gone, his credit cards are maxed, he may have multiple layers of payday loans, and even debts to other friends and family who he asked first.
So once he gets a new job, there may be a lot of catching up to do; as his sister, you may be at the bottom of the list of who gets paid back. At best it may take years for him to get around to paying you back – if he ever pays you back at all.
There’s an old adage that you should never loan money that you don’t mind losing, and I think that rings true especially with family. If you loan money with the thought that you may never get it back, you won’t be disappointed or frustrated if your brother doesn’t pay what he owes in a timely enough manner.
So my advice would be to first check your own budget and finances to see if you have cash available that you wouldn’t mind parting with – possibly without getting paid back. If you have cash that isn’t allocated for something else and the money you’re lending isn’t delaying any important purchases that you need to make, then you’re in a position where you can lend to your brother.
My next piece of advice would be to make sure the money is going to good use. If what you’re lending is only going to be used to pay off interest or penalties – the money won’t make a real impact on the debt, that’s not a good use of the money you’re lending. On the other hand, if he’s borrowing money to make a settlement offer so he can clear away all of his unsecured debts or to keep his house out of foreclosure, then that may be more worth it.
You may also want to discuss what he really plans to do moving forward. Is bankruptcy off the table? If so, why? If his credit has already hit rock bottom and he’s not protecting any major assets, then really the only thing he’d be avoiding would be the stigma of going through the bankruptcy process. At the very least, has he gone through credit counselling to get a professional opinion on his situation?
He may be able to get some type of part-time or hourly employment and make reduced payments on his debts through a debt management program or – if his debts are too far gone in collections – look into debt settlement. All of these options would help him start to get ahead even before he gets a new job in his chosen career field.
So weigh the options carefully for your situation and make a decision. If your brother needs an expert evaluation to understand his options, we’re here to help.
Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).
If you have a question about a debt management program or just about finance in general, Jeff is here to help. Send us an email with your question to AskJeff@ConsolidatedCredit.ca. You’ll get the expert advice you need and your question may be featured here on our website.