Don’t Lend to Friends

July 22, 2008 by  
Filed under Loans and Borrowing

Today’s dysfunctional behavior pertains to deadbeat “friends” asking for a loan.  “SomewhereinDC” posted this query this morning on an MSN Money finance message board:

“A friend of mine has gotten herself into pretty bad credit card debt.  We have been friends for over a year, and I’ve gotten to know her as a responsible person. She is actively trying to pay off her credit card debt of approx $12K.  She has asked me for help in paying off one of her cards. She is asking me to lend her $2,400 so she can close off the card with the highest interest rate (25%).  In return, she would pay me back $200 a month for one year until fully paid off (I will not charge her interest b/c $2,400 is nothing to me and I won’t miss a couple hundred of dollars in interest)  “My question to all of you is this: Should I lend her the money? In your opinion or previous experience, is this a wise thing to do? Is this a great way to ruin a friendship?”

Credit addicts are often hitting on their “friends” for money, to bail them out of trouble spots.   This happened to me years ago.   We feel sorry for our friend.  We feel powerful and/or guilty because we have money and our friend does not.  We feel guilty saying “no.”   We know we should say “no” but we do not have the courage to do it.

How many times do people have to be told that this is a bad idea in so many ways?  First and foremost, in almost every case, the loan transforms the friendship in a negative way. The borrower-friend is humiliated.  (If she is not humiliated, could this really be a friend?)  The lender-friend feels exploited.  Those feelings remain, even if the loan is re-paid.   The lender-friend will always have some doubt if the friendship is real or maybe it exists only to serve the material needs of the borrower.  In way too many cases the frienship is destroyed because the loan is not repaid.  This is what happened to me.  I was lied-to repeatedly.  I felt exploited and embarrassed that I was manipulated by a so-called “friend.”   I ended up threatening to sue my “friend” (it was a lot of money).  I didn’t get it all back.

Another problem with making loans to friends is that it does nothing to correct the friend’s bad habits that led to the debt.  Indeed, it enables the bad habits to continue.   Maybe this friend needs to feel the pain of calls and letters from collection agencies until she can stand it no longer and finally chooses to leave the domain of the debt addicted.  Tough money love will administer that pain, but for long term gain.

In the rational part of her brain, somewhereinDC (the original poster) knows that she should not lend this money. That is why she posted the question to begin with.   Yet she may, probably to lose both a friend and $2400 in the process.  Fortunately, most of the responses to that post were strongly against making the loan.

So, in this scenario, there is potential “bad money behavior” on both sides of the transaction.  The borrower-friend should not have placed herself in extreme debt where exploitation of a friendship is the outcome.  The lender-friend should have the courage to immediately say no – and gently refer her friend to Dave Ramsey or to a non-profit credit counselor ( for other debt reduction strategies.

The final point is that if, as the poster stated, $2400 was truly “nothing” to her, then a fundamentally compassionate response to the request would be an outright gift of the money.  While this would likely leave the friendship intact, it does not address the underlying behavior of the debt addicted friend.

Later I hope to bring some additional expertise and insight from others into this sticky subject.  I would like to hear from others who have had good or bad experiences with loans to or from friends.

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