Have you ever had a personal loan from a friend or co-worker?
I sure have.
It’s a situation a lot of people have been in, and it has the potential to destroy relationships.
So if you owe a friend or family member money, where should you prioritize that loan in your debt snowball?
That’s exactly the question I received from Carrie in this installment of Monica’s Two Cents:
Hi! I love your site and your advice! I just worked some things out with my credit card company so that’s a plus.
My question is this —
Where would you put, in order of importance on the snowball list, owing money to people?
Here’s my response to Carrie:
Thanks so much! I’m so glad you’ve found the site helpful!
Congratulations on working with your credit card company! Feels good to make progress, doesn’t it? 🙂
That’s a great question, and I know that a lot of people are in the same situation.
I love that you are thinking this through when creating your debt payoff plan because not all debts are created equal.
I’m going to assume you’re referring to owing money on a personal loan to a friend or family member, as opposed to an institution.
I’ve definitely been there, and my first thought is to put this at the top of the list because owing money to friends or family can strain your relationship. But an exception to this might be if the loan balance is a larger amount.
For example, I once owed $200 to a friend. She loaned me the money to help me fly to California to attend another good friend’s wedding. It was super sweet of her to offer, and at the time, I didn’t think I had any other option to quickly come up with the money.
I made it my goal to pay her back as quickly as possible because I didn’t want to damage our friendship and put doubts in her mind about lending me the money.
I used whatever funds I had available from my next couple of paychecks to pay her back. And if I remember correctly, I even put some payments to other debts on hold so that I could pay her back even quicker.
Even though doing so would damage my credit score, I cared more about not damaging my friendship and the trust she had placed in me.
Alternatively, there was also a time when I bought a car from my former boss for $3,000. She knew I didn’t make much money and couldn’t afford much of a car payment so she agreed to let me pay her 30 monthly payments of $106. ($6 of each payment covered the small amount of interest she charged me.)
During that time, I was struggling to get current on my other debts so I did not prioritize paying back this loan first. We had a written agreement that spelled out the loan term and the payment amount so I knew her expectations for payment.
So I guess the short answer is — it depends.
I would consider what was agreed upon when the loan was made. If the timeframe for payment was left up in the air, then I would try to pay him/her back as soon as possible.
The amount could be a factor, too, though. If it’s more than you could feasibly pay back within a couple of paychecks, then find out what timeframe would work for them.
Either way, I would ask him/her when they’re expecting payment and how much.
Get really clear on payment arrangements and timeframes and put it in writing. This will hopefully reduce any tension that may be building if they haven’t received any sort of payment yet or any communication about when a payment might be made.
Then do your best to stick with the payment arrangements, and be sure to communicate if there’s ever a time when you’re going to be late with a payment.
Here are a couple of articles that might help you cut costs and boost your income to pay the loan back quicker:
I hope that helps! Please let me know how it goes.
Now I’d love to hear about you, dear blog reader!
Have you ever had a personal loan or have you ever made a loan to a friend or family member? How did it turn out? Please share in the comments below.
Also, I love answering your questions so if you have a question, please don’t hesitate to email me on the Contact page, and your question just might be featured on a future edition of Monica’s Two Cents!
Team Our Debt Free Family is the administrative WordPress user account for Ourdebtfreefamily.com. Our Debt Free Family is a premium classic personal finance blog. Our mission is to inform, educate and help you get out of debt.