I Broke My Rule and Lent a Friend $5,000

bank of j. moneyRemember how a couple years ago I decided to lend some family members money, even though I knew I probably shouldn’t? And I always preach about getting things in writing, and staying away from large sums?

Well, color me stupid cuz I just broke all my own rules!  It’s just so hard to NOT help out a friend who really needs it, especially when you have the resources, ya know? I trust her dearly and really, honestly, with all my heart, believe I’ll be getting it all back shortly. Though I have no excuse for not getting it down on paper yet — I’m making a note to do it after I post this!

Here’s the deal in a nutshell below. I’m currently one for two in getting paid back over the years, but I’m hoping my risk assessment makes this TWO for three ;) Would you help a friend in this predicament?

  • My friend (we’ll call her Jackie), is going through a financially hard time at the moment.
  • She’s got a lot of *great* job interviews lined up, and is one of the smartest people I have ever met in my entire life – no exaggeration.
  • Regardless of the job situation though, she’s expected to get about $20,000 in the next 2 months from taxes and other revenue streams that just hasn’t hit yet. *very important fact*
  • She’s promised to pay me back the $5k before she uses it for anything else.
  • This $5k covers a month of expenses for Jackie (rent, food, medical bills, and other unfortunate expenses that’s outside of her control.)
  • She doesn’t believe in credit cards, or else naturally she wouldn’t need my help.

So pretty much I’m “cash advancing” her money until the $20k comes through. Which is a definite lock and not subject to change (or else I wouldn’t have done it). There are, however, some other interesting facts to the story.  Some good and some scary. Do these change anything?

  • I asked her if I could help, she didn’t ask me. (A positive sign)
  • Once I offered, she made sure that I run it by my wife. Which I like not only because it reminded me to do so (BEFORE, rather than AFTER like I usually do, haha…) but because she understands it affects my entire family more than just our friendship.  Another positive sign.
  • I have the resources to help, or else I’d never have spoken up.
  • On the other hand, she *does* have other loans out. And while they’re not owed back in the very near future, it is kinda scary knowing mine is one among a small handful of them.
  • It’s also known that she’s has been struggling for a good 4-5 months now. Which in a tiny way makes me wonder if I’m actually hurting her by giving her money, than helping? Like, if she didn’t get this $5k, would she be forced to find a faster way to get that money?  Or would she realistically starve and get kicked out of her apartment? (but again, she does have quite a few good leads going now w/ the whole job situation)

That’s pretty much the gist of it. Which is funny cuz it took all but 30 seconds in my head to come to the conclusion I was gonna loan her the money ;) Not the hour it took for me to write all this up!  Haha… but there you have it.  It seems pretty black and white to me, but then again I’m obviously biased. What do you think about all this? Am I indeed an idiot?  Would YOU have reached out and loaned someone close to you this money? Lay it on me, good friends!  You can’t really change things, but you can still knock some sense into me ;)

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  1. Sense March 31, 2011 at 6:46 AM

    Hmmm. It really depends on the circumstances. And I’ll probably sound jaded and like a horrible friend, but in most cases, no, I wouldn’t lend her $5K. I’d buy groceries for her, I’d let her sleep on my couch, I’d treat her to dinner, and I’d cheerlead and offer suggestions about what she could do, but no, no loaning. She’d have to exhaust every other option (1. she should get a credit card. 2. she should turn to family first. 3. are there cheaper housing options? 4. has she cut back every single way possible? basically has she reasonably done EVERYTHING in her power to take control of her situation?) before I’d even consider helping her with straight cash. If I could afford it and it was a truly dire situation out of her control, I would give her a sum of money, rather than loan. It wouldn’t be $5K–maybe $500?–but it would be a sum that I could afford to lose.

    I am just putting myself in HER position–I would do everything I could not to borrow money from a friend, even move into my parents’ house! But maybe I don’t have friends as kind as you are. :)

    You are a very generous person and a fantastic friend, and I hope your odds get better! (but get that shiz in writing.) Lots of luck to her.

  2. Grace L March 31, 2011 at 8:13 AM

    I think that you have made a decent decision considering your friend’s appearant morality and ethics. I would how ever make sure to get something in writing. If she is as understanding as you portray, she should have no qualms about doing so, and it just gives you a sense of comfort. I would put a time limit on the return of the loan, but also work out that that time could change if the situations do not improve.

    Best of luck, I’ll be waiting to hear how this pans out! And best of luck to “Jackie”!

  3. Nathan Driver March 31, 2011 at 8:22 AM

    If the factors were the same or along the same lines then after talking with the wife I would. Yet, the only request I’ve gotten in the past are those that do not have a job with no intentions of getting one and plan to ‘use the system until its dried up’.
    “Jackie” sounds like a stand-up individual who just came across a hard time and hoping everything comes full circle for her as well as you for your re-payment.

  4. Mr. ToughMoneyLove March 31, 2011 at 8:26 AM

    I did this once. Also $5000. Lost most of my money. Lost the friend. It completely changes the friendship dynamic, even if they pay it back. You should practice what you preach. It’s better for everyone, including your readers who may now tend to believe (from you) that there are ways to rationalize yourself out of every financial principle.

    If you feel strongly about helping someone financially (which I know you do), give her a personal love drop.

  5. Tea March 31, 2011 at 8:54 AM

    Anytime I “loan” money to a friend, I write it off as a complete loss in my books. If I do get repaid, then it is a pleasant surprise. If I can afford to do so, I don’t mind helping a friend out and if calling it a loan makes it easier for them to accept, I am OK with that, but in reality it is a gift. I don’t ask about the money I have loaned, I don’t judge how they spend it. The one thing you don’t want to do is lose a friend over the loan.

  6. Dani @ OK, Dani March 31, 2011 at 9:00 AM

    I give money to friends when they ask for a loan. Usually I get it back fast. Sometimes I get it back slow. Sometimes I don’t get it back and lose a “friend.” When I “loan” money, I do it with something in writing (and notarized if I have a freindly notary wherever I’m working).

    I feel like if I can help, I will, and it doesn’t go much farther than that.

  7. Steph March 31, 2011 at 9:21 AM

    J, it sounds like you are a good friend to have because you seem eager to help those in need.

    $5000/month seems like a lot of money for living expenses without a job, even in the DC area. Is this truly her emergency budget or is this just enabling her to continue to live with cable tv, go out to eat, and the other non essentials?
    I realize I don’t see all the picture, perhaps there are children involved? Medical costs? But it’s just something to think about. And I’m not sure another loan is going to help her in the long run. I’m not sure what the difference between taking loans from friends and credit cards is (besides the interest rate). Debt is debt.

  8. Stacy March 31, 2011 at 9:36 AM

    Yeeeeah, I am agreeing with the PP’s. I wouldn’t loan the entire amount she “needed” for the month. I agree with others, that does seem like a lot of dough for one month! Of course I live in TX but I have two kids and we live very comfortably on much less. I would buy her groceries or gas cards or give her some cash anonymously. Sorry, J, love you but I gotta say no way on this one.

  9. Jennifer March 31, 2011 at 10:08 AM

    It would take me MONTHS to earn $5k, so no, I wouldn’t do it.

    That’s a big chunk o’money. I hope you get it back.

    And I’ve heard the “the money’s coming in, it’s just not here yet” excuses before. Sort of unbelievable to me.

  10. TJ March 31, 2011 at 10:11 AM

    If someone asked me, I would probably do it. If they truly needed it more than me.

    But I don’t have any deep enough friendships where people know me well enough to consider it.

    Which is just fine.

  11. Debt Donkey March 31, 2011 at 10:24 AM

    Sounds to me like you did the right thing. Money is one thing, but friendships are priceless. My own rule is: never sacrifice people for progress. I think you done good!

  12. Ruth March 31, 2011 at 10:31 AM

    I’ve seen and experienced a lot of unfortunate things when it comes to lending money to family and friends. And two things I’ve learned: 1) Consider the lending as a “donation” (just write it off), expecting it back can often prove disappointing…which ties in to; 2) lending money changes the relationship dynamic…often for the worse…well, from my experience anyway….and watching my poor mother too…really, I wish she was more selfish. So, if someone does need help, I will offer my assistance, but never in a financial sense. I will cook them a meal and drive them around for errands….that’s as far as I go….no, I’m not looking after their kids either.

  13. Jeremy Streich March 31, 2011 at 10:37 AM

    I don’t loan money, I gift it. If I have it, they need it, and giving it to them will help them, then I gift it. That said, I’d be more apt to buy groceries and send in a check to cover their rent, than actually handing them cash. I’d also talk to them about how they ended up in the situation and how I think they could have avoided it.

    Note, however, that with my gift, would be strings meant to help them. I would, for instance, pay them $5,000 for a book report on a personal finance book I believe in. Or work on some kind of matching: “I’ll front you $2,000. You’re working on getting a good job, but in the mean time, go throw some pizzas, or deliver some newspapers. Every dollar you earn before you get your good job, I’ll match.” The previous example I see more with a younger friend of adult child.

  14. Jon | Free Money Wisdom March 31, 2011 at 10:44 AM

    This is awesome, just make sure you’re charging her a 20% interest rate, haha just kidding. In all honesty, I think most people would not recommend you doing this. Me however, I think you’re helping out a friend in a tight spot and i would do it myself. The key here is that the person should show financial stewardship with money in the past. If it was a friend of mine who was terrible with their money, no way I’d give them the loan!

    Anyways, I think you doing this is going to repay you dividends for years to come :)

  15. Jamie March 31, 2011 at 10:49 AM

    To me, the most crucial fact is getting missed: $5000 won’t make or break YOUR financial situation. The biggest danger in helping others is that we so often harm ourselves in the process. At worst you’re looking at a recoverable annoyance.

  16. Ashley @ Money Talks March 31, 2011 at 10:50 AM

    I wouldn’t have. Nothing to do with this particular situation… I’ve just been burned BAD in situations like this.

  17. Meredith March 31, 2011 at 10:53 AM

    I don’t think I would have loaned it-I would have just gifted it. If the friendship is that important to me, and I truly trust this person, I wouldn’t want to change the dynamics of the friendship by playing lender. If I have the resources, it’s a gift, not a loan.

  18. Jamie March 31, 2011 at 11:05 AM

    I don’t think a $5000 gift would leave the dynamics of a friendship unchanged, either. Jus’ sayin’…

  19. M1n4 March 31, 2011 at 11:10 AM

    I had a big money emergency few years ago, and a friend loaned me a similar amount.
    I really appreciated because I didn’t ask for it (although I wasn’t sure how I’d go through the month) and after I was back on my feet I created a plan to pay him everything and a little extra as a thank-you-for-saving-my-ass

  20. krystalatwork March 31, 2011 at 11:56 AM

    I would not lend money to a friend, because “lending” money is pretty much the same as “giving” money. You can’t expect the money back. Because if for some reason you don’t get it back, you might feel differently about your friend. I would be as supportive as a could about their situation, but in the end, it’s not something I feel comfortable doing.

    In my early 20’s, I lent close to $7000 to my (live-in) boyfriend. He said he’d pay me back. He even made up a payment schedule. He made his first few payments, then stopped. It got ugly, and I ended up taking him to small claims court. I won, but only ended up recovering 25% of what I originally was owed. Lesson learned.

  21. LB March 31, 2011 at 12:45 PM

    I would never borrow money from friends, but I have one friend I would definitely give money to. Not borrow, give. If he wanted to pay me back that would be great, but I wouldn’t expect it from friends.

    If I needed money I would go through all other options before asking for money. I mean, medical bills can be negotiated, pizza can be delivered, ect. Between my husband and I we had about 8 different jobs in 2009 to stay afloat. Doesn’t mean she doesn’t need the money, just means I don’t see the whole picture and I would personally write the loan off as a gift, and keep the friendship if she means that much :)

  22. SM March 31, 2011 at 12:51 PM

    Someone above mentioned this, but it bears repeating. You said she “doesn’t believe in credit cards” but she believes in taking loans from friends? That doesn’t make sense in my opinion. I don’t use credit cards either, but I’d be more willing to use a credit card than take a loan from a friend. I’m in DA (www.debtorsanonymous.org) and one of the principles in that program is debt is debt unless its a loan with collateral. In DA, we talk of “gifting” – in other words, we don’t debt one day at a time, but we can accept gifts. The program doesn’t address lending, so this is my personal opinion – I agree w/ the people above about giving as a gift rather than a loan – it makes it that much cleaner between the 2. On her end, I still think owing a bunch of friends money would make me feel so much worse than owing a bunch of credit card debt. My 2 cents:-)

  23. Sarah March 31, 2011 at 1:01 PM

    Business advice from one of my fav finance professors:
    “I loan a lot of people money. All my business partners, all my friends. We go out and I loan them $20. Most of the time, I don’t get it back, but it’s an easy way to know who’s honest and who you can trust before going into business with them.”

  24. retirebyforty March 31, 2011 at 1:08 PM

    It depends on who the friend is. If it’s a really close friend, I would gift the money and say pay back when you can. If it’s someone I haven’t talked to for 5 years, I’ll probably give a sympathetic ear and maybe some unsolicited advice.
    She can probably reduce her burn rate though. 5k a month seems high.

  25. Yana March 31, 2011 at 1:12 PM

    It’s not good to be in debt, whether by credit card or otherwise – except it’s worse when a friendship is on the line. Increasing one’s debt is not good. You shouldn’t lend what you can’t afford to lose, same as the stock market and gambling. I can understand wanting to help a friend, but it’s only really help if it’s a handout – but even then, it changes the nature of the friendship and the way the recipient looks at you. It’s a corruption when money comes into the picture. I once mailed cash anonymously because I didn’t want a relationship changed!

  26. Jaime March 31, 2011 at 1:14 PM

    my bf back before we were dating loaned me 600 and I paid him back, its not always bad. I think if you care about your friends and family then you will pay them back.

  27. J. Money March 31, 2011 at 2:06 PM

    Hi guys! Thanks for all your honesty!! Exactly what I want to hear :)
    A few things worth noting:

    1) Jackie lives a very VERY minimalist lifestyle – not much room to cut out expenses (like housing, bills, etc etc), the $5k is more out of stuff outside her control. Which was surprising for me to hear about too, but afterward it made a lot more sense. Just not comfortable putting it *all* out here just in case.

    2) I WISH I was a good enough friend to just GIVE someone money w/out expecting it back, but unfortunately I am not there yet. If I wasn’t going to loan anyone money, they’d get none financially from me. Well, not more than $20-$30 that is, I’m okay with hookin’ up a friend at that level. But $5k? Just too much for me :( And if I never get it back I’d be very very sad, but at least feel like I did the “right thing.”

    Also wondering — Would your answers would change if your friend would literally be homeless and couldn’t eat if they didn’t get your loan? Not saying that’s the same situation here, but from what I know it certainly could turn into that.

    Just wondering where that line would be when you broke your rules and said “F it” if it came down to something as serious as that :)

    My responses:

    @Sense – I try! I’m not usually that “good” – all depends on circumstances ;) And her family actually IS helping her out too, just can’t go into details.
    @Grace L – Thanks! I’m really hoping Jackie gets on her feet too soon :)
    @Nathan Driver – Yeah, would be a totally different story if she wasn’t in process of getting another job and *working* toward better things.
    @Mr. ToughMoneyLove – True true, I’m always working on being a better “me” – but when I fail I gotta be okay with spilling it to all my readers too so people know everyone slips up at times. Appreciate you sharing your bad loaning experience w/ us too. Freaks me out, but good to hear ;)
    @Tea – I wish I could be more like that – it’s a great quality to have. I’m working on it :)
    @Dani @ OK, Dani – Thanks for sharing :)
    @Steph – Yup, lots more to story just don’t feel comfortable leaving everything in ;) It’s more due to things outside her control though, not a lifestyle thing.
    @Stacy – Haha, it’s all good – that’s what I want to hear!
    @Jennifer – Appreciate the honesty :)
    @TJ – That makes sense. Maybe you’ll meet some new besties in Vegas? ;)
    @Debt Donkey – Ooh love that quote! “Never sacrifice people for progress” – thx dude!
    @Ruth – Haha… so I can’t drop off my 5 kids once I have them to ya? :) Thanks for sharing, good reasoning.
    @Jeremy Streich – I like that!!! Esp matching stuff or based on a project, etc. Will keep that in mind down the road :)
    @Jon | Free Money Wisdom – Thanks dude :) But you had my interest % off, I’m charging her 30%! haha… man that would be a lot of money.
    @Jamie – I like your thinking :)
    @Ashley @ Money Talks – That would def. change my loaning efforts too. I’ve only been burned once, and I already figured it would happen before loaning it out so it wasn’t a surprise. Just glad it wasn’t a crap ton of money!
    @Meredith – Seems to be what the others are saying too :) Just haven’t been able to do that one yet, but maybe in future!
    @M1n4 – Really?? That is so encouraging! I hope that happens here too :) Not the “getting extra money” part, but that everything works out and she’d pay it forward later to someone else.
    @krystalatwork – OUCH. Sorry to hear Krystal :( What if it meant someone losing their place and not being able to eat though? would that change? Not sure if this could happen to my friend, but it’s a very good possibility from what I know.
    @LB – That’s understandable :)
    @SM – Thanks for sharing :) To be honest, I don’t 100% quite know what the deal is with the credit card stuff (I failed to dig deeper) but I just know that it’s never an option when we’ve talked about it for whatever reason. I should probably look into more for sure.
    @Sarah – LOVE!!!!!
    @retirebyforty – I wish she could, but honestly after knowing the situation there’s not much room :(
    @Yana – I like that anonymous route! I just can’t “gift” someone $5k unfortunately :( Was either a loan or nothing.
    @Jaime – That’s what I’m banking on :)

  28. Jennifer Lissette March 31, 2011 at 3:38 PM

    If I had a friend who would be homeless and couldn’t eat without an infusion of cash, I would find her landlord and pay the rent for the month and send a delivery of groceries to her house. I have done this for a family member before, called and paid the back rent that they owed and had a grocery store deliver a month’s worth of food.

    Every other expense is expendable and, quite frankly, not my problem. I’d never let someone I love go hungry or homeless but I’m not going to cover someone else’s lifestyle. Even if that lifestyle is a simple matter of maintaining a good credit score. Even if that person’s bills are the results of circumstances “outside of their control.”

    And honestly, this family member was more than grateful for what I did. She also immediately started looking into alternate solutions for her bills that included swallowing her pride and getting onto food stamps and state aid. I never did get any of the money I put out back, but I also never resented her for taking more than she needed just to survive.

  29. Brad Chaffee March 31, 2011 at 4:07 PM

    Had to chime in about the first comment (sense) that said “she SHOULD get a credit card”. She doesn’t have a job but she should get a credit card? Ummm…I think that is the last thing she NEEDS to do, especially because someone else says she should. That could make her situation worse and all you have to do to see proof of that is look around. Too many people have too much credit card debt as it is.

    Getting a job is what she needs, not a way to go into debt until she does. At least J’s loan was a one time thing and not something to be charged up over time.

    I agree though on the not loaning a friend or family member money under any circumstances. If I have it to give I would consider it a gift and be done. That way there are no expectations, no strings, and no risk of ruining a good relationship.

    You’re a good friend J Money!

  30. Momma Star March 31, 2011 at 4:35 PM

    When and if I ever come to the decision of lending money I automatically write it off as a gift whether they say they’re gonna pay me back or not. Most of the time they will pay me back and I’m glad that they do. There are times that I don’t see the money again, but that just makes me more conscious to whom I lend to now.

    You are a wonderful friend to her.

  31. Crystal March 31, 2011 at 5:14 PM

    I’m personally thinking of doing something similar for my close friend since her husband lost his job and they need help while he looks for a new one. They have a tax refund and unemployment on the way. The only thing really holding me back is that neither my friend nor her husband handle money well, so getting involved would not be very cut and dry.

    I don’t think you’re nuts, just kind.

  32. Cesar March 31, 2011 at 6:08 PM

    So first, your sis gets a house, then your brother buys a Harley and now you are lending mone? to your FRIENDS? madness has spread in J’s family tree!!!!

  33. Jenna March 31, 2011 at 6:49 PM

    Immediate family, yes. Closets friends, yes. Extended family and regular friends, maybe. Totally depends on the the situation.

  34. TJ March 31, 2011 at 11:18 PM

    @J$ – That would be pretty awesome, but let’s not go around broadcasting about about my little comment above. :P

  35. Ginger April 1, 2011 at 8:56 AM

    I think you took a sound risk. It’s a great thing that you’re able to help and I also like the key points you told us about her making sure your wife was okay with everything as well. She sounds very respectful, and $5k is a good amount of money to be able to give someone. :-)

  36. Steph April 1, 2011 at 9:52 AM

    I prefer you to make mistakes in kindness than work miracles in unkindness.
    Mother Teresa

    I believe IF this is a mistake, it is a mistake done in kindness.

  37. J. Money April 1, 2011 at 11:47 AM

    @Jennifer Lissette – Wow that is inspiratinal! What an INCREDIBLE thing you did for her :) I like that a lot. Very creative, thanks for sharing it with us!
    @Brad Chaffee – Thanks buddy :) I know I’m loony at times w/ money, but if the heart thinks it’s a good idea, the heart’s gonna go for it. I’ll deal w/ the mess later if it comes to that. Funny you chimed in about credit cards too – can’t get anything by you! :)
    @Momma Star – I really really like that “gifting” idea, just wish I could give $5k freely! One day perhaps :)
    @Crystal – Interesting, I wonder what you’ll end up doing? Maybe the comments and thoughts here will help? Either way I hope things work out in a perfect world for you and your friends :) keep us posted!
    @Cesar – I know!!! It’s cRaZy over here!! Although the timeline is a bit off ;) Just figured I’m spilling everything else, might as well spill this too!
    @Jenna – Yep, same over here :)
    @TJ – haha you got it brotha
    @Ginger – Thanks my friend!
    @Steph – Well aren’t you sweet :) Thanks so much for leaving that Steph, I *really* really liked that quote. You rock it this weekend, okay?

  38. Clare - Never Niche April 1, 2011 at 1:02 PM

    I admire your generosity but I would be too chicken to do it, worried it wouldn’t work out. Update us what happens later!

  39. Steph April 1, 2011 at 4:02 PM

    You are most welcome, J$ and you do the same.

  40. J. Money April 1, 2011 at 9:27 PM

    @Clare – Never Niche – Thx Clare :) You know I will! Even if I come back crying.
    @Steph – :)

  41. fifi April 6, 2011 at 7:22 PM

    I’m with Nathan in that I’ve never been asked by anyone who I thought was responsible enough to pay me back. Given everything you have described, I might say yes, but with my current situation, I am at a no loan status.

  42. J. Money April 7, 2011 at 2:00 AM

    I think your blog url is wrong ;)