If you’ve been in debt before, the last thing on your mind is paying off other peoples’ overdue balances. When a bill hits you out of leftfield, the only thing you focus on is trying to pay it off before it escalates out of control.
Thankfully, many people manage to recover from average debt that totals almost $50,000, so the future is bright. It could be so bright that you’re in a position to help a friend or a loved one. Considering your experiences with arrears and how they changed your life, there’s no doubt that you want to pitch in and do everything you can to wipe the slate clean.
Still, it’s vital that you think with your head as well as your heart. After your hard work organizing your finances, you shouldn’t put them in jeopardy again, even if the gesture is incredibly selfless.
The key is to figure out whether taking on responsibility is worthwhile. To do that, please take a look at the main pros and cons of paying off another person’s debt underneath.
Pro: Healthier Attitude Towards Money
When you found yourself in trouble, you probably vowed never to be in the same position again. The same is true of people who are saved by kind Samaritans. It doesn’t matter whether it’s a handout or not – the moral of the story is obvious. If it isn’t, you can make it clear to the opposite party that part of the deal is they review their money habits.
Why is this critical? Mostly it’s because it should encourage the people you help to be financially savvy in the future. As a result, everyone from their kids and grandkids will benefit from your show of support. Yes, you can secure the long-term lifestyles of tens of people by sanctioning an interest-free loan.
That’s one hell of a benefit.
Con: The Price
There’s no way of getting around it – giving up a large sum of cash is expensive. Even if you can afford it, that doesn’t mean you won’t experience tough times. Unfortunately, there are instances when you won’t have a choice in the matter. Should a family member or loved one pass and you’re the next of kin, the responsibility is to clear debts and pay for the funeral.
In this situation, the best thing to do is to cut expenses wherever possible. Did you know that granite grave markers are excellent headstones as the material is durable? The upfront payment is smaller, and you won’t have to fork out for maintenance repairs. Alternatively, you could not be liable for the money in the first place.
If an unforeseen circumstance lands you in a hole money-wise, you must check if you’re responsible for the debt in case creditors try to trick you into paying.
Pro: Qualifying For Bigger Assets
You may view paying someone else’s debt as helping a friend or a long-lost relative. However, a sudden bill from your partner could hit you by surprise. Please don’t assume this will never happen to you because the figures make for uncomfortable reading.
In the US, at least 22% of people lie to their partners about money. This might be a white lie, yet it could be something as considerable as tens of thousands of dollars on a credit card. Hypothetically speaking, this would stop you from moving houses or purchasing the car of your dreams.
Therefore, while maddening, paying off the debt will qualify you for a better quality of life. Hopefully, this situation doesn’t pay out in real life, yet if it does, you must keep this advice in mind.
Con: Souring Relationship
An element of money lending that lots of people don’t consider is the impact it may have on a relationship. Once you decide to pay off a debt, you automatically gain leverage on the other person. You wouldn’t dream of using it, yet the situation could alter the way the other person acts around you.
Alternatively, you may hate that they haven’t paid you back when they are spending money on indulgent items and experiences. Pitching in to help people with money problems is a minefield that you should analyze beforehand.
A tip: the best intentions often go awry. Therefore, it’s essential to lend money the right way by giving what you can afford and creating a repayment deadline.
The decision is yours, but there are ways to bypass the cons if you feel lending someone money is the right option, such as:
- Cutting the costs of big expenses
- Setting up a thorough lending plan
Will you pay off a debt for a loved one?