Borrowing Money From Family Members – 
Is This a Wise Way to Pay Off Debt?

Borrowing money from family members or relatives may seem like an easy way to pay off credit card debt or student loans.


You may feel like families ought to look out for each other, and be attracted to the idea of a lower payment or interest rate. Should you borrow money from family to pay off debt? 

In my opinion, the clear answer is no, unless it is your only option.Exhaust all other options first, and make borrowing money from family a last resort.

First, remember that family members may have unwritten “strings” attached to their lending you money. Mom and Dad may be happy to help you pay off your debt, but be prepared for guilt trips later on. Example: “How could you not come over on Saturday? Didn’t we just lend you $10,000 to pay off your student loans?” Why make family relationships tense over money if you do not have to? 

Secondly, something may happen that prevents you from paying the money back on time. Imagine your relative’s reaction if they are unable to receive their payment when it is due. And the last thing anyone feels like doing is groveling to a friend or family member. What if you have a job loss? Do you really want to have to let your family know right away about your lay-off or a possible move/career change? These are all things you need to consider before borrowing the money. 

If you do decide to borrow money from a relative,
have a written legal agreement, signed by both parties.

Make it as formal as possible, including payments, interest rates, and terms of the loan. Have it composed by a lawyer, and make sure the agreement states that there are no “unwritten” strings attached to the loan. Then, treat the loan with the same seriousness as you would a bank loan. 

Finally, think about whether or not your relationship with your family is worth the risk of borrowing money. I have heard many horror stories over the years about family loans gone bad, and relatives no longer speaking to each other. 

I would highly recommend that rather than borrowing money from family members, you seek out another loan source, but make sure that the interest is not too high and that you can pay it off at a reasonable time. If the interest rate is something that you can't afford, rethink the situation and instead of taking the loan, sell one of your assets. Sell furniture or even jewelry instead of getting stuck in a mire of loans you will be forever paying off. 

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