Q:

How do you help a family member in financial need?

A:

Ways to help family members in financial need include giving them money, making them loans, co-signing on loans and paying some of their bills. Although bringing money into a family relationship can be awkward, sometimes helping a family member financially is the right thing to do. However, as Investopedia warns, it is important to think through what help is feasible before making any offers.

Anyone giving money to a financially strapped family member should make it clear that the money is a gift so as to preserve the relationship. If gifts are large enough, they may qualify for the Internal Revenue Service's annual gift exclusion.

If a family member asks for a loan, the transaction should be handled in a businesslike manner. Loan terms should be written down and should include the amount of the loan, the interest rate, how and when repayment will be made, and what happens if the family member fails to make payments.

A family member who has a weak credit score may ask for help co-signing a loan. Anyone who agrees to this must realize he is personally responsible for the loan, should the family member fail to pay. The co-signer could find the loan has a negative effect on his own credit score.

Prepaying a family member's bills during a cash crunch can be a very effective way to help him out. The relief of knowing that a car payment or utility payment is taken care of can give that family member just enough time to work out his own situation.

Sources:

  1. investopedia.com

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