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What to Do When a Family Member or Friend Won’t Pay Back a Loan

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Here is a common scenario: a friend asks you for money for the down payment on a car and promises to pay you back as soon as he can. Being the loving and caring friend that you are, you immediately loan the money, confident it will come back in due time. After all, you’ve known your friend for years and trust him, and you wouldn’t expect any less.

But as the months go by, you still don’t see a dime come back. You are nervous about asking for the money, but you really need it back. Yet, you don’t want to harm the relationship.

So what do you do? How do you get your money back and maintain the friendship? Here are nine ways to deal with a friend or family member who won’t pay you back.

Ways to Get Your Money Back from a Friend

1. Offer Gentle Reminders
Sometimes this is all it takes. Perhaps the person has so much on their mind that they forgot about the loan. Consider sending an email or visiting him. If your friend or family member has a good sense of humor, make a joke out of getting your money back. Humor can lighten the mood. However, make sure you communicate how important it is to you to be repaid.

2. Suggest a Payment Plan
If your friend wants to pay you back, but cannot pay the entire lump sum at once, suggest a payment plan. Sit down with him and write out the terms and conditions for the payments, including how often and how much. Establishing structure to the loan will benefit both of you. When deadlines are clear, it’s easier for your friend to be held accountable to them.

3. Offer to Help Figure Out Finances
If your friend or family member is willing, help him review his finances. If he does not manage money well, suggest that he make a budget or help set it up. In this way, you both can see how much he can afford to pay you back each month. Suggest the envelope budgeting system if it looks like he is having a difficult time staying within budget.

4. Barter
If it seems like he will never have the money, consider a different approach. Trade a specific amount of work around the house or in your yard for what he owes you. Or maybe you own a business and could use some extra help there. This can be a great way to let him off the hook for the money, but still get something of value in return.

Try this approach out first, however. If your friend is horrible at housework and you trade for an hourly amount, you may not feel like you got your money’s worth – which could leave lasting resentment in the relationship.

Alternatively, if he has an item that is roughly equivalent in value to what he owes, tell him you’re willing to wipe out the debt if he’s willing to part with the item.

5. Hold a Joint Garage Sale

Hold Joint Garage SaleIf your friend or family member is unable to pay you back and is very tight on both money and time, ask him if they would donate some of their things towards a garage sale. The conditions would be that you get the entire profit, but they would be free of the debt. It’s best if you first approve, and then take charge of pricing and selling the items, so you don’t feel ripped off.

6. Get Collateral
If your friend or family member truly wants to pay you back, but lacks the discipline to do so, ask for collateral. Something he won’t want to do without, like a TV or iPad, can be a good choice. You are not to return the item until he pays you back. Such an action gives him incentive to pay you back sooner and proves to you that he genuinely intends to follow through with the promise.

7. Visit in Person
Perhaps your friend or family member is avoiding you because he knows you want your money back. If he doesn’t respond to emails, texts, or phone calls, visit him in person. Be kind when you visit. Show him that he can’t avoid the situation and offer suggestions that he can implement to pay you back.

8. Have Them Pay for You
If you are on friendly terms, ask your friend to pay for you each time you go to lunch or the movies. This could be an easier way for him to pay you back, and it might be a nice perk for you as well.

9. Gift It to Them
If never getting the money back isn’t going to ruin your life, consider gifting the amount. You’ll probably feel good about it and then you can move on. Giving is great for the soul and allows you to be a good steward with your money.

As for the gift, there is a slim possibility you can deduct it on your taxes, but it depends on the scenario. The loan would need to be set up as and considered a true loan turned non-business bad debt. More than likely, you will not be able to count the gift as a tax deduction, but I recommend contacting the IRS or checking out their website. These sorts of gifts are closely scrutinized, and depending on the value of your gift, you could even end up owing gift tax. Gifts in excess of $13,000 are liable to be taxed and the donor is the one who pays this tax. Gifts for charitable contributions, for medical or educational expenses, to a political organization, or to your spouse are not assessed this tax.

Maintaining a Good Relationship

Loans can ultimately sour relationships, and many friends and families have fallen out over this issue. Here are some ways to deal with the relationship as you are attempting to get repaid.

1. Be Patient and Forgive

Maintaining Good Relationship

Try to be as understanding as possible. This person may not be as financially responsible as you and may need some guidance to pay you back. Use the situation as an opportunity to help your friend develop financial responsibility. Do your best to not get bitter over the money. If the person doesn’t pay you back, let him know your frustrations, but ultimately forgive him and move on. In the end, it will save your relationship and keep you from being an angry person who lost a close friend.

2. Think About How Much Your Relationship Is Worth
Is your relationship with this person worth a hundred dollars? A thousand dollars? A million dollars? Is it priceless? Keep that in perspective as you continue to deal with the situation.

3. You Can Only Control Yourself

You are only capable of controlling your own actions. If this person does not pay you back, that is on his shoulders and not yours. Don’t let it bring you down or ruin your life. Ultimately, it is a learning experience for both sides.

Final Word

It is often not a good idea to loan money to friends or family members. However, if you’ve already done the deed and find yourself dealing with it, make the best of the situation and use the tips above to try to get your money back and save the relationship. Chances are, your friend doesn’t feel very good about the situation either, and if they’re avoiding you, that’s probably why.

“Help them help you” is the message here. Have compassion, and whatever you do, don’t condescend because they owe you money. Definitely deal with your ego if you think this position makes you “better” than they are. They will pick up on these feelings which could harm the relationship irreparably.

Have you loaned money to friends or family members? What was your experience like? Have they paid you back yet?

Casey Slide
Casey Slide lives with her husband and baby in Atlanta, GA. She graduated from the University of Florida in 2005 with a bachelor’s degree in Industrial Engineering and worked for a prominent hospital in Atlanta. With the birth of Casey’s son in February 2010, she decided to become a stay-at-home mom. Casey’s interests include reading, running, living green, and saving money.

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