“So our relationship is solid. We are both 28. I’m not ready to propose, and there are certainly some kinks. But she has asked if I would consider loaning her some money so she could pay off some of her credit card debt.
Details: she has over 8k in CC debt and about 7x that in student loans she makes about 32k a year. Much of this she amassed as she finished graduate school and struggled for a year to find full time employment. Which she has had for the last few months. She expects her income to increase over the next couple years.
I have zero debt and make approximately 50k. Additionally, I have about the same as my net wealth. About 1/3rd of which is liquid.
We also live in expensive New England and I have been desperately trying to save money for a home in a few years. She would like to as well but her debt is over whelming her. She has asked for approximately 2.5k to pay off her card with the highest interest. She is only able to pay the minimum payment and that is less than the interest charges each month.
I have a few hang ups.
- Is there a way to protect myself and be able to recoup the loan in case something were to go south? She has agreed to signing something
- Am I wrong to charge interest? I am not even talking anything crazy. Like 1% or so. She has balked at me even considering it, but at the end of the day it is about the price of her buying me a meal. Additionally, if things work out the way I hope it is just our money anyhow. Conversely, if they don’t work out I could’ve wound up with making money from that 2.5k
- Should I just pay the entire 2.5k? She hasn’t asked, but I could swing it. It’s just again I am trying to save for a home. I feel like I could be doing other things with this 8k.
Overall, I really want to do it, but it just seems like a terrible idea. I don’t want to have this looming over our head.“
With this looming question, here are the your smart money moves thoughts:
- I’m not saying the relationship is going to go south, but more than half of them do at some point and you aren’t even married. The only way to somewhat protect yourself is to get a contract in writing. This probably won’t feel so romantic to her because she sees this as a friendly little loan, but 2.5k will turn into 5k and then into 10k before you know what will hit you. If you loan the money, get a contract. If you want to help her and don’t want to ruin the relationship, then it is a gift and a gift only.
- Charging interest is going to be up to you. Of course, there isn’t a bank out there today that charges interest at zero. However, you may be just trying to help her, so as long as you still have a contract it’s up to you whether you will charge interest or not. It’s amazing how much money and love are so inextricably tied together, but they are, so think through this one carefully. If you are bent on charging interest, then just know it may cause other strain to the relationship.
- Don’t even dare pay the 2.5k unless it’s a gift. I know some people will not like me for saying this, but if you do stay together it will carry itself into the relationship. It doesn’t sound like you can afford the gift at this time or you would have stroked a check already.
Request a FREE No-Obligation Consultation: www.oxygenfinancial.net