Rachel Cruze: Set These 3 Healthy Money Boundaries With Your Family
Written by
Ashley Donohoe
Edited by
Cory Dudak
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According to money expert Rachel Cruze, any debt can leave you stressed and with less freedom with what you can do with your money. Then, when you add family members as lenders, borrowers or cosigners into the mix, things get messier and can test or even ruin relationships.
In a recent YouTube video, Cruze discussed how a few financial arrangements involving relatives can cause conflict and financial risks. Here are three healthy money boundaries that she suggested setting with your family.
Avoid Borrowing from Relatives
A loan from a relative can seem appealing when you’re without emergency savings or access to other borrowing options. However, it can become a regret when that family member starts scrutinizing your spending and wondering why you’re not paying them back quickly.
“When you owe someone money, usually they’re looking and being like, ‘Okay, well that’s nice you did that, but you still owe us money,” Cruze explained. Besides the awkwardness involved, conflicts can arise if you have trouble repaying your relative. According to Cruze, these risks make asking loved ones for loans unwise.
If borrowing is unavoidable, at least have a detailed written loan agreement, as the Consumer Financial Protection Bureau suggested.
Don’t Lend to Others
Cruze said, “If you are actually the one that’s being asked, ‘Hey, can we borrow X, Y and Z?’ I would say ‘no.'”
Like borrowing, lending can damage healthy family relationships and create awkwardness for the people involved. It also comes with the risk that you end up in a tough financial spot and need the money back from your family member quickly. Plus, bigger problems arise when the borrower makes poor financial decisions that prevent repaying you.
Cruze suggested that freely giving money to family members can make more sense because it avoids arguments about paying the money back. However, the decision still requires careful consideration of your financial situation, the money’s purpose and your relationship with the relative.
Never Be a Cosigner
Rather than directly asking you for money, a family member might seek a loan from a bank, but want you to cosign to help them qualify. This often happens when the borrower has credit or income issues.
According to Cruze, agreeing to help a family member get the loan is unwise, as well, since that debt will belong to you if the relative doesn’t repay it. The fact that the person needed to get a cosigner already suggests the default risk is high. Ultimately, you could get stuck with credit score damage along with the debt payments, per the Federal Trade Commission.
“So what ended up being what you thought was possibly a good thing ends up really harming you in the process, so do not cosign,” Cruze said.
The alternative of giving generously can also apply to this situation. Not only would it reduce relationship strains, but it would also avoid the financial risk of taking on a relative’s debt.
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