Dave Ramsey: Why Borrowing Money From Family Is ‘Playing With Fire’
Written by
Deborah Sabinus
Edited by
Levi Leidy
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For many families, it can be difficult to turn a blind eye when someone calls for help. For this reason it’s not uncommon to borrow money, or to lend money, to a family member. A common example would be asking for a loan to make a mortgage payment. The loan may look like a simple solution, but is it worth it to mix family and money?
According to financial guru Dave Ramsey, borrowing money from family is a bad idea. He explained his perspective while answering a write-in from a couple who were offered help to pay off their house.
In this instance, the woman’s father offered to pay the remaining debt on the couple’s house while they pay him back over time. The couple also affirmed that they had previously borrowed smaller amounts from the same man, which they repaid without issues or pressure and described him as “kind” and “generous.”
Ramsey acknowledged that paying off their loan using this financial help would be easier compared to dealing with a mortgage company. He still insisted that taking up the offer would be “playing with fire,” and that money exchanged between family should be given as a gift and not a loan.
It Creates an Imbalance in Power
Not everyone can make such a generous offer as father from the write-in, who was willing to pay $40,000 off the couple’s mortgage. However, the potential implication of this loan is an imbalance in power. “What he’s making is a very generous offer, and it’s an incredibly nice thing to do,” Ramsey wrote, as reported by The Street. “But in my mind, a very important consideration is being left out of the equation, and it’s a spiritual issue. The borrower is always slave to the lender. Always. And sadly enough, nowhere is that more true than within a family.”
If there’s no contract or fixed repayment plan in place, there could be frequent requests, demands or errands that you feel obliged to do as a result of the outstanding loan. And this can breed resentment for the duration of debt, which could span into years depending on the amount borrowed.
The Impact on Relationships
According to Ramsey, accepting this offer could bring instant discomfort into the family’s dynamic. In his words: “This money situation is likely to hang over things like a dark cloud. Thanksgiving, Christmas and other special occasions will feel different — and kind of weird — when you’re suddenly celebrating with your mortgage lender instead of just good, old dad.”
What happens if you’re not able to pay back the loan as expected? It further strains the relationship and breaks trust.
Looking at Ramsey’s reasons, borrowing from family is not as appealing as any other no-interest loan would be. Because while they may claim “no pressure,” it can strain the relationship in ways you couldn’t have predicted beforehand. Before accepting a loan or giving money to a family member, consider the value of your relationship with them and whether it’s worth the risk of introducing debt to the equation.
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