Although helping out a friend or family member in financial need can be a kind gesture and make sense at the time, problems arise when the other party doesn’t fulfill their end of the bargain. It can put you both in an uncomfortable position.
And it’s happening a lot.
A 2024 study conducted by the fintech company Bread Financial found that interpersonal loans are common, especially among younger generations. More than half (61%) of Gen Zers borrow money from friends and 70% of millennials say they do, as opposed to just 38% of baby boomers. And 21% of the respondents say they’ve lost a friendship over money.
If someone owes you money, here’s how to get it back and keep the relationship intact.
[How to Get a Small Personal Loan]
Meet in Person
Confronting a person who owes you money can be stressful and awkward, so prepare in advance.
Eliza Gwendalyn, a certified bookkeeper from New York City, says she’s been in this position many times.
“Face to face is best,” she says. “I always try to be friendly and sensitive but I’m blunt too. I’m a business person. If they’re pushing back or being lackadaisical, I get stronger.”
Contact the person and arrange a place to pick up the money. Meet where mutual friends and relatives won’t be present; this is a private matter.
When the amount you’re owed is a relatively small sum, like $50, you may request they bring cash, but if it’s a larger amount like $5,000, a cashier’s check or money order is best. Personal checks can bounce, and if it does it will only make the situation worse.
Aaliyah Kissick, the Washington D.C.- based CEO of Financial Literacy Diaries, recommends making your intention clear, but the meeting warm.
“You can have a cup of coffee, too,” Kissick says. “Start with discussing the loan, then catch up on other things. That’s the etiquette side.”
After the niceties, you may explain that you’re on your way to make a bank deposit or will be using the money they give you so you can pay a bill. That should inspire the person to do the right thing.
If they didn’t bring what you asked, try to remain calm, even when you’re agitated or angry. Assuming your goal is to get repaid and maintain good relations, arrive with possible resolutions to typical responses. For example:
— They forgot to bring the money. Offer to drive them to their bank or the ATM. If they have a payment app like Venmo or Zelle on their phone, ask them to send it through the app.
— They don’t have the money now, but will soon. If a payday is coming up, say you’re happy to meet again on that date.
— They can’t pay but have valuables. If you know they have something they don’t need that has the same or similar value, you may suggest a trade.
— They can’t pay at all but have skills. Create an opportunity to help the person pay off the debt with a service. Maybe they’re a great graphic designer and you could use a new logo for your business.
— They can’t pay in full. Offer a short installment plan, ideally with four payments. Longer plans just draw out the problem. If the person owes you $1,000 and can give you only $20 a month, you’re looking at more than four years to get repaid.
People often feel shame about not paying their debts, especially to loved ones. Coming equipped with reasonable solutions can benefit them, too, Kissick says.
[How to Borrow Money from Friends and Family]
Send Electronic Reminders
A less personal approach to asking for the money is through electronic communications.
“I use written format because it takes away the confrontation element,” says Paula White, owner and founder of Symmetrical Solutions, a financial firm located in Ortonville, Michigan. “Just have a proactive money mindset going into it.”
When texting about a loan reminder, make the message short and sweet.
Something like, “Hey there, haven’t seen you since the concert. So fun. Can you send the $100 for the tickets today? My credit card bill is due,” can be very effective. They may have simply forgotten about the loan and take immediate action.
With an email you can be more conversational. Kissick suggests organizing it in traditional collection letter format, while remaining friendly in tone.
“A letter like this has three parts,” Kissick says. “It begins with a greeting, like, ‘Hope you’re well. I’ve been thinking of you as I was doing XYZ.'”
Then comes the body, or the notice of collection. You may write, “I tried reaching you about the loan but haven’t heard back,” Kissick says.
“The conclusion is where you can say you’re open to different ideas on repayment and an assertion that you don’t want anything to get in the way of your friendship,” she adds.
The best case scenario is that the person contacts you to make good on the debt. If not, though, you can keep sending the correspondence, and get progressively sterner.
Create Payment App Prompts
Another approach that’s even less confrontational is to ping the person with a prompt through a payment app like Cash App or Venmo.
Search for the person’s profile information on the app. If they have it installed, you can send them a request for payment.
For example, with Venmo, you would enter the amount you’re owed, add a note for what the payment is for then hit the “request” button. Every time the person opens the app, they’ll be reminded of the payment due.
According to PayPal, which owns Venmo, more than 78% of users who received a money request paid up the same day, and 17% did so within five days.
Pursue Legal Action or Let It Go
If the person continues to evade their obligation and you’re sure they have the funds, you may decide to take them to small claims court. Each state sets its own limitations on how much you can sue a person in small claims. For example, in Florida it’s up to $8,000 and in Nevada it’s $10,000.
Just know that legal action is the last resort if you want to keep a friendship.
“At that stage you will have to assume the relationship is over,” Kissick says. “But if they owe you a lot and you need the money, it’s worth considering.”
In lieu of that, you may decide that pursuing the debt isn’t worth the effort.
“If the person has been ghosting you, think about the meaning of your relationship,” Kissick says. “Maybe they borrowed $100 and you have a high income. Ask yourself if you would be willing to pay that amount of money to retain the relationship.”
If that’s the case, you may chalk the loss up as an unpleasant learning experience. Perhaps that person wasn’t a friend after all.
What Not to Do
As for what not to do when a friend or relative owes you money, avoid the following:
— Telling other people how angry you are with that person: This is between you and the borrower. Involving others can get messy.
— Harassing or threatening the person, in person or over mail; doing so can have legal implications for you.
— Making someone who wants to pay but can’t feel unnecessarily guilty. Berating the person is unlikely to get you what you want. Even if they do eventually pay, your behavior may forever alienate you.
— Seething quietly: Remember, that person may have forgotten about the loan or wants to pay and is willing to cover it in other ways. Give them the chance to make good on the debt.
— Venting, even without naming names, on social media. It makes you look petty and other users may be able to figure out who owes you money when you give too many hints.
“And don’t give them any more money,” Gwendylan says. “Trust me, I’ve done it.”
This can happen when the person pulls on your heartstrings. They just need a little more and will pay it all back and then some “soon.” Unless you can afford to lose more money, explain that another loan is not within your means.
Lend the Right Way Going Forward
If you’re willing to lend a substantial sum to a friend or family member in the future, White says to create a written contract with all of the terms clearly spelled out.
Each of you should know and agree to the terms, including what will happen if they renege on the arrangement. You can even ask for something of value to hold as security.
Ideally the person will pay you back in one lump sum on a specific date, per the contract.
“If not, set up automatic payments using ACH with your bank,” White says. “The money will go into your account once a month.”
Finally, if you’re not comfortable acting as a financial institution, don’t be a lender in the first place.
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How to Ask For Money You’re Owed From Friends and Family originally appeared on usnews.com
