When the Financially Broken Come Knocking...

Submitted by SadInAmerica on Tue, 06/17/2008 - 11:14am.
What's the toughest money question? It's the one that can't be solved with a calculator, or even by a smart accountant.

In fact, you may need the combined insights of a family therapist, psychologist and financial planner to find the answer when someone asks: "I need money. Can you help?" You want to help. But should you? And if so, how and how much?

With millions struggling to hang on to their homes, and lenders tightening their standards, more people than ever are approaching family and friends for cash.

Here, the wisdom of experts on how to reply to some typical requests:

The Desperate Plea

A friend confides that he's on the brink of losing his house. Or your uninsured sister is being hounded by a hospital collection agency after her emergency surgery. These might seem like desperate situations, but writing a five-figure check may not solve the problem. Money problems might be a chronic situation.

Some of the homeowners who come in for advice on how to avert foreclosure have already had friends and family give cash, observes Ronald Clarkson of the nonprofit Housing Counseling Services in Washington, D.C. Months later, it's as if they've never received help because they're missing mortgage payments again.

If you're asked to help with a desperate situation, probe to find the reasons behind it. "It calls for frank honesty," says Clarkson.

For a dire predicament that's due to ongoing money mismanagement, the best help you can give may be to suggest professional help to get a long-term fix. People in deep debt can look to nonprofit credit counseling agencies, and homeowners with mortgage-related trouble can go to a housing counseling agency.

If a single event, like a temporary layoff, gets someone into a hole, a one-time cash infusion can pull him out.

In this case, you may want to lend the money instead of making it an outright gift. But be prepared that it may not be paid back on time -- if at all. "I have heard from people who have made a big sacrifice to help a loved one, only to hear that someone is buying a TV or some other big item later, rather than paying it back," relates Elizabeth Schomburg, senior vice president of Family Credit Management in Chicago.

Lending to friends and family may be easier with a third party acting as a go-between, says Shomburg. Web sites like virginmoneyus.com can increase the possibility of payback. For a couple of hundred dollars plus a monthly servicing fee of $9, the Web site will make up loan documents and bill the borrower.

The One-Time, Worthy Need

Perhaps you know someone who's struggling to pay her college tuition or who needs a few thousand more dollars to buy his first home. You'd like to help out, even without being asked.

Whether you can even think about helping depends on whether your own worthy causes -- like your retirement -- are being taken care of adequately. Indeed, experts underscore that giving money in any circumstance requires that you have funds to spare. "Ask yourself first if you can truly afford it," advises Shomburg.

If discretionary funds are there, you can choose to give, just as you might choose to spend on a vacation or other indulgence.

Consider your munificence a gift -- even if you indicate that you'd like to be paid back. "If you say it's a loan, and you get paid back, great. But you'll damage your relationship if you expect the money back," says Dara Duguay, director of Citigroup's Office of Financial Education.

The Lifestyle Boost

Your college-age son wants an apartment near campus, and says he'll pay most of his own food costs and some of the rent. Or maybe your 26-year-old daughter wants to take an out-of-town job, but won't have a roommate, so her new salary won't cover single-living.

Young adults may not have a clue how much to budget for the electric bill or even weekly groceries, since they've never footed these bills, says Duguay, who is also the author of "Please Send Money: A Financial Survival Guide for Young Adults on Their Own."

Instead of handing out money on an as-needed basis, it's better to set up a budget together at the outset. Agree that you'll pay certain expenses, and try to stick with that, Duguay advises.

"Don't give them too much of a lifestyle boost," Duguay adds. "It takes away their incentive to get a better job or learn how to comparison shop."

Look into Web sites like Buxfer.com or Mint.com, which allow you to track shared expenses for free. Such sites are a "great idea," says Duguay, because displaying expenses helps the young adult budget more effectively. Also, it formalizes exactly what parents will and will not contribute.

If you're not in a position to lend money but would like to help out by co-signing a loan, think twice about it. Both parties are responsible for a co-signed loan. If the person you were trying to help stops paying the debt, you are responsible for it. You now have to repay the loan or ruin your credit rating. Bankrate's archives are filled with stories about consumers who were burned by co-signed loans.

Marilyn Kennedy Melia - June 17, 2008 - posted at http://finance.yahoo.com/loans/article/105248/

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Submitted by SadInAmerica on Tue, 06/17/2008 - 11:14am.