Should You Help Your Loved Ones Pay Off Debt?

It can be hard watching someone you love struggle with debt, especially if it’s the type of debt they got into without any fault, like medical debt. You may want to jump right in, help with your funds, and try to limit their burden. This is a very noble gesture, but it isn’t a decision that should be made emotionally. There are many factors to consider before deciding if you should jump to the aid of your loved one and help pay off their debt.

Consider the Type of Debt

Before you decide to help pay someone else’s debt, no matter their relation to you, it’s important to consider the type of debt. You see, there are good debts and bad debts. Good debt typically helps further you or your family, such as buying a house where you can earn equity in the property. Bad debts, such as large consumer or credit card debt, often lead to financial struggles.

The type of debt you’re helping with could be a significant factor in your decision because some debts might be worth more than others. It might not be worth your money to pay off someone else’s frivolous clothes shopping spree, but it could be if you’re trying to help them pay off their student loans.

Paying off someone else’s bad debt might enable them to spend more frivolously and incur additional bad debt. If that’s the case, you’ve just spent your money, and your loved one isn’t better off. In fact, you may make their financial problems worse by trying to help. It’s a lot to consider, and every situation is unique.

What Will It Do to Your Finances?

Another huge consideration is how much you can help before hurting your financial situation. It’s great if you have plenty of money in the bank and can use an emergency fund or extra savings you don’t have invested for retirement to help someone.

However, putting off your retirement or taking money out of your pocket to help others when you can’t afford to may not be the best choice. You need to have the means to help with someone else’s debt before you start seriously considering it. Taking on their debt or taking out a loan to pay theirs is just moving the problem around instead of fixing it.

Can You Make a Significant Difference?

Another important consideration about your finances is whether your help will make a difference in the debt. If your loved one owes $10,000 in student loan debt and their payment is $400 per month, you can only impact that debt if you can help pay it off. The debt must go away for your loved one to be affected, so you should hold on to the money until it is low enough to pay off.

On the other hand, if your loved one is sitting on $10,000 of credit card debt with a $400 minimum payment each month, you can significantly lower the monthly payment amount if you pay the debt down by $6,000. That could provide your loved one some immediate relief as they try to pay off the balance.

Regardless of the situation, it’s important to calculate the impact your help could provide and make sure it is meaningful to your loved one if you give that help.

How to Help Someone With Debt

There are more ways to help someone with debt than just giving them cash to pay it down. Here are some other ways that you might be able to help someone who is struggling to pay a large amount of debt:

• Provide a Personal Loan: You could loan out money to a loved one to pay their debts so that they owe you instead of a financial institution. This can ease the burden, but money has ruined many relationships, and you should be okay with never seeing that money again if you decide to do this.
• Provide Employment: Something you can do for someone in debt is help them earn more money to pay down that debt faster. Whether it’s a full-time job or helping them earn a side income, more money can often mean less debt.
• Co-Sign a Loan: You could co-sign a personal loan, mortgage, or other loan for your loved one. If you have a strong credit profile, they can lower their monthly obligation by using your credit to qualify for better terms than they currently have. This will, however, put you on the hook for the debt if they fail to repay it.
• Help Them Budget: Many people have the available income to pay down their debts but need the discipline to do so. This often means they haven’t created a budget or aren’t living on one. Helping them do either of these things can be a huge help in getting them to pay down a debt they can afford.

No matter how you help your loved one get out of debt, it could be a good idea to help them get additional resources for living within their means. They may need to develop strong financial habits to ensure they don’t have the same problem again.

Bottom Line

Determining whether or not it is right for you to assist a loved one with their debt is important.

This is a very individualized situation that is ultimately up to you. However, before deciding, it’s important to weigh factors such as the type of debt and how much help you can provide before hurting your financial situation.