What to Do When A Relative Won't Pay You Back

Few conversations are more awkward than approaching a family member who hasn't repaid a personal loan. Here's how to approach this thorny issue directly yet tactfully.
By Lynnette Khalfani-Cox

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This Money Talks series offers tips and advice for individuals facing various sensitive financial conversations with loved ones.

Perhaps you're dreading it already: a family get-together where you know you'll run into the relative who owes you money and hasn't bothered to repay the loan. Maybe he or she swore to repay, only to flake numerous times. Or maybe the borrower hasn't even bothered to mention it, almost like the loan never happened.

If you don't want to make a big scene, but you can't just ignore the hole in your savings account, what should you do?

In an ideal world, mature adults would talk rationally about a family loan, well before they reach a potential breaking point. In the real world, people renege on loan agreements all the time, and subsequent financial conversations can devolve into arguments and misunderstandings. The result is hurt feelings, regrets over financial decisions or situations where people either fumble for the right words to ask for money or silently fume.

If you're faced with the situation of dealing with a family member who won't pay back your loan, the best approach is to handle the matter in a direct, tactful and gracious way.

How to ask for money from family

To broach the matter of a family member who won't pay back your loan, discreetly pull the person who borrowed the money to a quiet place, and simply tell him or her that you'd like to discuss a realistic loan repayment schedule.

Jim Heitman, a certified financial planner and the owner of Compass Financial Planning, says your approach to asking for money to be paid back should be amicable and straightforward, not hostile or accusatory.

Discuss family loan in-person

Pick the right time to address the loan. Don't bring up the fact that a family member won't pay back your loan over Thanksgiving turkey or as everyone is opening holiday gifts.

Raise the issue in private with only the individual in question, not amid a roomful of family and friends enjoying a holiday football game on TV.

If it was a large loan, to increase the likelihood of repayment, suggest that the borrower pay you back in installments instead of a lump sum. But for smaller amounts, a lump-sum repayment is the best way to quickly and cleanly deal with the situation and put the loan behind you both.

Avoid loan repayment drama

Don't lecture the person or presume to know the borrower's complete economic circumstances or spending habits, advises Heitman. Inflammatory comments can only serve to escalate an already tense or uncomfortable situation.

Many adults who have borrowed money from relatives already feel bad about having to seek financial assistance from family members. So don't compound their guilt and don't complicate broader family relationships by threatening to divulge their delinquency to other relatives. Such tactics may backfire, leaving you with more than the loss of just money.

An alternative approach to collecting a family debt

Another way to handle this tricky situation, Heitman suggests, is to not have a verbal conversation about the overdue loan at all. Instead, try slipping the person a politely-worded but direct note, which may have more impact.

How to ask for money from family in a note?

Heitman recommends something to this effect: "I don't know all the details of your financial situation. But I do know my own economic situation, and I'm at a point where I could really use that money I loaned you, or at least some portion of it. So if you can repay it sometime soon, that would be great."

The key is to keep the note brief, respectful and matter-of-fact.

If the person doesn't respond favorably, or doesn't at least propose a repayment plan, "ultimately, you may be forced to make a decision about what is more important to you: the relationship with your family member or getting paid back," Heitman says.

Before making a family loan

Some of the anguish over a soured family loan might be avoided, Heitman notes, by setting your expectations upfront.

"One of my first rules for my clients is: 'Assume when you loan money to family that you will never see it again,'" says Heitman.

Heitman says it's not that all relatives are irresponsible or callous toward family loans. But there's simply too many individual variables that may make repayment of a personal loan highly doubtful.

Don't let family money issues fester

While you want to exercise discretion, don't feel that you have to keep quiet about the matter in the name of keeping the peace.

Chris Smith, a personal finance expert and author of, "Securing Your Financial Future," says that "even though the main purpose of having relatives get together over the holidays is to renew and refresh family ties, there's a real benefit to having money conversations as well."

Even for sensitive topics, Smith says, "I'm a strong advocate of having those kinds of conversations every time you have a chance."

Deela 22 October 2016 at 2:47 am

I loaned my brother $1000, and then two months later he asked to borrow another $1000. Oh, he kept saying how he hates to ask me (I'm in a tight situation; we live minimally), but he had no one else to turn to. Didn't want to ask my sister who has no financial struggles (I'm supposing he didn't want to burn that bridge; but mine, no big deal), but he was desperate because of a legal situation with his business. I told him yes, BUT...I need it repaid back as soon as possible because this is pretty much all I left in my savings. "Oh, okay. No problem Thank you, so much. You have no idea how much this means to me and how much I appreciate this." Two months have gone by, and he has not mentioned a repayment to me; nothing. However, he had the nerve to text me to tell me he's throwing a big birthday party for my mother's 95th birthday where he lives (out of state for me). Inviting something like 70 or 80 people. Guess what! I can't go. Why? Because I can't afford to since I loaned him the money. My mother lives with him. I have no doubt he uses her money up. He's 59 years old. Just like the one guy wrote here, my brother's the same way. He spends...blows money faster than he makes it. And he has my mother so wrapped up in his BS. Well, I'm writing mine off. I tried all of the above; the respectful conversation, etc. Now he's ignoring me, but not be fore he told me, "oh, wow, if I had known it would have put you in a tough place, I wouldn't have borrowed it in the first place." I nicely reminded him that he did know. And by the way, he did end up borrowing more money from his other sister, whom I have no doubt he's paid back already.

Drazil 13 October 2016 at 6:32 am

The variables. I'm the spouse. The loan was to an in law, in the amount of $40K. There was a notarized promissory note. The due dates, as they were installment repays, has come and gone. The in in law's home is in foreclosure, it's been over three years without a job. The girlfriend is living with the in law. Lastly, out of respect I am not involved, but would like even a dialogue about the situation, and not even, when or if, just acknowledgement of situation. The amount is not something you "forgive", and was given out of love to keep a roof over in laws head but the money was not used for that, but to repay investors as in law was trying to be a flipper. Thanks for listening as no where can I put my thoughts as the line of "this is not my place' is clearly drawn in the sand.

mya 15 June 2016 at 5:54 pm

Im owed approx 7500 from a family member. I have become unwell and in need of moving house due to situations and i havent the money to do it. While theyre having a total revamp of their house, extending the kitchen, moving bathroom etc. Its hurtful. Im in a difficult place in my life and moving would make things better. And they know this. But no amount of money has ever been offered back

Chris 21 May 2015 at 12:11 am

I loaned money to my cousin to bail her out of jail more than 10 years ago and despite many promises initially to repay the loan with interest, I have not been paid back one penny. Her financial picture appears to have improved greatly and she has a new guy in her life and every day on Facebook I see postings of pretty much new everything....a custom built home, a new Harley motorcycle and they travel constantly. It is really hard to see all of these posts on Facebook and yet I am struggling every day to avoid bankruptcy. She lives in Missouri and I live in California and we hardly ever see each other so a face to face discussion is not possible. I suppose an email would be sufficient. I will never loan money to a family member ever again! Hard lesson learned!

RobotShlomo 11 May 2015 at 1:28 am

From the sound of this it's clear you've never dealt with my family. My brother has borrowed a total of $4,000 from me, and has yet to even make any effort (or even a mention) of paying me back. He was in a tough spot and nearly lost the house so I let him borrow the money as to not allow his three kids to become homeless. That was almost two years ago, and he's in the process of getting a divorce, and the only thing he's done is ask me to borrow MORE money, so he could buy a used $1,200 Mercedes, go to basketball games, and buy expensive sneakers.The sad reality of this is he's ALWAYS been like this. Any money he has he not just spends, but BLOWS on stupid stuff, and then goes begging to me or someone else for more, and when I say no I get "STOP BEING CHEAP!!", or "ya burnt!" as if it's some big game to him. He's into his 40's and he hasn't learned to manage his money with any sort of responsibility. If he has $10 he spends $20. If he has $100 he spends $200, and then begs for more.Don't question his spending habits? Yeah right.

Lisa 27 March 2015 at 5:37 pm

I am the one who owes the money...to my mom. She helped pay for a new transmission for my van that I need for my business. Things have been very tight, and I have felt so guilty about now paying her back. It causes me to avoid her calls and my not getting in contact at all! The tension is driving me crazy, and I will offer payments and stick to them. She's a great lady and doesn't deserve this.