A family loan is not always the answer. Maybe you can’t afford to lend a loved one money or believe they wouldn’t be able to repay you on time. 

In this case, you may not want to go through the effort of negotiating loan terms and forming an agreement. There are other ways to help loved ones if loaning money is not ideal.

Help family apply for financial assistance programs

Private and state or federal-funded assistance programs can help people pay for food, childcare, and utilities. Rent and mortgage assistance programs also exist for people who demonstrate financial need. 

Help your family member contact their local Department of Human Resources office to learn whether they’d be eligible for assistance and how to apply. 

Offer paying work

Here’s a hypothetical: your cousin has fallen on hard times and lost his job of 20+ years. He has many skills, though, and could help you with work around your house. Instead of setting up a family loan, you could hire him to complete home renovation projects. 

Drive them to interviews and send job leads

Another way to help a struggling family member is to help them with their job search. If someone doesn’t have transportation, volunteer to take them to and from interviews. You can also send them job leads you find online. 

Recommend a financial or debt counselor

The National Foundation For Credit Counseling connects people with Certified Credit Counselors that can help them create a debt management plan and a realistic budget. 

If someone you know is struggling with debt or unable to manage their income, consider referring them to a financial professional who can help them improve their credit and develop a plan for their finances. 

Most credit counseling services are free or affordable, but you can pay for a few sessions for your family member as a gift. 

Gift the money instead of loaning it

Giving money to a relative as a gift to help them through hard times is always an option if you feel comfortable. The IRS has a federal gift tax if you transfer money or property worth more than an exempted amount. Each year it is subject to change, but for the 2022 tax year, the maximum gift tax exemption was $16,000. You could gift someone up to $16,000 in one year without worrying about the tax.6

If you give more than this amount, you’ll need to fill out a 709 form when you file your taxes. The federal income tax rates for monetary gifts range from 18% to 40%, depending on the gift amount.7

Choncé Maddox

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