When You Can’t Repay a Loan to a Family Member (Tips & Advice)

by Dollar Stretcher Reader Contributors

Owing money to family members can jeopardize family bonds. What alternative options are available for repaying a family loan and how can you mend bruised relationships? Our frugal readers weigh in.

Dear Dollar Stretcher,
I found a few articles on your site about the risks involved in loaning money to family members and friends. Do you have any advice for someone who borrowed from a family member and now cannot pay it back? Or do any of your readers? I borrowed money from my brother and sister-in-law to get my car repaired, so I could continue getting back and forth to work. I promised to make monthly payments to them, but I have since had my work hours cut and simply don’t have the money to pay them and my own bills.

My brother is trying to keep the peace, but I know my sister-in-law is not happy. I realize they have their own bills to pay, too. I have exhausted all avenues I have thought of for borrowing the money elsewhere and paying them back in full. Any advice for how the three of us can work something out without causing any further damage to our relationship?
A Broke Sister in Florida

Just Pay Something

Kudos to you for wanting to repay the loan! I suggest you pay something, even if it’s only five or ten dollars, each month. It sounds like you are on a very limited income, but if you plan, you can find ways to save. Think of your food budget. Cook simple meals. Don’t eat out. What are your other expenses? Where can you cut them? It may be difficult for you, but you’ll feel better once that loan is repaid.
Alice

Barter Available Time

My recommendation is to sit down with your brother and sister-in-law when it is mutually convenient and have an open, honest conversation about the debt and your employment situation. Express your sincere intent to repay as originally agreed. Perhaps they would allow you to make smaller than agreed payments until your hours are restored? Another thought is that with less hours at work, you are more available to help them with child care, errands, housework, etc. Maybe you could barter your available time towards your debt? If nothing else, it shows that you are trying to be responsible.
Tammy C.

Squeeze the Budget

Have all avenues to come up with at least some money each month to pay back the loan been exhausted? I can think of several possibilities.

1. Can you take on a part-time job on weekends to earn more money, which would help you pay off your loan and maybe give you a few extra dollars to save as well?
2. Have you cut out all extras such as buying coffee and lunch when you go to work rather than bringing these from home?
3. If the cut in hours has substantially lowered your income, have you checked whether you are eligible for SNAP (food stamps), which would free up some money to pay back your loan?

I suspect your sister-in-law would be happier if you pay only a few dollars a month than none at all. See if you can find a way to do that.
Barbara

Related: 19 Ways To Raise Quick Cash

Take on a Second Job

Get a second job long enough to repay the loan. It’s not worth ruining relationships and you don’t want to cause conflict between your brother and his wife. You must do everything to repay the loan. If you don’t, they will lose all respect for you. It will be hard, but go for it.
Betty

Let Your “Yes” Be “Yes”

Failure to repay a family loan can have permanent devastating consequences to your relationships. Very often, I have seen family members who owed money say they couldn’t pay back a family loan, only to see them take a vacation, a cruise, or eat out a lot. Those actions say the borrower never intended to pay back the loan, and it is a violation of the trust between the parties. I would seek a second job and make that loan repayment a priority. Let your “yes” be “yes” even if it requires a sacrifice on your part to keep your word.
Bri

You Can Always Find a Few Bucks

If you have borrowed money and circumstances changed that is unfortunate, but you did promise to repay. Even if it is only a dollar a week, pay something. Sacrifice something to make steady payments. Eat beans, skip a meal, or give up a cup of coffee or a coke. We can always find a few bucks if we try.
Connie

Contact Other Debtors

Contact the companies you owe and tell them your hours have been cut and ask if you can reduce the monthly payments by $5 or $10. Take this money and give it to your brother. Just because a relative makes a loan doesn’t mean he shouldn’t be paid. He put himself out for you and you should feel bad that you aren’t paying him. You must at least make a partial payment each month. No one should take advantage of another, whether they are a relative or not. All of what I have said sounds harsh, but it is the truth. Don’t let this destroy your relationship with your brother. It will be the greatest mistake you will make.
J & S

Open and Honest Communication

The most important thing to me in situations of this type is open and honest communication. If you sit down with your brother and his wife and explain that you have explored various options for repayment that have not worked out, they will know the matter is very important to you and that you’re not simply trying to sweep the whole thing under the rug. I would also mention the reduction of your work hours to them as well. It might also be helpful if you look for a side gig or sell some unwanted items on Craigslist. Actions speak louder than words. If you offer them something, they will know you are a person of integrity that is trying to honor a debt. The absolute worst thing to do in a situation like this is to remain silent. The resentment will only continue to grow and the once strong family ties will weaken.
John

Stay Away From Vague Excuses

I hope you can sit down with your brother and sister-in-law to discuss in depth what is preventing you from paying back their loan. If it sounds like some sort of vague excuse to them, there’s likely to be more resentment than laying all your cards on the table.

Also, is there some service they’re presently paying for that you could take over to try and work off some of the debt? Think yard work, house cleaning, or babysitting. This could be applied to your loan to bring it down.

Can you cut back on your cable bill or cellphone costs? Do you qualify for reduced rates for utilities? You’d be surprised how high the threshold is to get a discount. Can you save by doing more from-scratch cooking and skip the prepackaged meals?

Given enough time, there are more areas I could suggest but maybe these few can help.
Nancy in Santee

It Is One of Your Bills!

You state that you cannot pay them and “your own bills.” Keep in mind that the money you borrowed from your brother is “one of your bills.” Make an effort to pay him even a token amount. Also consider repaying by asking if he has any jobs you can do for him in lieu of cash.
Mavis

Consider This Difficulty a Means To Learn

Years back, I was introduced to Amy Dacyzyn and The Tightwad Gazette. She mentioned she had never met anyone who did everything they could to cut back. That statement struck home, as we were in really tight circumstances at the time. So I scoured her materials and implemented many of her methods. We tried everything from eating at home and leftover wizardry, to reusing aluminum foil, to cutting hair, to mending socks, to military showers, to hanging laundry, to cutting back on detergent amounts, to negotiating services, to selling our stuff. It all added up. We made it, and we learned valuable lessons in the process.

We’ve been on the other side of the “loan” situation and knew for a fact the family member facing eviction one time and other dire circumstances at another time never even considered many of the things we regularly did. Nor were these even on her radar. So, we wrote the “loans” off as gifts. She once asked about budgeting ideas, and we gave her our framework. When we couldn’t help her and her husband one time, she got angry at us. That was an eye opener. We explained our financial situation in greater detail, and she never asked again. She is currently taking online classes to better her education and job prospects. Another family member is currently living with us after his job loss and eviction. He scoffed at some of my methods, but he has started to see the value as he slowly works his way through the process towards independence.

Here are a few questions for you. Have you absolutely cut to the bone and then some to have a bit left over to pay your brother back? Are you willing to take on odd jobs to make a bit more? Or are you willing to do whatever you can to save money? A wise man once observed that a borrower is a lender’s slave, so actually every penny you earn is not yours at all, until that loan is paid back. If you can’t manage now, what will you do the next time your car needs a repair? Consider this difficulty as a means to learn a whole new set of life skills and to realize what you can actually survive without.
OF

• Surviving a Cash Crisis: 10 Places To Look for Extra Money
• 12 Ways To Cut Spending to the Bone
• When Expenses Exceed Income
• How To Break Bad Financial Habits
• What Does My Debt Cost Me?

Reviewed August 2023