Beware of borrowing from loved ones
Even if you're desperate, turning to your loved ones may simply make your debt problems worse.
The car fails its MOT. Your child needs a new school uniform. Your gas bill is higher than you thought and if you pay it you won’t be able to buy the weekly food shopping.
Where do you turn when times are tough? For many, it’s family and friends who step in and help keep us afloat. Our latest figures at StepChange Debt Charity show that, last year, over a fifth of the people we advised had outstanding debts to friends and family. The total amount owed reached almost a quarter of a billion pounds, and the average amount owed per person was £3,265.
Why people need help from loved ones
Of course, people have always borrowed from friends and family in times of need.
But household budgets continue to be hugely overstretched, and more and more people are struggling to keep their heads above water from month to month – last year, 570,000 people contacted our helpline for debt advice. With less room for manoeuvre, many budgets are not resilient to financial shocks, and people have to rely on fragile safety nets to get by.
Whether it’s as a first point of call or a last resort, friends and family often make up part of this support.
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The problems with borrowing from friends and family
It may seem like the best option now, but there can often be problems further down the line when borrowing from friends and family. Worrying about money and debt is already a stressful situation to be in, but owing money to loved ones can, for many, be an additional burden. We see instances of relationships damaged beyond repair due to disagreements over loans that can’t be paid back.
To avoid this break down in a valued relationship, we often see people prioritising paying back their loved ones over other debts such as Council Tax, energy bills or rent arrears, which can have serious consequences if they are not paid. Choosing between keeping a roof over your head or losing a loved one is a position that nobody wants to be in.
If someone puts a family debt before another creditor, or even borrows more to be able to pay a loved one, interest and charges can build up on other unsecured credit. That can leave the borrower in an even worse position than at the outset.
Of course, the risks lie on both sides. The person lending the money may feel guilty if they decline to do so, but could be putting themselves at financial risk to help out — a dangerous position to be in. Or they may not know the full extent of the borrower’s financial issues, and find it difficult to understand why they can’t pay them back.
What are the alternatives?
An informal loan from someone close to you is often a better option than taking on high-cost credit, with all the interest and charges that can entail. However, if you’re already struggling, taking on additional borrowing of any kind is rarely the answer. It may bring short-term relief, but the long-term problem won’t go away.
Getting advice as early as possible is key to tackling your debt issues. If you think you have a debt problem, or are worried that a loved one may be struggling, get advice as soon as possible or encourage your friend or family member to do so. Call StepChange Debt Charity on 0800 138 1111 or visit www.stepchange.org/debtremedy
We need to see action
People need more support to help them build resilience in their finances. We want to see the Government commit to ensuring that every household has £1,000 in precautionary savings to help cover a sudden cost or income shock. This cushion would mean that people are less likely to need to turn to friends and family as a fallback during financial emergencies.
We also want to see debt advice scaled up so that it is able to reach the 1.4 million people who need advice but aren’t getting it, so they have a free, independent source of support to turn to when times are tough.
Need to borrow from your bank? Compare current accounts offering free overdrafts
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