Lending and collecting from loved-ones.(extra credit)

Some types of people are more difficult to collect money from than others. Such debtors include bankrupts, uncontactables, don't cares, and those whom we love. And of all of these, perhaps the most difficult to collect from, are our loved-ones. In fact, maybe one such debtor is sitting right next to you as you read this?

Here are some quick tips when collecting from loved-ones. Loved-ones are defined here as family (including in-laws) and friends.

Tip 1: Don't lend money to a loved-one, only give gifts! For many of us, it's not worth destroying a relationship over money. Chasing loved ones for money can push them further away from you. Debts can split families. Instead, give the money as a gift and in return get more sleep. If you must, tell your loved-one it's a loan, but in the back of your mind treat it as a gift. If it's to an in-law, consider it a dowry. If the person pays it back, great. If not, fine.

One way to minimize your risk while maintaining the relationship is to give them less than what they want.

Now, if for whatever reason you don't want to follow Tip #1, please read on. In this case, you have become a "Loved-one Lender" or "LOL" for short. It's time to get serious about the loan because, for reasons known only to you, you're actually expecting to get your money back.

LOL Tip 2: Document the loan transaction. Your loved-one might think it silly, but tell him/her that you need it for your records. Lending money is serious business. It should be documented. If possible, have the loved-one fill in the repayment schedule detailing the payment amounts and dates. This will add to greater commitment. Then have him/her sign it.

LOL Tip 3: Give special incentives for early payment. Give basic incentives for on-time payment. Have disincentives for late payment. Ideally these are spelled out in the loan document.