Borrowing From Family: Sometimes there IS something worse than high interest
Earlier this year I accepted an offer that I am now somewhat regretting. A family member offered me a small sum of money, interest free, to pay down the initial load of my debt so my monthly payments could be more efficient. It came to be roughly 14% of my loan so I was grateful and took it. I relayed to this person my debt reduction plan to alleviate their worry that I was throwing all my money higgledy piggledy and told them that my loan would be gone within 2-3 years and then I’d focus on swiftly paying them back. Everything is smiles. We never sign a formal agreement and this is the part I now live to regret.
Fast-forward four months later and they are already asking if I can stay repaying them. This long-term loan has turned into an unnecessarily complicated short-term one. But here’s the kicker, if I hadn’t taken that money, I would have simply adjusted my budget/RRSP/savings contribution and saved a little less in my TFSA and RRSP this year. Now that they want it back, it would require dumping my TFSA, ruining my contribution room for the year, stopping my RRSP contributions for awhile and having literally no emergency fund. My debt repayment would be at a standstill for a few months while I bumped it back up. I calculated it and this turn of events is actually going to put me back at least four months to where I was previously. Four months doesn’t seem like much but when you’re budgeting hardcore to get out of debt and still have a life, that’s a long period of time.
There were other factors involved in the request I’m sure. My first thought is that they didn’t really have that much money to lend in the first place and are financially hurting right now. Another thought is that they wanted to use the money to create an artificial bond with me, instead of just spending time together through ways other than financial assistance. The third idea is that they upset with me because we haven’t seen eye to eye on issues for the past few months. What I thought at first was a generous gesture has turned into a major source of stress. I feel like the loan and any subsequent gift has been held over my head and if I argue with this person, it’s shoved in my face as a retort for how selfish and disrespectful I am. This is from somebody who has confided in me that they’ve lent money to other family members that they don’t ever expect to see back. I strongly want to believe that it’s the first idea, that they are in financial straits and are uncomfortable telling me about it.
The reason there is urgency in this post is that this weekend this whole situation came to a head when, during a huge fight, I said I’d pay them back immediately, even if I had to dump my TFSA to do so. I said it in the heat of anger and I wish I’d kept my mouth shut because now I feel trapped. I don’t want to do it just to spite myself or them, as nobody will benefit and I have an actual feeling that things will be worse if I do so. But at the same time I want out of this uncomfortable situation as soon as possible. I’ve calculated a monthly payment I could live with to pay this person back in under 2 years but this will bite into my student loan payments and increase my interest. It’s probably the most preferable solution, I’m still paying back my student loan, I’m just halting my RRSP payments for the time being. Although, I could still dump the TFSA and be done with it but then I’m financially strapped. I’m going to give it a week or so to simmer in any case, after collecting more advice.
Have you ever borrowed or lent money to family? What would you do in my situation?