Anyone — even a good planner — can end up in a financial jam. Maybe you need to move unexpectedly the same month your car gives out. An inauspicious mix of circumstances is why I won’t shut up about emergency funds, savings accounts that you use solely for, yes, emergencies. (A plane ticket to the Bahamas when you’re feeling burned out at work is, unfortunately, not an emergency.)
But maybe you don’t have one of these accounts yet, or it won’t cover the amount you need. Borrowing from family or friends might appear to be the next best option. Consider the risks carefully, though, and review alternatives, like a personal loan from a credit union. Here’s how to decide whether borrowing from those close to you is a savvy solution or a recipe for resentment:
Assess your relationships
In your 20s, if you have a strong, communicative relationship with your parents, they may seem like an obvious go-to.
But before asking, consider any cues that your request might put a financial strain on them, says Erin Lowry, author of “Broke Millennial.” Maybe they’ve mentioned furiously saving for retirement or that they still have a pricey mortgage. Or they might be budgeting for other major expenses, like a sibling’s upcoming wedding.
Involving friends in your money woes is a major risk. They don’t have to love you unconditionally, and you might lose their respect if you don’t pay them back. Elijah Kovar, a financial adviser at Great Waters Financial in Richfield, Minnesota, says he’s lent money to friends about a dozen times and has been repaid once.
“The biggest problem with it is less of a financial problem. It’s a relationship problem,” he says. “It can hurt the person’s view of you and your reputation with them.”
Decide whether you’re willing to put that friendship on an awkward footing during the time it takes you to repay, and maybe long afterward.
Make a specific repayment plan
The amount you need will dictate whether borrowing from family and friends is a wise choice and how structured the repayment plan will be.
Some family members might not want to be repaid for a one-time request of a few hundred dollars, and taking them to dinner in the future will suffice, Lowry says. In most cases, though, and especially for larger amounts, be realistic about how soon you can repay and show a commitment to doing so by a specific date.
Create a written agreement outlining the repayment plan, perhaps tied to your pay schedule or an expected bonus or tax refund. Offer to include interest, even if the lender declines, says Diane Gottsman, an etiquette expert and author of “Modern Etiquette for a Better Life.”
Borrowing money invites a potential shift in the power dynamic between you and the lender. But when you make a repayment plan and communicate regularly, it’s inappropriate for the lender to bring up the loan in every conversation or in front of others, Gottsman says.
Explore low-interest alternatives
If you decide borrowing from the people in your life isn’t worth the risk, you might look next to credit cards. But if you don’t have a long-term plan to eliminate the debt, interest could make it bloom into a bigger problem.
With a credit score of 690 or higher, you may qualify for a 0 percent interest credit card, which could give you some breathing room — but don’t carry your balance beyond the interest-free period. Another option, especially if your credit score is below 690, is to check out personal loans from your local credit union. You’ll need to become a member, but you’ll benefit from comparatively low interest rates. Federal credit unions cap loan interest rates at 18 percent, according to the Credit Union National Association.
Learn from the process
If you borrow, think of the experience as motivation to build financial security. Pad your savings by cutting back on unused subscription services, pricing cheaper cellphone plans or putting away a portion of your next bonus. Having an emergency fund — ideally with six months’ worth of basic expenses — will not only mean freedom from having to borrow money. Using your own savings to cover unforeseen costs can also be an empowering “I did it!” moment, encouraging you to keep up the good money habits.
“Ask Brianna” is a column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans. Send your questions about postgrad life to email@example.com.
NerdWallet:Credit union personal loans often cheaper, more forgiving nerd.me/credit-union-loans
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