How to Help Loved Ones Deal With Debt

Older mother hugging her grown daughter as she deals with hard times.

Most of us grapple with tough financial times at some point. If you're watching a loved one struggle with financial difficulty and debt, the urge to step in is natural.

Depending on your financial situation and theirs, there are many ways you can throw a lifeline to help them pay off debt. Since finances can be a sensitive subject, and because your well-intended offers to help could end up placing a financial burden on you, it's important to think about both of your boundaries before you commit. Here are six helpful tips for helping a loved one deal with debt.

1. Take Boundaries Into Account

Be cautious when approaching conversations about personal finances, even when you're speaking with a close family member or friend. Money can be a sensitive topic, so it's important to observe your loved one's willingness or unwillingness to go into detail, and stay within their comfort zone. If they don't want your help with money, it's often best to drop the subject.

It's also important to take inventory of your own sensitives and boundaries around money. Are you in a good position to help your loved one? Are you comfortable lending support in the form of guidance, or do you want to help financially by lending them funds or giving them a gift?

Last, think about how your offers to alleviate your loved one's debt burden could impact your relationship if things go south. If you ask your loved one to make commitments to you, such as cutting discretionary spending or using funds you gift only for making debt payments, how will it impact your relationship? Stay in your own comfort zone, and aim to start an open dialogue with your loved one.

2. Provide Resources

Whether or not you have the means to provide your loved one with outright financial support, first consider ways you can help them long term through educational resources.

Maybe debt hit your loved one due to an emergency such as a medical bill or other urgent expense. Or, maybe a struggle with overspending and consumer debt got them locked into a debt spiral that they can't get out of.

Whatever the source of their current financial struggle, there are resources you can suggest for them. Nonprofit credit counseling and debt assistance programs are all good places to look for help.

3. Share Your Experiences

If you've had your own battles with debt or hard-learned budgeting lessons, discussing how these experiences knocked you down—and how you got back up—could provide your loved one with valuable perspective. If you've had success building credit and taking out a debt consolidation loan, or if you found a budgeting hack such as envelope budgeting, share these experiences with your loved one.

4. Be Cautious About Cosigning

Your loved one may be considering using a debt consolidation loan or another type of loan to pay off their debts. A debt consolidation loan can be a useful tool for folding multiple debts into one balance. That makes it easier to afford payments, and it can lower what they pay in interest.

However, if your loved one needs you to cosign to qualify for the loan, make sure you understand the risks. Cosigning makes you responsible for the debt. That means that if your loved one stops paying, you'll need to make on-time payments each month to avoid damage to your credit. If your loved one is struggling with financial issues, they may struggle to repay the loan on their own, which could leave you in a tough spot.

5. Know Your Limits

While the desire to help is a good one, make sure you don't overextend yourself by offering your loved one more than you can comfortably afford. If you're retired, for example, helping them pay off debt could require liquidating assets or stretching your budget thin. Make sure you know how much you can afford to gift or lend. If you're not sure how helping your loved one deal with debt will impact your budget, talk to a financial planner to fit it into your full financial picture.

6. Consider Your Options

If you want to help your loved one pay off their debt, you have a few options:

  • Gift them money. A gift is a sum of money that you give your loved one without any expectation to get the funds back. You can gift up to $17,000 to any one person in a year without triggering gift taxes. This can be a good option if you have the funds and don't want your loved one to repay you. It's worth noting that, if you go this route, it's better to write a check. Using a mobile payment service such as Venmo can lead the IRS to question whether the payment is taxable income.
  • Pay their lender directly. You could make monthly payments directly to their lender. For example, if your loved one has a $5,000 credit card balance with a monthly minimum payment of $125, you could set up autopayments from your bank to help your loved one avoid fees and damage to their credit.
  • Lend them money. You could lend your loved one money with an interest-free loan to pay off their balances. High interest on credit cards can make paying off debt difficult, so this arrangement can help them get out of a debt cycle. If you go this route, write up a loan contract both parties feel good about.

The Bottom Line

Remember that while giving an outright financial gift can be an appreciated way to help a loved one get out of debt, there are other options for how to help. If your loved one is open to talking through their situation with you, simply providing a listening ear is a first step to providing support to a family or friend dealing with financial stress.

In addition, sharing financial resources, connections to free credit counseling and advice based on your personal experience navigating debt and building a budget can help your loved one get out of debt.