I lent my friend money and she will not pay me back. What do I do?

Dear Liz,
A friend of mine was in some financial trouble a little over a year ago and I loaned her a fairly substantial sum of money to help her stay afloat. She promised she would pay me back within a year. Needless to say, that didn’t happen. She has good reasons why, but I’m beginning to lose patience with her reasons. So far, she has paid me back nearly half of what she borrowed, but I feel I have to rattle her cage relentlessly to remind her before she gives me any money. After months of this, I’m beginning to feel like our friendship has been irreconcilably broken, and also that I might be out a few thousand dollars that I’ll never get back. Is there anything I can do to have this have a happier ending? Or is this going to just be an expensive life lesson I would prefer I hadn’t learned this way?
– Poorer and Wiser

Dear Poorer and Wiser,

Here is the hard truth that isn’t going to feel good to read: there really isn’t much you can do.

Once money enters a friendship, that friendship is not likely to ever be the same again. You can prod, gently remind, even try to help your friend help herself, but ultimately, you’ve got say goodbye to that money and let it be a super tough life lesson learned.

Before lending money to friends there are few things to keep in mind to help prevent a rift in the relationship.

  1. Are you OK with not ever seeing that money again? Because the likelihood of being paid back is slim, according to a survey reported in the Chicago Tribune, more than two-thirds of loans between friends are not paid back. So think carefully before you hand over your cash.
  2. Put the agreement in writing and make sure to include interest. By making a loan a business transaction with a paper trail then you are sending the signal that you take this very seriously and that the other party should too. It also means that if you’re lending a substantial amount of money, you can get some legal protections should it ever come to that.
  3. Has your friend exhausted every single option before turning¬†to you for a loan? Remember, if they are asking you for money then you have a right to ask them how they have handled their situation so far and how they intend to pay you back. I mean, if they can’t figure out their money problem now, how will it get better with your help? Ask your friend for details.
  4. You can say no. You could say something like this: “I am really sorry that you’re having financial problems and I want to help you, but I’m not comfortable lending out money. Are you open to discussing ways in which we can work together to help you raise the funds you need?”

I hope your friend pays you back and that your relationship can weather this kind of uncomfortable¬†storm. Remember, even if this friendship situation blows up, you can protect yourself in the future so that should you ever decide to lend money to a friend (don’t do it!!) then you’ll have a plan in place to protect both your wallet and your heart.

Good luck!

~ Liz