Should You Ever Lend to a Friend?

Question: A good friend of mine is in a tight spot financially. I'd like to help her out, but I'm worried that lending her money might sour our friendship. Do you have any recommendations on how we can arrange a loan?  
Suze: Adding money issues to a friendship can result in an explosive situation, so I'm glad you wrote before you acted.   The first thing you need to do is determine why your friend is having financial problems. Is this a temporary state, or does she always seem to be struggling?   If financial panic is a recurring theme in her life, you need to understand that in most cases the problem runs deeper than a lack of funds. Sometimes people overspend to assuage feelings of inferiority or inadequacy. Or they run up debts trying to find happiness through expensive possessions. Others are never inclined to set aside money for unexpected expenses and are consistently flattened by them. Unaware of the true reason for their financial irresponsibility, people like this usually have difficulty changing their fiscal habits.   If your friend is always experiencing financial problems, any money you give her will just serve as a Band-Aid, and sooner or later she will find herself in dire straits again because that is where she feels comfortable. It's the place that, for now, defines her. Under these circumstances, I'd advise against helping her. The money will get in the way of your friendship: You'll begin to resent that she isn't paying you back; she'll feel indebted and guilty when she sees you.   If financial woes are unusual for your friend, ask yourself some additional questions:

• Why do I want to help her? If it is because you feel guilty that you are doing better financially than she is, do not make the loan. Your generosity will carry emotional consequences for both of you.
• If you simply want to help, ask yourself: Can I afford the loan?
• What would happen if she never paid me back? How would I feel?

If you cannot afford it, or if you are not willing to relinquish your hold on the money, don't give her a loan.   On the other hand, if your friend is ordinarily financially responsible and you are sure you won't need the money soon, draw up a loan agreement, detailing how much you are giving her, when exactly she will repay you, and whether both of you would feel better if she paid interest.   Or better yet, rather than loaning the money, consider giving it to her with the following conditions: that she accept the money as a gift of love, and that as her financial life improves, she passes the gift along to someone else who would in turn make the same generous gift to a person she knows. This way your money will help not only your friend but many people. It won't destroy the friendship, and your actions will create more abundance in the world. Your generosity will be worth its weight in gold.