For once (or once again), a pal was in a bind and turned to you
for help. Sensing urgency, you agreed on the condition that they'd
repay you by a specific date, and that deadline has long since
lapsed. Your frustration is growing as fast as the excuses.
When those borrowers follow through with repayment as promised,
great. But when they don't, what do you do?
Here are eight ideas on how to inspire payment without having to
file a civil suit or presenting your case to "Judge Judy."
Re-clarify that it was a loan.
A borrower may conveniently consider your loan as a gift from
heaven. According to a 2012 study published in the Journal of
Economic Psychology, "
Lenders' Blind Trust and Borrowers' Blind Spots
," borrowers tend to rewrite history and view loans as a gift
Step forward and approach the debtor with a reality reminder.
"Hi Jane, we need discuss the money you borrowed," you might begin.
"You promised to repay me a month ago and I need it now."
The fact is, Jane may be splurging on pedicures because she
believes she doesn't owe you a penny, so it's important to speak
up. Then, after the clarification, escort her to the nearest ATM
and be done with it.
Create a post-loan commitment.
It's always wise to make personal loans official with a written
contract prior to handing over the money. But even if you didn't do
it then, it's not too late now, says Dominique Reese, a personal
financial coach in Los Angeles.
"Call it a good faith agreement, though," says Reese. "It takes
the stigma out, lessens the negative tone, and makes it more
approachable for both parties."
On a sheet of paper, write the amount of the debt and an
agreed-upon payment schedule. Both of you should sign and date the
agreement. This document emphasizes the seriousness of the
situation, which can prompt the person to do the right thing.
Deduct the arrearage internally.
If the person doesn't have the cash available now or in the
conceivable future, you needn't give up and eat the loss. Consider
deducting it passively, as Karen Robertson, a retired teacher from
Wildomar, California, did.
After a longstanding employee came to her for a $1,500 loan, the
woman never followed through with the expected repayments. "Rather
than bring it up now, four years later, I'm going to figure that
she hasn't had a raise in the 15 years she's worked for us, so that
is her raise," says Robertson. Done. Loan satisfied, without fuss
If the person who owes you money doesn't work for you, but does
come through with favors and assistance in other ways, assign a
dollar value to the efforts. Keep a mental tally of each deduction.
Little will he know he's whittling down the debt as he helps you
Allow them to work it off.
Employment can also be totally upfront. If the borrower truly wants
to pay you but doesn't have the means to do so, present the
opportunity to work off the balance.
It need not be an indentured servant situation, but a fun and
positive arrangement. For example, if you're a new mom and could
use a hand, maybe your borrower can run errands or baby-sit. Be
respectful and professional. "Put a fair worth on their time," says
Reese. "Together, decide on tasks and an hourly rate. Then, at that
rate, break down the number of hours it will take for the debt to
To avoid confusion, create a spreadsheet. "One way to monitor
progress is with
," says Reese. "It's online and in the cloud. You can create a
spreadsheet with dates, hours, and the declining balance that both
of you can check anytime and anywhere."
Prepare to swipe.
"The check is in the mail" is such a common delay tactic it's
become a joke. Yet it's not the slightest bit funny when you're
checking your ever empty mailbox. Worse, when you bump into the
person you lent money to, out come cliches: "It never came? My
letter must have gotten lost. I'll write another. I don't have my
checkbook though, so I'll do it tomorrow ..."
Rather than nodding and feeling like a chump, seize the moment
and whip out your
reader. Invite him to swipe his debit or credit card on the spot.
The cash will be deposited into your account in seconds. The device
is free, and while you'll be charged a fee (currently 2.75 percent
of the transaction), you might consider it a small price to pay to
lay the matter to rest.
Suggest moneymaking alternatives
. It's normal for stressed out borrowers to feel so overwhelmed
that they shut down intellectually. Emotions take over and all they
see are problems but no resolutions. For this reason, Reese
recommends stepping in to open the flow of ideas so they recognize
all the cash-flow or moneymaking options that do exist.
Perhaps the borrower has property he doesn't need or want.
"Suggest that person sell some of their valuables such as shoes or
purses or watches," says Reese. "They can use eBay or Craigslist or
sell to people they know." Brainstorm with your debtor.
A "payback party" is another creative alternative that can bring
in the funds. "This is the strategy I took when I loaned my uncle
$400, and he didn't pay me back until over two years later," says
Reese. "He was having a birthday party, and I suggested that
we charge an admission fee so that he could pay me back. He agreed.
I got my money back in full that night."
Not so friendly anymore because you know the person has the cash,
but is simply avoiding you?
You might want to tell him that you need the money for your own
expenses. If he doesn't make good on the loan, you'll have to get
assistance from someone else. At that point you will be forced to
reveal details about the circumstances. His dirty financial secrets
will then be exposed.
"Most people are ashamed of debt," says relationship advice
columnist April Masini. "If you enlist help from family and friends
to get the loan paid back, and the debtor realizes that this is not
just entres nous [between us] anymore, they may pay you more
quickly to get their name and image out of the gossip mill."
Embarrassment is a powerful tool, and not to be used lightly.
Wield this weapon as one of your last resorts.
Send a demand letter.
If all else fails, it's time to get tough. Write and send a legal
demand letter. Matthew Reischer, CEO of LegalAdvice.com, says it is
often an effective way to get someone to pay up at first
A legal demand letter summarizes the original circumstances of
the lender-borrower arrangement, the balance due, when remittance
was promised, and what you will do (typically a lawsuit) if you're
not paid by a certain date. Include any evidence (such as
promissory texts and emails) and send the package via certified
mail. Such a notice can be frightening enough to spur immediate
You can DIY the demand letter by following a
, or if the sum is large, hire an attorney. "Demand letters that
are written by lawyers are particularly persuasive in convincing a
debtor that legal recourse is seriously contemplated," says
Few people want to drag a friend or relative to court over a
delinquent personal loan. Approach it correctly and kindly and you
probably don't have to. Still, talking about it can be awkward, and
it's normal to feel guilty. You may fear being perceived as greedy
or unsympathetic. Stop. You're not. "When a bank asks for a loan to
be repaid, or tacks on a finance charge for a late payment, it's
not being mean, it's just taking care of business," says Masini.
"And when you ask for a loan to be repaid, you're not being mean,
you're taking care of your own bottom line."
Sample promissory note for loans to family,
Lending to friends and family: Your 4-step