I concluded the regular quarterly check on people that owe me some substantial amount of money recently. If anyone has terrible experiences when it comes to loaning to family and friends, maybe you can pick something from the lending rules I personally set for myself.
I follow these guidelines whenever someone asks me for money and these have yet to fail me. Let's be clear here that this just works for me and it helps me sleep better at night despite taking risk of losses and actually realizing those losses over time. Below are the rules and the rationale behind, from experience
Lending Rules to a Happy Life
1 Never lend money you need.
If you're already having money problems yourself, there's no need to make it worse. You got bills to pay, rent due, and life to live. Everyone is ego-centric by default, it's their self interest they are looking out for whenever they want to loan, not your sake. So do yourself a favor and just focus on your stuff until you got some extra cash you don't need to lend out. People will tell you all the sad sob stories and guilt trip you into shelling out cash for their sake. Remember, it's for their sake and not yours. The point that you are already in need of the money yourself should be enough to make you say no in the first place. Be ruthless with your rejections if you have to. Be a bank, do you think banks will lend you money if they are short in reserve cash themselves? they also have a business to run, learn from them.
2 Never lend to people about to get "bankrupt".
I don't usually ask where people intend to spend the money on as I prefer to keep personal info to a bare minimum but I know I should. Anyway, as the lender, trying to brown nose where the person plans to spend the money on is always a good idea and knowing what made them come to you for money in the first place. If they have been racking in debt and acquire more debt to pay their existing debts, there's a good chance that you're also not doing them a favor by tolerating their self destructive cycle. Know they have a bad spending habit? know they have poor social credit score among peers? know that they have no means to pay you back in a realistic way? there's your answer, just say no. Banks loan money to people after figuring out their magic credit score, it turns out if you lend money to people having the ways to pay you back in due time, you sleep better at night. How people lend money to peers knowing that their peers have no feasible ways to pay them back but use that good faith as collateral is the reason why a lot of money problems exists. Bad debts can be caused by bad lenders too.
3 Never call it a loan if you break rule 2.
Seriously, what's the point of loaning the money out if you already know it's likely never coming back. You call that charity at this point. There are times when I get back what was owed to me on days when I least expect it but if there's no interest attached to the payment, the magic isn't there. There are opportunity costs in parking your capital here and there. Unless you specifically mention that there's no interest attached, money owed to you that gets repaid is just money devalued when it comes back. Having no interest attached already means you're fine with the amount getting devalued once received in full, that's charity in my book.
4 Never chase the defaulter.
I only do reminders but never go out of my way beyond that. If I get blocked online or ignored, that concludes the story. Listen, the amount of energy extracting the money from the person that owes you would probably cost you more of your mental health and other resources than you initially hoped to gain. You should've controlled the losses first by allocating an amount you're comfortable losing in the first place much like imagining you invested in something and it came out in a dud. People are no different really, you invest in good faith and their business with you becomes a dud. Only lend the amount you are comfortable losing in the first place and assume the worst scenario that you'll never see them again after they got what they want from you. It's a pessimistic way of looking at relationships but this is what makes me casually sip my coffee in the morning after learning I got blocked. The more you chase the more it hurts and the people that ran away from you are just going to make it harder for you. There's no need to do further business with them and just move on with the losses.
They could have loaned a higher a mount from you in the future because their credit scores with you were good but instead they opted to default. I got people who I could've loaned more if they had a good track record and would go out of my way just to make it happen because I like them but shit, for an insignificant amount, they just had to use up the social bonds as collateral and poof. I tell you that money is just a vehicle or symbol of value, if they had to make it a challenge to give you your due, they just don't respect you enough I guess. Give up, avoid drama, move on. You only lose the if you chase someone that doesn't want to keep a good relationship with you and money was just a litmus test of the quality of social bonds. It's not you, it's them.
5 Never owe anyone beyond your means.
Not my lesson earned but I learned this from someone else that paid the tuition. I hear stories of people being guilt tripped so easily into shelling out some cash over favors they enjoyed in the past from others. The hard part of reciprocity as human nature is that it tricks you to loosen your grip over your money because it's for the sake of the good times. Ideally, you shouldn't just accept free handouts from people and be prepared to offer something of equal value in return. The greater the gap in the perceived value owed, the harder it is to say no when someone asks for money from you.
6 Never take it personal.
There's family and friends and then there's business. It may be a cultural thing but if I owed anyone money, I insist on a set interest and will set the interest if they insist none of it. I accumulate some good debts and pay back more than what is expected if reasonably possible. If I lend someone without an interest, it's just my love language. But if there's an interest attached, it's all just business and nothing personal. Some people will take offense at this idea and I get it but listen, money gets devalued over time. When you lend out value and it comes back to you without an interest, you just assumed some opportunity cost. You could have spent that money on an investment but chose to lend it out to a family or friend assuming all the risks of default but none of the rewards.
7 Never get pushy.
Even when it's long overdue and well deserved that you get frustrated, just be chill at asking if there's something to expect from them. There's a chance they have their finances whacked, going through something and all the sad excuses out there. The end point is it's a no + excuse response. Being pushy about collecting isn't going to do you both a favor, the other party gets defensive and the you just get more frustrated. Remember rule 4. I just ask and then if there's nothing they could do, you leave the mental work on their end to come up with the plausible excuse to say no and then move on. Not yet available? sure, I'll just follow you next time. Perfectly chill, why? rule 1, it was money you never needed and are willing to let go.
I still got people that owe me and I just follow up monthly, quarterly or every 6 months. Why? because rule no. 1 and having a long term point of view of things.
Thanks for your time.