What To Do When You're Asked For Financial Help

What's the toughest money question? It's the one that can't be solved with a calculator, or even by a smart accountant.

In fact, you may need the combined insights of a family therapist, psychologist and financial planner to find the answer when someone asks: "I need money. Can you help?" You want to help. But should you? And if so, how and how much?

With millions struggling to hang on to their homes, and lenders tightening their standards, more people than ever are approaching family and friends for cash.

Here, the wisdom of experts on how to reply to some typical requests

Typical reasons for a loan request

• The desperate plea

• The one-time, worthy need

• The lifestyle boost

The desperate plea

A friend confides that he's on the brink of losing his house. Or your uninsured sister is being hounded by a hospital collection agency after her emergency surgery. These might seem like desperate situations, but writing a five-figure check may not solve the problem. Money problems might be a chronic situation.

Some of the homeowners who come in for advice on how to avert foreclosure have already had friends and family give cash, observes Ronald Clarkson of the nonprofit Housing Counseling Services in Washington, D.C. Months later, it's as if they've never received help because they're missing mortgage payments again.

If you're asked to help with a desperate situation, probe to find the reasons behind it. "It calls for frank honesty," says Clarkson.

For a dire predicament that's due to ongoing money mismanagement, the best help you can give may be to suggest professional help to get a long-term fix. People in deep debt can look to nonprofit credit counseling agencies, and homeowners with mortgage-related trouble can go to a housing counseling agency.

If a single event, like a temporary layoff, gets someone into a hole, a one-time cash infusion can pull him out.

In this case, you may want to lend the money instead of making it an outright gift. But be prepared that it may not be paid back on time -- if at all. "I have heard from people who have made a big sacrifice to help a loved one, only to hear that someone is buying a TV or some other big item later, rather than paying it back," relates Elizabeth Schomburg, senior vice president of Family Credit Management in Chicago.

Lending to friends and family may be easier with a third party acting as a go-between, says Shomburg. Web sites like virginmoneyus.com can increase the possibility of payback. For a couple of hundred dollars plus a monthly servicing fee of $9, the Web site will make up loan documents and bill the borrower.

The one-time, worthy need

Perhaps you know someone who's struggling to pay her college tuition or who needs a few thousand more dollars to buy his first home. You'd like to help out, even without being asked.

Next: Ask yourself first if you can truly afford it. >

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