Editorial Policy

Helping Friend Leads to Credit Card Debt

Erica Sandberg

July 30, 2013

QDear Erica,

I stupidly loaned a friend $500 from my credit card because she told me she and her baby were desperate. She is not paying me back now, and she is not answering her cell even though I know she's living with a different friend who is taking care of the baby and is doing fine. Now I owe $500 and counting. How can I make her pay? And how can I protect my credit?  — Ed

AHi Ed,

It's one thing to see an adult struggle, but it's quite another to know that a small child is suffering. You did what many compassionate people would do in that situation, which is to help out financially. However, all too often, these good deeds are unrewarded.

Because you can't go back in time, focus on the future. Here's what you can do.Ask Erica

1. Attempt to get repaid. Assuming you're able to track this woman down, try to appeal to her sense of honor. “I lent this cash to you on good faith,” you could tell her. “You promised that you'd repay me and I need it back. I can't afford to be out this much money.” If she continues to show you her empty pockets, offer the opportunity to accept installments. While not ideal, it can be a way for you to form a binding contract. Type out a letter that specifies the following:

  • The total amount of the debt
  • The date of the initial loan and the date the letter was written
  • Names of the lender and borrower
  • The amount she's to pay on each day of the month

Have your friend sign the document, and start to collect. If she refuses this arrangement or accepts but still doesn't pay, you're in for a fight — if you are willing to jump into the ring, that is.

I'm sorry to say that forcing the matter won't be easy. You can sue her in small claims court (and if she signed the contract above, you probably have a decent case), but don't expect a swift, Judge Judy–like resolution. These lawsuits can be a pain in the neck, and for $500, it may not be worth your effort. But if you do try, you might win. If so, you'll be awarded a judgment, and the debt will be a matter of public record, as well as be a black mark on your friend's credit report. The judge may even let you claim a portion of her wages. Leaning in the legal direction? Tell her. It could inspire sudden recompense.

2. Preserve your credit rating. Whatever you do, continue to make payments to your credit card issuer. You didn't say whether you simply bought $500 worth of stuff she needed on your card, or if you took out a cash advance. If it's the former, the minimum payments probably won't be more than $25 or so. If it's the latter, you've racked up a few cash advance fees, and your interest rate on the debt will be much higher. Either way, sending the minimum in on time will protect your credit from damage.

It's important for you to recognize that the debt is yours, as you were the one who took the money out of your account. You are obligated to pay it. If your friend does end up giving you what's due, apply it to the balance and be done with it.

3. Never be in this position again. Odds are that you'll again be faced with a loved one who comes to you with a hard luck story, asking for a loan. What will you do differently? Here are your choices:

  • Say no. Instead, offer some other type of help, such as assisting with a resume or giving advice on budgeting.
  • Say yes. Draw up a contract similar to the one above. Never borrow against your own credit for this, however. Only lend money that you have and can afford to lose.
  • Just give. Want to keep a friendship intact? If you have spare cash, consider gifting it instead of lending it. This way you won't ever have to act as a debt collector again.

Got a question for Erica? Send her an email.