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.
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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."
1. 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 instead.
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.
2. 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.
3. 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 or confrontation.
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 out.
4. 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 be cleared."
To avoid confusion, create a spreadsheet. "One way to monitor progress is with Google Docs," 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."
5. 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 Square 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.
6. 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."
7. Go public. 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.
8. 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 reading.
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 action.
You can DIY the demand letter by following a template, 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 Reischer.
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."