Helping out a family member comes naturally to most people. If an out-of-town relative needs a place to stay, you're more than happy to roll out the welcome mat and offer them a room and hospitality. But when a family member wants to use your credit card, you could be risking your financial future.
Letting a family member use your credit card is a decision that deserves careful consideration. Some of the things you have to think about are whether you trust your relative to pay you back for his charges, whether you can afford to pay for them if he doesn't, whether you'll need the available credit he uses and how his charges will affect your credit rating. If the answers to these questions make sense for your situation, you might feel comfortable lending your credit to a relative.
Sometimes you want to help a family member who has a cash flow problem, but you just don't have the money to do it. If you're under your limit on your credit cards, letting the person use your card to buy something or get a cash advance is one way to help. It's as if you made a short-term loan without dipping into your savings. As long as your loved one repays you on time and covers any interest or finance charges you incur, it can be a win-win situation.
The downside of giving a family member access to your credit happens if he doesn't pay you. Missing a payment can trigger late charges, raise your interest rate and drop your credit score, leaving you in the lurch if you have to pay his debt. The strain can also interfere with family relationships. Money adviser Dave Ramsey tells callers to his personal finance radio show that the Thanksgiving turkey tastes different when you're eating it with a borrower. Before you let someone use your card, realize that your relationship may change.
Documenting the arrangement with your relative can help you avoid misunderstandings later. If you put your arrangement in writing and both of you sign it, you'll have a clear record of what each of you agreed to do. Ideally, you'll be repaid in full and on time, but you'll also have the option to take collection action if something goes wrong. Otherwise, when your family member doesn't pay, you may just have to pay the bill yourself and consider the loan a gift.
Marilyn Lindblad practices law on the west coast of the United States. She has been a freelance writer since 2007. Her work has appeared on various websites. Lindblad received her Juris Doctor from Lewis and Clark Law School.