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Why I Forgave a Big Debt

By Dr. Steve Sjuggerud
Monday, December 28, 2015

"Never loan money to your friends. It's a good way to lose your money... and your friend."
 
A friend of mine owed me a lot of money...
 
I gave my friend, Jack, a personal loan a few years ago as he was starting his own business.
 
As a financial guy, I take loans seriously. If you borrow, then you owe.
 
As a moral human being, you pay your debts, both financial and personal. Gotta keep the karma police away. Can't let the scales tip too far away from you.
 
Jack's business was promising. I was excited for him. But sometimes life doesn't roll the way you think it should...
 
In time, this debt loomed large over Jack and me. In our relationship, this loan eventually became the elephant in the room.
 
My brother (an attorney) wrote up the original loan properly, so legally I was protected. My brother filed a "UCC" with the state – in short, legally I could take Jack's assets (his collateral) to cover myself, as part of our loan agreement.
 
But the assets I could "take" (his patents) weren't really worth anything – to me, personally, anyway. Those were just collateral for a loan. I didn't want to use them to start a business like Jack did.
 
It was clear the loan couldn't be paid. Jack's business hadn't taken off yet.
 
Jack felt terrible about it. Meanwhile, I really didn't want to collect on my friend – and bankrupt him and take his patents.
 
What was I supposed to do?
 
Then I remembered something my grandmother told me a quarter of a century ago...
 
"Never loan money to your friends. It's a good way to lose your money... and your friend."
 
I never forgot that. (Well, up until Jack.)
 
I don't know where she came up with that nugget of wisdom. My grandparents didn't have a lot of money. And she wasn't known for her financial advice.
 
I assume she heard it from somewhere else... But back then, she said it with such authority, I felt like it came from her. And it sounded right.
 
I had forgotten Grandma's advice with this loan to Jack. But now I had a decision to make.
 
The money was already gone... At this point, the question is: "Am I going to lose a friend, too?"
 
I remembered Grandma's advice. And I forgave the loan.
 
I lost the money, but not the friend.
 
A loan shark – it turns out – I am not.
 
Then a surprising thing happened... I felt better.
 
The weight was supposed to be lifted off of my friend...
 
And it was. His debt was wiped out. Right out of the blue.
 
But a big burden was lifted off of me, too, in a way that I didn't expect.
 
I didn't realize it, but I had been stressing over this debt, too. And I felt like I was stuck in it with Jack.
 
Now, I am free, too, in some way. And I won't lose a friend. And I don't resent him for not being able to pay. It is simply reality.
 
My feeling here might not be morally consistent. But I am OK with that. Here's what I'm thinking:
 
1) I strongly believe morally in paying your debts – in fulfilling your promises.
 
2) I wiped out my friend's debt with me, breaking his promise to me.
 
3) Somehow, I feel a lot better.
 
While I "feel better," this is not something I want to go through again.
 
Next time, I'll remember this experience. And I'll remember Grandma's advice...
 
"Never loan money to your friends. It's a good way to lose your money... and your friend."
 
Don't forget it.
 
Good investing,
 
Steve




Further Reading:

A few years ago, Steve offered some guidance to those who are consumed by stress caused by money... "Everyone has money worries," Steve wrote. "Everyone tosses and turns (at least a bit) at night about money. The concern is when that 'normal' worry crosses over into a dangerous worry." Read Steve's advice on the matter here.
 
"Breaking the chains of financial slavery can be done relatively quickly," according to wealth-building expert Mark Ford. "The hardest part is recognizing the chains that are binding you and deciding to do something serious about them." If you're ready, don't miss Mark's essay on how he deals with debt... and his guide to achieving financial freedom in just three years. Get the details here and here.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Carnival (CCL)... cruises
Royal Caribbean (RCL)... cruises
Hormel Foods (HRL)... Big Food
Kellogg (K)... Big Food
Pep Boys (PBY)... auto parts
Stamps.com (STMP)... stamps
Nike (NKE)... athletic apparel
Chubb (CB)... insurance

NEW LOWS OF NOTE LAST WEEK
 
The bear market in commodities continues...
 
Anadarko Petroleum (APC)... oil and gas production
Continental Resources (CLR)... oil and gas production
Encana (ECA)... oil and gas production
Whiting Petroleum (WLL)... oil and gas production
Range Resources (RRC)... oil and gas production
Marathon Oil (MRO)... oil and gas production
Linn Energy (LINE)... oil and gas company
CARBO Ceramics (CRR)... natural gas fracking products
Nabors Industries (NBR)... oil and gas driller
Williams Companies (WMB)... oil pipelines
Cummins (CMI)... diesel engines
Kinder Morgan (KMI)... oil pipelines
Hess (HES)... Big Oil
Mosaic (MOS)... fertilizer
Rayonier (RYN)... timberland

premium teaser

How to loan money and earn 8.1% tax-equivalent yields today...
 
If you want to loan money today, loan it to state and local governments... That's the advice from my colleague Dave Eifrig right now.
 

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