Should You Ever Loan Money to Your Kids? Dave Ramsey Says “No!”

• Parents giving informal loans with vague repayment terms create a hidden social cost that damages relationships.

• Personal finance expert Dave Ramsey advises against ever making a loan to a family member.

• Anyone can use the debt snowball method: Pay off smaller debt first, working your way up to bigger obligations.

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Megan from New Jersey didn’t expect a car accident to become a lesson in family dynamics. After the crash totaled her vehicle, her emergency fund covered the hospital bill, but her parents stepped in with a $5,000 loan for a used car. Her parents said pay them back “whenever you can,” but Megan said: “I feel terrible whenever I talk to them.”

That guilt prompted her to ask The Ramsey Show whether she should pay her parents back before tackling her existing debt: $25,000 in student loans and $5,000 on credit cards. Dave Ramsey’s answer went deeper than repayment order.

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Ramsey’s blanket position: “Parents should never, under any circumstances, loan their children money. If you have the money to help them and you want them to have the money, give it to them. As a matter of fact, you should not loan any relatives money under any circumstances. Period. If you’re not willing to give it to them, shut up.”

Family loans can create a hidden liability that no balance sheet captures: the ongoing social cost of an unresolved obligation between people who love each other. Megan’s parents aren’t charging interest, but the loan still costs her something every time she picks up the phone.

Informal family loans feel generous because they carry no stated interest rate and no fixed repayment schedule. In practice, vague terms can create more anxiety than a standard loan agreement. A bank loan has a payoff date. A parent loan has Thanksgiving. “Thanksgiving dinner tastes different when you eat with your master, and the borrower is slave to the lender,” Ramsey said. Co-host George Kamel added: “The interest payment on that is your relationship.”

In terms of repayment order, Ramsey advised Megan to follow the debt snowball method: pay off smaller debts before working your way up to the larger ones. Ramsey believes this approach generates psychological momentum. So first up for Megan are both her credit cards and the parent loan.

But even though she owes the same amount ($5,000) to each bucket, she should prioritize the credit cards since balances compound at rates that typically run well above 20% annually. The parent loan carries 0%. Eliminating the high-rate debt first is the financially correct move, and her parents will likely agree.

Megan’s immediate action is clear: build income aggressively (Ramsey suggests she look for extra part-time work), eliminate the credit card balance first, then pay her parents in full as quickly as possible. She should tell her parents the plan explicitly, including the timeline. Naming the repayment date removes the ambient guilt that poisons every conversation.

The deeper lesson is for parents in the next situation. If you want to help your child financially and you have the means, give the money without conditions or expectation of repayment. If you cannot afford to give it, say so directly rather than creating an obligation that will sit at every family dinner until it’s resolved. The relationship is always worth more than the loan.

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