At a Glance
While managing your own finances is almost always recommended, it can be tempting to pass off your debts to someone else who may be able to pay them off faster or easier than you. On the other hand, you may be a friend or family member watching as a loved one struggles with debt, resisting the urge to help.
While you can pay off someone else’s debt, it’s important to use discretion. There are several things to keep in mind and do to protect both yourself and the borrower.
In this article, you’ll find more information, including:
Can someone pay off my debt?
If you’re struggling with debt from a student loan, medical expense, or just a poor purchase made on a credit card, and have a friend or family member who will help, they are able to do so if they choose. Options the friend or family member has include:
- Gifting you funds on a monthly basis so you can make payments toward your debt
- Gifting you the full amount you owe so you can pay off the debt in full
- Loaning you funds on a monthly basis, or in full, so you can pay off your debt but then repay your friend/family member interest-free over time
- Make payments directly to the loan provider (depending on the debt)
Before asking someone for money or to help you financially, try asking for advice first. Start the conversation, and be honest about your situation and needs. Be sure to choose the right person, who is someone you trust and also trusts you. Don’t over-negotiate or ask for too much, and instead be flexible and understanding of their situation and willingness to help.
Once you work out a deal, write it down and work out a realistic repayment plan. Finally, be sure to thank them for their help and show your gratitude.
Can you take on someone else’s debt?
The short answer is yes, you can take on someone else’s debt in a variety of ways depending on the type of debt.
You can gift the person the money so they can pay off the balance in full and don’t have to worry about paying you back. Or, you can loan them the money and create an interest-free repayment plan so they can pay you back over time. You can pay off their debt using a credit card, by giving them cash, or by taking out a personal loan for yourself.
Bottom line, there are many ways you can pay someone else’s debts for them. Here are a few of the most common types of debt and tips for helping to pay it off.
Paying off someone else’s credit card
In 2020, there was more than $756 billion in outstanding credit card debt in the U.S., and more than 95% of adults have a credit card account open in their name. The average balance held is more than $5,000, though that varies by age.
When you decide to pay off someone else’s credit card debt, you have a few options. First, you can gift the borrower enough to make their minimum monthly payment on the card, which helps prevent fees. Or, you can pay off the entire balance in full for them. Doing this as a gift means you don’t expect the person to repay you.
Another option is to give them an interest-free loan so they can pay the card off in full, and then repay you over time. Finally, you can pay the creditor directly, which ensures the money is applied to the credit card account.
Paying off someone else’s student loans
The average federal student loan debt is $36,510 per borrower, while private student loan debt can reach nearly $55,000 on average. More than 45 million people have student loan debt and the amount explains why it can take years to pay off.
If you want to help someone pay off their student loans, you can gift cash to the borrower so they can make the payments themselves. You can also give the borrower a monthly gift to put toward their monthly payment, or you can help them pay off the loan in full.
Another option is to become an authorized payer on the loan. Many student loans have the option to add another individual as an authorized payer so you can make direct payments to the loan, or you can use a third-party student loan payment service to do this.
Paying off someone else’s car loan
While you could take over someone else’s car loan, it’s not simple. It’s better if you can give the person funds to help pay the loan instead.
By taking over the loan, you’re essentially purchasing the vehicle and would need to transfer the title and registration into your own name. There may be restrictions or policies on transferring the original loan, so be sure to read all of the fine print and work closely with the lender. This will also impact your credit score, and if you don’t have great credit, this may not be a good or viable option.
If you can’t take over the loan, it may be better for the borrower to refinance the loan, which they could do in your name. In some cases, it may make the most sense for the borrower to sell or trade-in the vehicle for something cheaper to make the loan more manageable.
Pros and cons of paying off someone else’s debt
It can be difficult to see a loved one struggle to pay off debt, regardless of if the debt is because they made poor financial decisions or faced circumstances out of their control. If you have some extra funds and want to help, you can. However, there are pros and cons to doing so that you should consider first.
- Helping a loved one. It’s not easy to see a friend or family in financial trouble. Fees, high interest rates, and debt collection agencies are just a few of the downsides they may face due to debt, which can lead to physical and mental struggles on top of everything else. Helping financially can allow them to stay afloat and give them a chance to get back on their feet
- Offering a fresh start. Becoming financially secure isn’t always easy, and it’s common to make mistakes as an adult child learns. By stepping in, you’re able to help them pay bills and make ends meet while protecting their credit score and giving them a more stable financial future.
- Protecting yourself. If you’ve co-signed for a loan or credit card, it’s important to pay off that debt to protect yourself and your own credit score. All activity on those accounts, including missing payments, appears on your credit report and you’re responsible if the other person doesn’t pay.
Related: Credit Card Payments
- Getting yourself into debt. Paying off or taking on someone else’s debt can lead to your own financial challenges, especially if you take out a loan or additional debt to help them with theirs, or if you empty your savings account leaving you with nothing to fall back on. This can also impact your credit score, which can make securing finances in the future a challenge. If you use your emergency fund or retirement savings to pay off someone else’s debt, this can have a long-term impact on your financial security.
- Enabling. If you pay off your loved one’s debt for them, they aren’t learning how to be responsible with their own finances. They may not have to become better at planning, spending, and saving appropriately, or learning other financial skills they need to be secure in the future.
- Ruined relationships. What happens if your friend doesn’t pay you back? Is there a chance you’d ever resent that person for involving you? Does your spouse feel differently about you helping relieve someone else’s debt? Make sure you feel confident in the answers to these questions before sharing your funds.
Tips for paying off someone else’s debt
If you do choose to pay off someone else’s debt directly or give them money to pay it off themselves, there are a few things to keep in mind to protect yourself and ensure your help is used for the right thing.
- Commit. If you agree to pay off someone else’s debt, you’re taking on a huge commitment. You’ll want to make sure you’re both mentally and financially ready to make the payments or provide the funds until support is no longer necessary.
- Learn more. Before giving someone money or paying off their debt, go over their income and expenses together. If they aren’t willing to do this, it could be a reason for you to reconsider giving them money. Help them pinpoint where they are spending and where they can cut back. Perhaps help them make a more reasonable budget.
You may also want to understand if you’re taking on new debt, or helping with an old one. For example, are you providing funds to pay off a credit card, or co-signing a new loan?
- Create a payment schedule. You should create a timeline for getting someone else out of debt, including when you’ll make or give payments and when they need to make payments. Be clear about how much you’ll be giving to help. If you expect the borrower to pay you back, outline a repayment schedule and amount.
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- Write it down. Protect yourself by writing everything down. It’s better if it’s a legally binding document created with help from an attorney. Be clear about how much is owed, the timeframe for payment or repayment, and whether the funds are a gift or a loan.
- Compromise. If you don’t want to just give the person money, help with a compromise. Perhaps you can co-sign a debt consolidation loan, help them find a new job or start a side hustle to earn extra income, or research resources to help them pay off their debt faster.
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Is paying off a debt considered a gift?
If you don’t expect repayment, anything you give to a person or even a third party, such as a credit card company, can be considered a gift by the Internal Revenue Service (IRS). Their definition of “gift” is transferring property or money to someone else without receiving the full value, or anything, in return. You’re able to give up to $15,000 per person each year without paying taxes on that gift. More than that and you’ll have to pay a gift tax. The exception is if you pay off your spouse’s debt, regardless of the total.
Can you pay off someone else’s credit card with a balance transfer?
A balance transfer is when you take a credit card balance from an existing, high-interest card and transfer it to a low-interest card. The lower interest rate will help you save money on interest in the long run, and some of these cards come with no annual fees or 0% introductory APR. If you have great credit, you can apply for a balance transfer card and can work to execute the transfer with the card issuer.