FINANCE
Can someone else pay off your debt? Here’s how it works
Yes, it is possible for someone else to pay off your debt on your behalf. But it isn’t as straightforward as you might think.
There are options available for getting friends and family to help you pay off a loan with their money. Dangers of someone else paying off your debt include the usual legal wrangling but another factor to consider is its impact on personal relationships, as money often does.
Examples in which you may need help with your debt include student loans and mortgages.
Your options for having someone else pay your debt are:
Direct Payment: The person who wants to help you can simply give you the money to pay off your debt. You can then use that money to settle your outstanding balances. The giver may have to report the payment if the amount exceeds the IRS annual gift tax exemption of $17,000 for 2023. More information is on the IRS website.
Gift or Loan: Another option is for the person to give you a gift or a loan specifically designated for paying off your debt. In the case of a gift, the money is given without any expectation of repayment. With a loan, you would need to establish clear terms regarding repayment, including any interest or repayment schedule.
Balance Transfer: If you have credit card debt, the person helping you can transfer your outstanding balance onto their credit card. This can be beneficial if their card offers a lower interest rate or better repayment terms. However, keep in mind that this option may involve fees or interest charges associated with the balance transfer.
Debt Consolidation: The person assisting you can take out a loan or line of credit to consolidate your debts. They would use the funds to pay off your existing debts, and then you would make regular payments to them instead. This method can simplify your repayment process by combining multiple debts into a single monthly payment.