Family members and friends are often sympathetic to our problems. When you find yourself in a tight money situation, often it is a natural reaction for your family and friends to offer help. Borrowing from those closest to you can often lead to problems.

You need to ask yourself three questions. Why? How? And what? 

Ask yourself why you need the money. You need to know how you will be able to pay it back and what you will do to keep this from happening again.

If you draw a blank on any of these questions, you need to realize that borrowing money can lead to resentment and the destruction of relationships. There are ways that you can minimize a potential bad situation.

Ask yourself what will happen if you don't pay the money back. Though someone might seem like it isn't a big deal to lend you money, it really is. Money has so many strings that it isn't funny. Many people have emotional issues when it comes to money, and others just can't afford to pay it back. These people shouldn't be lent to.

This sounds so simple, but so many people overlook it. PUT EVERYTHING IN WRITING! It doesn't matter if it is on the back of an envelope, write all the terms down. For example, all you have to put is that Joe is borrowing x-amount of money on this date. He will pay back y-amount every two weeks until the balance is paid off. The loan must be repaid by this date. Then both people sign it. It's called a promissory note and it protects both sides.

Make sure that you include several things. You want to have the names of the lender and the borrower, the date of the loan and the amount. The repayment terms include the date by which the loan must be repaid, the interest rate (not always necessary), the amount to be paid in how many payments and when the payments are to be made.

You aren't trying to create a legally binding document. You are simply making the arrangement formal. This can make each party more comfortable with what is agreed upon. And there will be no assumption that the money is a gift. Each party has proof of what has been discussed.

You won't have to worry about taxes if the loan is for less than $10,000. If the loan is more than that, make sure that you understand the tax responsibilities. Forgiven loans are often considered as taxable income.

If you are borrowing a large amount of money, treat the lender like the bank and offer collateral. You may even need to pay a fair interest rate. For example, if you know that your parents withdrew the money from savings, then you know that they are losing interest on it for the duration of the loan. It is only fair to make that amount up to them.

Make sure that everything is documented throughout the life of the loan. Keep the loan agreement and proof of repayment. If you pay with cash, make sure you get receipts. Just watch two episodes of a small claims court on TV and you will see the importance of all the paperwork.