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This is a post by BargainBabe.com writer Yazmin Cruz.

With the economy in the hole and job losses mounting, many people could use extra cash – and may ask turn to friends and family for a loan. While some people regularly accept money from parents, others may be asking for the first time. This is a sticky situation.

“There’s the potential for personal problems and financial trouble when it comes to lending to those close to you,” states a recent USA Today story. “Experts advise you to treat the deals like the business transactions they are.”

I agree. I would have to be in a real pinch with no other possible solution in sight to ask for a loan from my family, partly because I have seen the other side. My parents have been the lenders and family ties have been broken because of money. The USA Today story advises how to avoid personal problems. My advice is simpler – don’t do it.

If you are considering loaning or borrowing money from a friend or relative, however, here are five suggestions to protect yourself and your relationship.

1. Make it your last resort – Before asking for a loan from a friend or relative, try cutting costs by saving on eating out, cutting out unnecessary utility bills, or getting a second job. If you are the lender, try to help the person by helping them find a second job or being helpful without expecting anything in return.

2. Put it in writing – As the USA Today story suggests, treat it like a business transaction and write out a contract making sure both parties understand the terms of the agreement. Include what the interest rate is and the payback terms.

3. Consult a lawyer and tax professional – Make sure to run the contract by a lawyer to make sure the terms are legally binding in your state and a tax professional to figure out the appropriate interest rate for the amount of the loan.

4. Be honest with your lifestyle – While the loan is outstanding, make sure you are not living a life of luxury as ill feelings may be stirred up in the person that loaned you the money. Life a simple life and don’t go into more debt until the outstanding loan is paid off completely.

5. Mum’s is the word – Awhile-back Bargain Babe wrote about helping out a low-income friend and spoke to an etiquette expert who said one of the no-nos of giving to a friend is telling others about your generosity. Keep it on the down low because the recipient might not want others to know.

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I pay $63.15 each month toward my student loan, a massive balance I (only) have cut in half since graduating more than 10 years ago. My interest rate is 2.625% and I currently earn .50% interest in my checking account. Should I pay off my loan?

Here are the options, as I see it.

Yes. The student loan interest rate is higher than what I am earning in my checking account. The money in my checking account is growing so slowly it doesn’t make sense to keep it on hand when I could reduce a debt that carries a higher interest rate.

Current CD rates aren’t much better than my .50% checking account, even for long term deposits, which tie up my money. I have enough to cover the remaining loan balance – a few thousand dollars – without depleting my savings.

Paying off the remaining balance may improve my credit score by having less debt on the books. With the economy still slagging, paying off debt is a better strategy than investing in the stock market (though I am still maxing out my Roth-IRA and contributing to another retirement fund).

No. My interest rate has dropped steadily over the years as reward for never missing a payment, so it’s possible that the rate will continue downward. I’m aware of a checking account with a significantly higher interest rate – 3.5% – so my time would be better spent researching and opening a new checking account.

In a fragile economy, it’s a good idea to increase my emergency savings balance because recovering from a financial loss could take longer than normal.

Maybe. Increase my monthly payments to pay it off more quickly, accruing less interest over the life of the loan. This solution allows me to keep the bulk of my savings on hand in case of an emergency or if a better opportunity comes up.

If the interest rate on my student loan were significant higher, say 6% or 7%, it would be easy for me to decide. Because it is only accruing interest at 2.625%, a seemingly low rate, I’m stuck. What would you do?

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I’ve been feeling generous towards a low-income friend lately. Not that he needs any help, but I am able to give it. I’m not interested in giving this friend a loan, but I’m considering subsidizing various activities with him, like picking up the lunch tab or treating him to a movie.

The prospect of giving gifts to a friend outside of Christmas, birthdays, and special occasions makes me nervous. Is this even appropriate? Will I hurt his pride? I called etiquette expert Nancy Mitchell for tips. Here’s what she advised.

What are the rules when it comes to giving gifts to friends?

I think the number one rule is to know the friend and know how to proceed. Would the person be wiling to accept things or is the person extremely proud and you’ll have to use subterfuge?

Let’s start with the person who may be very proud and not be willing to take what they think is charity. You can call them up and say, I got a gift certificate to a restaurant or theater. I would love to have you come with me, are you available? They might not have to know you went out and bought the gift certificate yourself.

Or say, Someone gave me two tickets to the hockey game. Would you like to go? If you had a friend who had children, give child care once and a while. I’d love to babysit sometime. Can I babysit and give you an evening out? Or say ‘I’ve got too much of a certain product. Pass things on, share some of the wealth. Offer to share frequent flyer miles.

Is it ethical to give gifts like this to friends who, if they knew the whole story, would say no?

I think it is because you don’t have an ulterior motive. You are giving from your heart and you are showing great sensitivity to someone’s situation. It’s not going to hurt anyone, it’s going to help.

What are the no-nos of giving?

You would never let anyone in on the secret. It’s between you and whoever is the recipient. Because if the cat got out of the bag there could be some hard feelings.

What about if your friend is open to receiving gifts?

Then you could say something like, I got a bonus. Or I got a tax refund. I would love to share it with you. There’s a new restaurant I’d like to go to. Would you be my guest? I’d love to take you because I don’t want to go alone. Just go and pick up the bill. They may say, Can I leave the tip? You should say, Yes. Then say I can’t thank you enough for coming with me. I really wanted to go to this restaurant and I didn’t want to go alone.

What are other ways you can give?

It’s not always money. It’s not always writing the check. If you have two cars you could offer them the use of your car during a period where they had lost their car. Maybe they need something for their house. I know your cat just ruined your rug. I would love to replace that for you as an early Christmas or birthday present.

How should you interpret comments from a low-income friend when they  mention things they want?

That can be kind of sticky. It depends. If they are fishing for an offer you have to be careful to not open the door. Read signals you get from people. If it is an outright request for something you can say, I can’t help at this time.

How does this minor giving change a relationship?

I don’t think it is as dangerous as borrowing money. Borrowing money can really change a relationship because if a deadline comes and goes you start avoiding them or they start avoiding you. Standalone gifts are a little different. I don’t think that spoils the friendship, but it’s about how you offer. No one wants to think you think they are the poor relation or the charity case. People are proud and they don’t lose that when things get tough. But in many cases they’d love an evening out. It’s just the way you say it.

What if they say no?

If someone turns down your offer after the second or third time stop offering. Because then you’re getting signals that they don’t want to go there. So just accept it but don’t cut them off. If you have extended some of these gifts or opportunities, never ever throw it back at them. Never feel like they owe you something. You should give out of the goodness of your heart.

Related: My previous interview with Nancy was about getting out of pricey social commitments.

UPDATE: Reader Jenni has a warm heart. Here’s how she helps out a friend:

I have a dear friend whose husband works in the hi-tech industry, and has been in and out of work the past 10 years. (currently out of work, actually)… I send her corny cards periodically, with a $50 gc to Trader Joe’s, that say “Happy Groundhog Day” or “It’s time to pass it on” day or “Happy Watermelon day”, or something like that (there’s always a celebration somewhere!). Her hubby wouldn’t accept it if I just gave them money, but the gift card and ‘celebration” makes it more “okay”, and they have 3 kids to feed. I would do more if she asked it of me!

alancleaver 2000/Flickr

My friends at AOL’s Lemondrop blog (I blog for AOL’s WalletPop) wrote a helpful article about how exactly to pay off high-interest credit card debt. I don’t carry a balance and I found this article fascinating. The story offers five approaches to paying off the debt, some of which might help you.

Her sitch: In June 2008, Tiffany owed $14,611.47. She’s managed to chip away at the balance by using gift money, tax refunds and watching her spending, but she still owes close to $8,000, and she’s not sure what else to do.

“I don’t have any real system,” she says. “I tried fun Excel spreadsheets and advice from friends, but nothing really panned out. In the end, I just kept throwing any money I could at it, from $50 to $200, as often as I could. But I’m hoping to move in the upcoming months, so I won’t be able to set much aside to pay off the debt. Help!”

How’d she rack it up? Tiffany lives in a college town and has had trouble committing to long leases, so she’s moved five times in as many years. “Every time I moved, I would put extraneous costs on the credit card, telling myself I’d pay it off right away,” she says. “But one new thing always leads to another when you move into a new place.” On her expense list: paint, shower curtains, rugs, cleaning supplies and lots of takeout food. “It always caught me off guard when it added up,” she says.

The glitch: Tiffany has plans to move to New York City in May, where she’ll look for another nonprofit job. Currently she works for a women’s transitional home and brings home about $1,750 a month after taxes. She expects to make $35,000 to $45,000 in a similar position in New York. “What I make now is barely anything, and in general the pay isn’t great for nonprofit work,” she says. “Having a salary that can just wipe the debt away is unlikely. What do I do?”

The expert’s take: First of all, the fact that Tiffany has shaved more than $6,000 from her balance in less than two years is fantastic. But her plan to move to the Big Apple with $8,000 still hanging over her head raises th e eyebrow of Boston financial planner Cheryl Costa. “I would suggest she look long and hard at whether she can afford the move to New York,” Costa says. “Does she have an appreciation for how much it will cost her to live there? If she makes this move, it may take forever to pay down her debt.”

Keep reading to see what five steps the expert recommends for Tiffany.

Generally, depreciation is based on market demand for a vehicle Ferrari, for instance, is known for carefully selecting its buyers and then producing a limited number of its models to keep demand in the marketplace high. Popular extras will often help boost a car’s resale value while positive press (such as good safety ratings) and endorsements can also have an impact. Outside of these influences, there are a few overarching tips to consider so you can actually “get what you pay for”.
When it comes to vehicles, which cars tend to depreciate the quickest?

New vs used
The saying is true, a new car depreciate the second it is driven off the lot. Generally, new cars depreciate the most in their first year losing about 20 percent of its value in those first 12 months. Thus, many buyers will purchase “near new” vehicles and last year’s model as they tend to have hit the brunt of their first year’s devaluation.

Fuel Economy
These days, fuel economy is one of the most desired traits and many petrol guzzlers will find the values of their cars plummeting faster than they can refill their thirsty tanks. Recently, diesel cars have been in higher demand for their fuel economy and small efficient vehicles have also retained much of their value.

Bargain Basement Prices
Wonder why certain models seem like such a great value at the end of the year? Many dealers do their best to push through less popular stock at the end of the year to help clear out their inventory. If a model is nearing the end of its production line with many unsold vehicles on the lots, chances are they’ll experience some falling price figures in the next year.

Top Depreciating Cars
Meanwhile, Australia’s CarsGuide has released its list of fastest depreciating vehicles, with the Ford Falcon topping this list retaining just 47.9 percent of its value after two years. As noted above, large cars have been hit the hardest in the resale due to higher petrol consumption. Meanwhile, the Honda Civic Hybrid performed the best when it comes to depreciation, losing just over 12 percent of its value after two years. For more information on vehicle financing for a used or new vehicle, visit GetApproved.com.au for expert advice and competitive financing options.

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The first change, called income-based repayment, allows lenders to cap payments at 15 percent of the borrower’s income.

The old system had most students on a standard, 10-year repayment plan. If you consolidated, that would extend to 15, 20, 0r 30 years. The new repayment plan is based on income and is especially helpful for people who go into low-paying jobs, like public defenders, or take positions at non-profits or with the government.

To get into the 15 percent program ask your lender for income-based repayment. For many people, the 15 percent program will be the lowest payment option.

The second change is for people who take public service jobs for the government or a non-profit.  The program is called public service loan forgiveness. If you work at a public service job while making your student loan payments, (including the 15 percent program), after 10 years whatever you have not paid off goes away. If you do not have a public service job, then you have to pay the loans for 25 years before your remaining balance is forgiven.

“It turns into real big dollar signs at that point,” Bill said.

The big caveat is that to qualify for the second program you have to be paying your loan using the 15 percent program OR an older income contingent program that is similar to the new one but more complicated. And you have to be paying the department of education. You can consolidate your loans to be paying the department of education if you are not currently paying them. Get the form here.

Check out FinAid.org for more details on the public service repayment program.

Thanks, Bill!

Location: Rosemead, CA

Dilemma: “I graduated from college in June of 2008 and I tried to consolidate my student loans after I graduated. I was told by my lender that I couldn’t consolidate my loans until they were in repayment mode (after the 6 month grace period). Now that my grace period is up, my lender isn’t consolidating student loans because of the state of the economy. A woman from their company told me just to Google  “loan consolidation” and pick a company to consolidate my loans with. I feel really uneasy about that – I don’t want to just consolidate my loans with anyone, and I want to know I am getting the best interest rates. Right now some of my loans are private and some are from the government and my interest rates are right about 4.21% (one is 6.8%). Do you have any advice?”

Solution: Here are legitimate resources for Katie and anyone else trying to consolidate student loans when lending is as tight as can be.

The federal government has a Web site where you can apply to consolidate your student loans and get info about your options.

FinAid, a reputable private site that has been around for 15 years,  has a great page about consolidating student loans that may be helpful.

Student Loan Consolidator is a private company that is part of Edvisors Network, which has an A+ rating from the Better Business Bureau. The site has info about consolidating public and private loans.

To get the best consolidation deal, compare interest rates from at least three lenders before you decide on one. If you cannot consolidate your loans, prioritize paying them off so you attack the one with the highest interest rate first. Good luck, Katie!

What is your financial dilemma? Write me at julia@bargainbabe.com. Read last week’s dilemma about lowering your home’s assessed value.