Source: DeviantArt user regklubeck.

Relatives, roommates, bosses, kids, neighbors, love interests, lunch buddies -- add money interactions to the mix, and things can get pretty awkward (the waiter forgets to split the tab; the cousin has a surefire investment opportunity; the in-laws expect you to join them on a lavish cruise, etc.). Or, worse, relationships and finances can be jeopardized. Here's how to handle one such situation: A friend asks you for a loan.

This one's easy. The answer is "no."

A pal of mine made me practice 1 million ways to say "no" after she learned that I wrote a five-figure check to help tide over a friend who was waiting for money from a contract job to come through.

What I should have said was: "I'm sorry, but I have a rule about not lending money to friends." Or, "I'm sorry, but I'm not in a position right now to lend money." Or, my current go-to, "I'm sorry, but past experience with this has resulted in damaged friendships. But maybe there's another way I can help."

Instead, I said, "Ummm...OK."

It was the first time anyone had asked to borrow any sum of money. Reason and fear of consequences abandoned me in my shock, confusion, guilt, and adherence to a polite Midwestern upbringing. (I could afford to lend the money, after all. Keyword: lend.)

All's well that ends
The loan was paid back, but only after several missed repayment deadlines and two bounced reimbursement checks. The transaction left me whole financially (minus the bounced-check fees my bank charged), but a once-strong friendship was forever tarnished.

As I now know, one rule of thumb for lending money is to do it only if you're cool with never seeing a dime of it again. In other words, consider it a gift, even if it's not presented that way. There are also ways to make it a more formal arrangement (with a promissory note for personal loans). I had a less formal one that my borrower presented to me as a show of good faith. But even with a written agreement in place, the whole ordeal got messy.

Before you fork over the cash with a big red bow, ask yourself whether you can afford it, how you'll feel if the "gift" is used for purposes other than those originally proposed, whether the giving will create an imbalance in the future relationship, whether you can help in non-monetary ways, and how you'll handle future requests -- either from the recipient or from others who learn of the transaction.

Most importantly, don't do what I did and blurt out an answer without thinking it through. Ask for time to consider the request. And then practice your answer in front of a mirror or with a sympathetic friend.

Facing an Awkward Money Situation? Do tell!
Email me at [email protected] with scenarios you've encountered, conversations you keep putting off, situations that leave you stumped, and humblebrags about deft ways you've dealt with awkward money situations. I'll be picking through them to address here on and on our Motley Fool Answers podcast.