An old colleague calls up. He is quite distressed. He wants help to stop lending. It seems, he says, his forehead has this sticker called ATM: “I have been lending all my life and it has never come back. People I have lent to now joke about not paying me back. I am just fed up. What can I do?” I feel his pain. I’ve been through my own journey of lending and not recovering the money. Losing respect for yourself and the person who borrowed and then losing the relationship as well—it falls into a pattern. We’ve all been there—been trapped, set up, emotionally blackmailed or asked outright for a loan. It could be a child’s wedding, a child’s education, medical bills, a business investment, or money to fund lifestyle or even a drug habit. I remember a distant uncle landing up on our doorstep many years back asking for a loan. I must have been eight or nine. Wide-eyed, I eavesdropped shamelessly, as my dad politely told him no. It was only later that I understood that the guy was a swinging junkie who was collecting for his next fix! Whatever the sudden emergency, you need to have a standard operating protocol in place to deal with the loan leeches.

We lend because we feel sorry for the person who is in a difficult place and find it difficult to walk away from their troubles. Dig deeper and I find that we also don’t want the person asking to think that we are mean. We don’t want to be known as a heartless tight fist in our network. We dislike the feeling of guilt that saying no leaves us with. That’s why we lend. But look on the other side: Have you not been in situations where you’ve been in a very tight financial corner? Did you ask for a loan? Or did you sell some family jewellery or the car? Or sell the house to make good the shortfall? We all have options. If you don’t find yourself asking others for a loan, there is no reason that others are constantly asking you.

Here’s what you can do if lending makes you unhappy but you are unable to say no. First, take an internal decision to not lend. An internal decision is your own personal code of conduct. For example, you have a set of rules that you live by. These can be practical rules such as not leaving food on the plate or not stealing. These can be more subtle such as deciding not to gossip. If lending money makes you unhappy, make it part of your own code of conduct: I don’t lend money to friends. Or I don’t lend money. Period. Friends, family, whoever. Once you have done this, it is much easier to say no. Say it nicely. Mean it when you say that you feel sorry for the situation, but as a rule tell yourself: “I don’t lend.”

Second, don’t have liquid money sloshing around waiting to be spent or lent. Move money out of reach of yourself by creating an “Invest it” account. This absorbs all the money that you are not keeping aside for your monthly bills. This is the money that goes towards your own investments. If there is no liquid money, you will have to break a fixed deposit or redeem some funds to be able to lend. That puts some distance between the urgency of the demand and action. This cool off is useful and gives you some space to think and move out of the situation.

Third, encourage them to get their finances in order. Other than a medical emergency, for which there is the option of buying a medical insurance policy they should have used, there is something wrong if somebody is spending beyond their means and then asking other people to help out. Are you really going to fund somebody’s lifestyle choices or their desire to get their daughter married in a particular way when they can spend less and deal with the social consequences? This usually does not go down well at all with people asking, but then step away from the emotional pressure and guilt.

Fourth, if you give, do it knowing that it will not come back. Only if you are okay with that, go ahead and give. Mark it as part of your charity and not a loan. If you are not okay with giving as charity, then don’t give that loan.

But rule one has exceptions. There are some relationships that don’t need the asking. You figure out there is trouble and you yourself lend a helping hand. That difference is for each person to figure out. Again, give not expecting it to come back, but give because you really want to help and giving makes you feel happy.

Remember, the reason some people get trapped into lending is because they fear the relationship will get strained if they refuse. But if the relationship is so weak that money will come between harmony, so be it. It probably was not worth much anyway.

Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation