I have never done this myself because I know there is a chance that a friend or family member can not or will not pay it back. Does anyone else avoid this hassle by not doing it in the first place?
Yes. I never loan out unless I know I can do without it. As a matter of fact, if someone needs to borrow money, I will just give it to them so they don't have the obligation of paying it back. They can if they wish but I never look for it.
I won't loan money if I need it, but if I don't need it and someone else does - then sure I will loan it out. My parents have loaned me money before and I always paid it back. I want to be the same type of person - if you burn me though, I won't fall for it twice.
IF I have some extra I might loan out a small amount as long as I know I will get it back (sooner or later). But if things are tight, I don't unless it is a real emergency for them.
Loaning money out 
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