Should I have settled my obligations first before lending money to someone in need, and am I considered unjust to myself and my wife because of this, and will my reward for this deed be lost due to the doubts I have about the debtor's actions?

Helping the needy and relieving their distress are acts of righteousness encouraged by Islam. Among their virtues are: that Allah fulfills the needs of the servant who fulfills the needs of his brother, removes a distress from him on the Day of Resurrection, and covers him in this world and the Hereafter. Also, Allah helps the servant as long as the servant helps his brother. Among the best deeds after the obligatory acts are: bringing joy to a Muslim, relieving his distress, paying off his debt, or feeding him.

Giving the needy what a person himself needs is a commendable altruism. Therefore, do not regret doing good deeds, for regretting a righteous act after its completion has no effect.

As for the debtor who is extravagant in his spending, this is not permissible for him, as extravagance is forbidden by Sharia, especially if it delays the repayment of debts. It is also not permissible for a debtor whose debts have consumed his wealth to give voluntary charity or to expand on permissible things beyond his need.