Monday, September 12, 2011

Best and Worst Ways to Raise Cash

There was a similar post on, so I thought I'd reblog with some of my own input on this idea.  We'll take a look at several ways to raise emergency cash and the consequences of doing so.

The best method to raise cash is to keep an emergency fund, which I posted about recently, and not needing to raise cash.  Some good storage places for your emergency fund is a high yield online savings account or a money market account.

If you don't have sufficient funds and need cash immediately, however, you should know how to prioritize your options.  Some better methods include selling some losing positions in your portfolio (stocks or etfs that may have been a disappointment or underperforming) but you should be aware of any tax consequences.

Borrowing against a life insurance policy or 401k are other options which offer competitive rates for loans and flexible payback terms.  A pawn loan is another alternative, although I am not very familiar with them.  Apparently, if you have jewelry, musical instruments, tools, or firearms, you can try to get a loan from a pawnbroker with these items as collateral.  These loans have high interest but only if you try to redeem the item (usually your valuable will only get you 50-75% of its full value) so this may or may not be a good option.

Try not to withdraw money from a retirement account since you will have to pay tax as well as a penalty on top of it.  A good loophole this article mentions is transferring IRAs.  When you transfer an IRA, you can elect to send the money to you but you must deposit the same amount in a new IRA within 60 days.  This could be a free 60 day loan to yourself as long as you make sure you can replace the money within that time frame.  If you have savings bonds or CDs that haven't matured, you can sell those as well although you will lose some of the interest involved and face a penalty in terms of opportunity cost.

The worst options for raising cash have incredibly high interest rates such as a payday loan or a cash advance loan.  Rates you pay can go above 100% on a yearly basis and you also have to throw on fees on top of everything.  Interest on cash advances begin the moment the advance is made, and you do not get a grace period like your normal credit card.

A final option is borrowing from family and friends.  For some, this may be a preferred option while for others, this may be no-go territory.  Personally, going through the options of raising cash all seem very poor and a little depressing.  Make sure that you stick with the best case scenario, preparing an emergency fund (with 3 months worth of income) to avoid any situations requiring you to raise quick cash.

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