Disclaimer: After some strong feedback from GRS readers (and from my wife), I've made the rare move of heavily editing this article after publication. My hope is that the re-write makes it clear that I am not advocating all of these ideas. Yes, payday loans are on the list, but they're at the bottom of the list. They're the worst possible option for scaring up cash.
The September issue of Money features an article by Stephen Gandel and Donna Rosato in which they explore the best and worst ways to raise cash quickly. The authors looked at seventeen methods for finding money, and then ranked them from best to worst:
We talked to loan officers, financial planners, tax experts, even dealers in antiques to size up 17 ways you might scare up some greenbacks now. We took into account the short-term costs of each move (such as interest, taxes and penalty fees), the long-term effect on your net worth, the ease and speed of getting your hands on the dough, even the psychological toll. The result: a ranking — from not too bad to really, really bad — of the many ways to beat a cash crunch.
Here's the order they picked:
- Tap your emergency fund — that's what it's for!
- Sell some investments.
- Ask your parents for a gift.
- Cash in a certificate of deposit.
- Cash in your whole life insurance policy.
- Borrow from family or friends. Be very clear on the terms of the loan, and fulfill your part of the agreement.
- Take out a home-equity line of credit. I used a home equity loan to pay off my credit cards ten years ago. This can be an okay move, but be careful about using your home as a source of emergency cash.
- Refinance your mortgage to get cash out.
- Borrow from your 401(k) or 403(b). Some plans allow you to borrow money for the short-term. Beware, however, that there are a variety of conditions.
- Borrow from other investment accounts.
- Borrow from strangers on sites like Prosper or Lending Club.
- Tap into your IRA.
- Do a reverse mortgage.
- Sell some assets. Not just stuff you have lying around, but big things like cars or antiques.
- Take a cash advance on your credit card.
- Liquidate your 401(k) or 403(b). Raiding your retirement account is rarely a good idea.
- Go to a payday lender. If you choose to do this, please beware dangers of the payday loan trap.
Those final few are poor choices and should be considered last-ditch measures. In fact, you might say that the last sixteen methods are some of the best arguments for having an emergency fund. The best way to raise quick cash is not to have to do it at all.
One obvious (and unavoidable) drawback is that most of these suggestions require existing assets, like a home or an investment account. If you're just starting out, or if you're struggling to make ends meet, your options for finding quick cash are much more limited.
Postscript: Regardless of whether the re-write helps, I'll remember the lessons learned here for the future. Thanks for your feedback. I appreciate it.