Your savings account is empty. You've scavenged every coin from drawers, pockets and under the car seats, but you still need cash. What do you do? When you are really broke here are a few options to get cash and what it will cost you to get it:
- Use your credit card. Many cash strapped folks are whipping out the credit card to pay for necessities like food and utilities. When you don't pay the total amount due each month, the interest rates charged accumulate and before you know it, you are being charged 25% or more per month.
While there are new laws regulating when credit card companies can increase interest rates for customers, if you continuously carry outstanding balances that are not paid on time, expect high interest rates as well as late fees. (Managing your debt could mean the difference between spending $45,000 or saving $184,000. Check out Expert Tips For Cutting Credit Card Debt.)
- Take a loan from a life insurance policy. If you own a permanent life insurance policy, it may have cash value built up. Check your most recent policy statement to determine cash value available or the amount you can take out as a loan. Accumulated cash value can be used to pay the policy premiums. If you remove the cash and dont pay the premium, the policy will lapse (your insurance policy will be cancelled).
Read and understand all the terms for the loan. If you die, the loan amount would be subtracted from the face value of the policy. (Learn how to lower your taxes while building wealth. Read Cut Your Tax Bill With Permanent Life Insurance.)
- Take a loan from your retirement account. Not every retirement account allows loans and there may be limits to the amount and frequency of loans, so check with your provider. Retirement account loans decrease the amount invested for retirement. Although you can pay the loan back into the account, you will miss possible growth in the account. Outstanding retirement account loans cause issues when the accounts are moved.
For example: Bob has a 401(k) and he takes a loan out of it. Then Bob gets a new job with another company and transfers the old 401(k) balance into his new company's plan. The outstanding loan amount would be subtracted from the amount transferred unless he pays it back. (This is just another more convenient way to borrow from your plan. But at what cost? 401(k) Debit Cards: Taking A Swipe At Your Retirement Savings.)
- Get a payday loan. Check cashing operations charge a fee to loan you money. The fee is usually based either on the amount you borrow or the length of time until you intend to pay it back. If you don't pay it back on time, additional fees are charged. The costs of payday loans is so high (300% annual percentage rates and MORE!), the Federal Trade Commission urges individuals to choose other means of acquiring cash.
State and local governments have attempted to abolish payday loans or cap the APR they charge. (Hold too tightly to this rescue line and you'll soon be drowning in debt. Learn more by reading Payday Loans Don't Pay.)
- Take out a title loan against your car. You use your car as collateral for a loan. Title loans may sound good because it's quick and they don't check your credit, but you will pay an annual percentage rate of 250% or more. If you are unable to pay back the loan, the company can take your car. They can sell your car and keep the profit, even if the amount of the loan is less than the value of the car. (Check out Car Title Loans: Good Option For Fast Cash? to learn more.)
- Hock your valuables at the pawn shop. When you take items to the pawn shop you negotiate an amount the shop will loan you plus interest. There are no rules so the price usually depends on what the shop worker thinks he can sell it to someone else for (usually a fraction of the actual value). You agree to let the shop hold the item for a given amount of time. They give you cash. If you come back to claim the item, they charge you interest, otherwise if you never come back, they sell it. You should only take things to the pawn shop that you no longer want, but that has enough value someone else may buy it.
- Sell gold and silver jewelry to a dealer. The high price of gold and silver has spurred a rash of organizations offering to buy your old jewelry. You either take your loot to a shop or ship it off in the mail. The dealer will "appraise" it, offering you a take-it-or-leave-it amount. If you think the price is too low, shop around to see if you can get a better price.
The key is to know the value of your items keeping in mind that used pieces and mismatched pieces like one earring for example, have less value than whatever you purchased them for. (All that glitters isn't gold. Find out how to get started on your treasure hunt by reading A Beginner's Guide To Precious Metals.)
- Sell something on an online auction. Online auctions allow the world to bid on and buy your stuff. But, there are so many items on the most popular sites, yours is often one of many for buyers to choose from. Also, selling is not free. The auction website will charge a fee. Some charge a fee to place the item on the site for sale. You pay the fee regardless of whether or not the item ever sells.
They will also take a cut of your proceeds. Some sites let you list for free, but take a higher percentage of your proceeds when the item sells. You may think you can sell anything online, but check the site to determine what price similar items have sold for before you set a price and don't be surprised if nobody bids on it. (To find out more, check out How To Master Online Auctions For Fast Cash.)
- Take expensive items to consignment shops. Consignment shops are receiving so many items they can afford to be picky. Only take those exclusive designer clothes, furniture and other items that are in excellent condition and will catch buyers' attention. The consignment store will appraise the items, set a price and display them. You can sometimes negotiate a minimum price to sell.
If the items sell, the shop pays you and keeps a percentage of the sale (20-30% average). If nobody buys it after a certain amount of time, you can take it back or donate to charity. Be sure to read the consignment agreement carefully, making sure you understand the terms.
- Hold a garage sale. If you expect to make sales, price items at 10 to 20% of the amount you paid for them. Garage sale shoppers expect to pay pennies on the dollar (or less). It's a good way to get rid of junk, but you have to be willing to allow buyers to bargain down from the price you set. (Here are some helpful tips to lighten your load for a heavier wallet. Check out In A Cash Crunch? Hold A Yard Sale.)
When you really need money, it's tempting to take rash actions. Weigh all your options and understand the costs and risks you'll endure just to get a little cash. Make sure the short-term loot is worth the long-term consequences.
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