Tuesday, March 18, 2008

Need Cash? What Are the Options?

According to Bankrate.com, if you need cash, there are several ways--each one has its pros and cons:





Balance transfers

Lower interest rate

Often involve fees; may need to apply for new credit. Watch out for bait-and switch tactics.

If you're in debt already, use transfers to pay down existing debt, not to fund new purchases.

Home equity

Convenient; lower interest rate; interest may be tax deductible

Increases the amount owed on the house; many borrowers run debt up again; puts house at risk when used as collateral

Only borrow what you absolutely need and only if you have a lot of equity.

Borrow from family or friends

Lower or no interest; flexible terms

Risks an important relationship

Use a contract; find one online or at the office supply store to use as a template, or set up official loan arrangements through a firm such as Virgin Money.

Peer-to-peer lending

Interest rate may be lower

Make sure to apply the funds to your existing debt; otherwise, you're just racking up more debt.

Several online social networking sites act as middlemen between lenders and borrowers. Be sure to understand how they work as well as loan terms and fees before signing up.

Borrow from Your 401(k)

Good interest rate

May be required to pay taxes and penalties on amount borrowed if the loan isn't repaid within five years; may be required to pay back the loan in full if you lose job; less money will be compounding for retirement

Avoid this at all costs since it puts your retirement plans in peril. An exception might be if you're way ahead of your retirement savings goal and you find yourself in dire straits.

As for taking money out of your IRA, a more in-depth discussion can be found here.