Cash crunch? 6 ways to get liquid |
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If your cash crunch is due to unaffordable mortgage payments, you might be able to refinance your loan. The federal government and some states offer attractive foreclosure-prevention financing for people who are overextended and meet the qualifications.
4. Earn more interest
Another way to improve your monthly cash position is to transfer extra cash in your checking account into higher yield investments such as short-term CDs or money market funds. Even a savings account could be a smart move if you have any cash that's not earning some sort of return, however small the amount may be.
The downside is that these types of investments are "sort of a losing game" because they rarely earn a high enough return to overcome inflation, Keatley warns. Worse yet, bank fees can wipe out or exceed any interest you earn on a checking or savings account. If you have multiple accounts that are dinged to the tune of $10 or $12 every month, you might want to reduce those costs by consolidating your cash into fewer accounts. Don't exceed the Federal Deposit Insurance Corp., or FDIC, limit of $250,000 in any one account.
5. Tap your equity
A severe cash shortage that can't be ameliorated by spending cuts or investment reallocations may necessitate some type of short-term debt to resolve. Planners generally suggest a home equity line of credit first, followed by a retirement account loan and then credit card debt only as a last resort.
"If people are disciplined and know how to handle credit, I love to see them get a home equity line of credit on their house when they don't need it because that can be a serious source of cash," Belluardo says.
These lines of credit aren't as readily available as they once were, but if you have equity in your home and a means to repay the debt, getting a home equity line can be good strategy.
6. Borrow against savings
If you have an individual retirement account, or IRA, you can take out cash without incurring an income tax penalty as long as you repay the full amount within 60 days, according to Bartley.
"The IRS rule is that you can take money out of your IRA, and if you can prove that you put it back in, it's not considered a withdrawal," he says.
If you have a 401(k) retirement plan through your employer, you can borrow up to $50,000 of your own funds. Be aware, however, that if you don't repay the full amount before you leave your job, whatever you still owe will be treated as a premature withdrawal subject to income tax penalties, Bartley explains.
Either way, "you have to be careful that you have the ability to pay back (these loans) in the short term or you will find yourself (with) bigger problems later," Bartley says.
At the end of the day, the best solution for your cash crunch may be a combination of all these strategies, each to a greater or lesser degree depending on your personal situation. After all, as Bartley notes, "wealth is a brick-at-a-time kind of thing. The sum of a lot of little things can really make a big difference."
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