Raising Cash

How to Find Sources of Cash

Disasters strike from time to time, generally when we are least prepared to deal with them. If, like in most disasters, you need to raise cash quickly, how do you do it?

Just about every financial planner on the planet will advise that you keep an emergency fund of three to six months salary – or at least $5000 – in a liquid investment like a money market fund. This money should only be used for emergencies.

Many start to try to save for emergencies with the best intentions, but something always comes up and when the need arises there is little, if anything cash available.

If you do have cash in an emergency fund, that should be your first recourse when you disaster strikes.

Other ways to plan for an emergency would be to have an untapped home equity line of credit already in place. This is a relatively cheap source of money. But if things really get out of hand, you might put your house in jeopardy on top of all you’re other troubles.

You could also keep a no annual fee credit card in reserve, never to be used except in emergencies. This is not a cheap way to borrow. But you won’t lose your home is you miss a payment or two.

These first three options work well because you can plan ahead and quickly tap into the cash when you need to. Also if the emergency is losing your job, you might have trouble qualifying after the fact.

There are other options that may take more time to implement.

You can approach relatives or friends and ask for a loan. If you don’t want to ruin your relationship forever, prepare a promissory note and repayment schedule and stick to it. Since friends or family should be more flexible, you might be able to work out terms that meet your circumstances. For example, you could borrow with no payment due for a year or more.

You could offer security such as a second or third mortgage to make them feel more comfortable with lending you money.

You could also sell off assets or merely have a garage sale. If you have anything of value, use eBay or a local auction house. Even if it’s just clutter in your garage or attic, you might be surprised at how much money you can raise.

If you or a family member belongs to a credit union, you might find a friendlier place to borrow from than a bank or finance company. Credit unions tend to try to work with their members rather than take advantage of an already bad situation.

If you have a whole life insurance policy, you can borrow the cash value or surrender the policy for cash.

If you have a funded 401K plan, you can borrow against your balance. You’re usually only allowed to do this once a year and may not be able to borrow again until the first loan is paid off. But the interest you pay on the loan is paid to yourself.

You could be cutting into the tax free growth of your retirement funds and if you lose your job before the loan is paid back, there can be some nasty tax penalties.

Finally, if you got to do it, there are banks, finance companies and other sub prime lenders. Again if you are unemployed, it might be harder to get a personal loan or you might have to pay a lot more for it.

But even if the loan is expensive, sometimes you have to bite the bullet.

If you tap into any of these sources, you should try to either replenish the cash or repay the debt as quickly as you can, once the emergency has passed.

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