Emergencies arise in everyone’s lives, and they often turn out to be expensive. The very best way to prepare for future crises is to have a savings account set aside to cover such expenses – but occasionally life catches up with us and we simply don’t have extra funds available. Here are four ways you can get your hands on emergency cash when you need it:
Borrow from your 401(k)
While you should never use your retirement fund for optional purchases like a vacation or a new car, the money in your 401(k) can be a useful safety net if you encounter a true emergency. In most instances, you can borrow up to half your company-sponsored 401(k) plan, or up to $50,000 (whichever is less). You will pay interest on this type of loan, as well as some transaction fees, so it’s good to check on these costs ahead of time. Your loan payments will be deducted from your future paychecks when you take out this kind of loan, which can be both positive and negative. On the plus side, you’ll be locked into repaying the loan on a regular schedule, so you won’t run the risk of having it become a bad debt. On the negative side, these payroll deductions mean you’ll experience a cut in your wages for the near future. One warning to keep in mind: if you should lose your job, you will usually be required to pay back the entire balance of the loan within 30 or 60 days.
Borrow from your IRA
The IRS permits you to borrow without any interest or fees from your IRA once a year, as long as you pay the full amount back within 60 days. This is a good alternative for very short-term needs, when you feel confident of being able to replace the money very quickly. If you miss the 60-day deadline, you will be charged a 10% penalty if you are under age 59, and the money will be subject to federal and possibly state income taxes. Don’t have an IRA? You can easily start one online. Betterment has great guides for beginners on starting an IRA, and offers great rates for those wanting to invest.
Take out a short-term loan
Traditional loans: You don’t need to go to a traditional bank to find a loan. A few new online companies are getting into the loan business, with great success. These loans can also offer lower interest rates because they are offered from smaller financial companies. One of the best online loan services is CashNetUSA, which offers specific Emergency Loans.
Peer-to-peer lending: You can also look into getting a peer-to-peer loan. These companies allow individuals to deposit money that can then be loaned out short-term to people who need it. These loans often have a lower interest rate and can be easier to qualify for. The biggest peer-to-peer lender is Lending Club, which you can learn more about here.
Payday loans: The way payday loans work is that you give your employment information to the lender, and they give you cash or deposit the loan amount (usually up to $500) in your bank. At an agreed-upon future date, the lender will debit your bank account for the loan repayment plus a very high interest charge. These loans are based on the idea that you are being advanced some of the money from your next paycheck, and they don’t require you to have a good credit rating. The downside of payday loans is that they are very expensive: often they will charge $15 interest per month on every $100 they lend you. Here’s a good guide to payday loans and the best payday loan sites that we found, as well as our CashNetUSA review for reference.
Sell some possessions
Now that the internet provides everyone with a global marketplace, you may well find that you own things that someone else wants. Lighter-weight items that are easily shipped to eBay buyers include electronics, gold and jewelry, and collector’s items of all kinds. If you have any classic baseball cards or comic books, this may be the time to give them a new home! Larger items like sports equipment and power tools will sell quickly on Craigslist. If you have old or unwanted phones, tablets or other electronics, uSell is a great place to sell them, as they make it easier to ship the electronics back and forth.
Once your emergency has passed, and you have paid back any money you borrowed, it’s a good time to set up a new savings account with automatic monthly deposits, so that you’ll be better prepared for whatever the future brings you.