Need Cash Now Due to COVID-19? Check Out These 4 Sources for Money
The stimulus check? Already spent. Emergency fund? Emptied last week.
If you’ve tapped traditional sources for extra cash, you may be eyeing your upcoming bills with dread. Where are you going to come up with the money?
In addition to asking for emergency assistance to cover expenses, you may have sources of cash you would have never considered tapping before the pandemic.
Each of these alternative cash sources come with their own pros and cons, which we’ve included so you can make the best financial decision for yourself while still paying the bills.
4 Alternative Sources of Money to Cover the Bills
As people struggle through yet another month of job loss and an uncertain financial future, the time to find creative sources of cash could be now. Here are four to consider.
1. Refinancing Your Mortgage
You can take advantage of plummeting interest rates by refinancing your mortgage with two options: traditional and cash-out.
Through a traditional refinance, borrowers rework their current mortgage terms, usually by adjusting interest rates or loan terms. This type of refinancing usually lowers the monthly mortgage payment.
In a cash-out refinance, people use some of the equity in their homes to get cash while changing the terms and the amount of the loan.
If you’re a renter rather than a homeowner, check out these tips for negotiating with your landlord.
Pros: Refinancing could save you money on your mortgage payments if you go the traditional route. With the cash-out method, the amount of money you can get back from the bank will depend on how much equity you have in your home.
And given the current interest rates, there’s a good chance you can get a better deal on your mortgage, which could end up saving you money.
Cons: If there’s a chance you’ll move in the next few years, you likely won’t recoup the thousands of dollars it costs to refinance, which includes closing costs, appraisals and title searches.
Additionally, the money you’re receiving from a cash-out refinancing is actually the equity in your home, which could add extra years to pay off your mortgage.
And if you recently lost your job, you may not qualify for this option at all as lenders tighten qualifications to those with a steady income.
2. Applying for a Home Equity Loan
Another option if you own your home is a home equity line of credit (HELOC).
A HELOC is a second mortgage that allows you to borrow against the equity in your home up to a certain amount based on the home’s value and how much you still owe on the primary mortgage.
Pro: The interest rates on most equity lines are substantially lower than what you’d get with most credit cards — although HELOC rates are usually adjustable, which means they could go up later. Depending on how much equity you have in your home, you could potentially qualify for thousands of dollars.
Con: If you don’t make regular payments on the loan, the equity lender can take your home. And if you’ve been working toward paying off your mortgage, you’ll lose the built-up equity in your home.
3. Getting a Credit Card Cash Advance
It’s possible to use your credit card to cover many bills if you’re really stuck. But if you need cold, hard cash, a credit card cash advance may be an option.
With most credit cards, you can get cash through a bank withdrawal or at an ATM.
One option not on our list: payday loans. The astronomical interest rate lenders charge will likely put you in a vicious cycle of using next month’s money to pay last month’s loan. Avoid if possible.
Pro: Because you’re already a customer, you generally don’t need to qualify for the advance — which means you can get the money immediately.
Con: The interest rates for cash advances are typically even higher than the interest rate you’ll pay for credit card purchases. And with compounding interest, you could be paying for this cash influx for a long time.
Additionally, cash advance limits are typically much lower compared to your other options.
4. Tapping Your Retirement Account
If you’ve been affected by the coronavirus — you were diagnosed with it or lost your job as a result of the pandemic, for instance — you can take an early withdrawal or borrow from your retirement account up to $100,000, thanks to the relief bill.
Pro: You can withdraw from your 401(k), IRA or other plan without paying the usual 10% penalty, and you can spread the income tax payments out over three years. The relief bill also doubles the maximum amount you can borrow — from $50,000 to $100,000.
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Con: Besides our pre-COVID advice that you shouldn’t take money out of your retirement accounts to pay off debt, you’ll likely make a lot less money if you cash out your 401(k) given the current market.
Plus, if there’s any chance you’ll have to file for bankruptcy at some point, your 401(k) is what’s called a qualified or protected asset. That means the bank cannot make you use that money to settle your debts, so even if you file, you can hold onto your 401(k) money.
And while it may seem like your current money woes will never end, you’ll appreciate making smart financial decisions when this pandemic is (hopefully) a long-distant memory.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.