4 Cash-Raising Pitfalls (and Better Options)

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4 Cash-Raising Pitfalls (and Better Options)
When you need cash fast take a moment to consider what options could hurt you more in the long run.
by Liz Weston, CFP(r) Senior Writer | Personal finance, credit scores, economics Liz Weston, CFP(r) is a personal financial columnist, co-host of"Smart Money," the "Smart Money" podcast, award-winning journalist and creator of five novels on financial matters, among them the bestselling "Your Credit Score." Liz has been featured on a variety of national radio and television shows including"The Today Show, "Today" talk show "NBC The Nightly News,"" the "Dr. Phil" show, as well as "All things considered." Her columns are carried in the media by The Associated Press and appear in a variety of media outlets weekly. Prior to NerdWallet, she was a writer columns for MSN, Reuters, AARP The Magazine and the Los Angeles Times. She shares a home with her family in Los Angeles with a husband along with a daughter and a golden retriever who is a co-dependent.





Aug 5 2021


Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years at The Oregonian in Portland in capacities such as chief of the copy desk and team leader for design and editing. Her previous experience includes news and copy editing for a variety of Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in mass communications and journalism from the University of Iowa.







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If you're faced with more bills than cash, the standard advice is to trim expenses and find additional income. But some ways of could be more costly than other. Here are four things that should be avoided, if possible, and what you should be thinking about instead.
Beware raiding a retirement plan
A large portion of contributions to retirement plans is lost through cash-outs and hardship withdrawals when jobs change or loans which aren't paid back. A recent study by the Congressional Joint Committee on Taxation estimated that each year 22% of the contributions made by people aged 50 or less are withdrawn early, mostly in cash-outs as people leave jobs.
However, they are typically expensive and can leave you with a small amount of money in retirement. You typically must pay tax penalties and income taxes on distributions and you forfeit all compounding tax-free that your money could have earned.
You might have other options. If you're employed, you can borrow money from the funds in your 401(k) or cut off retirement plan contributions temporarily to free money. If you're a member of a Roth IRA, you can take out a sum equal to your contributions without owing penalties or taxes.
If you're unable to prevent a costly withdraw, then you could reduce the damage by taking out only the amount you require and leaving the rest to increase. For instance, if you're leaving work, you could transfer your 401(k) balance in an IRA and take only what you need to withdraw from your IRA. It could save you from having to withdraw the entire account.
Don't skip health insurance
It's possible that you're healthy today but you're a serious incident or disease away from catastrophic medical expenses.
If you're not privy to health insurance at work then look up your Affordable Care Act exchanges at . Prices have been cut for the majority of people this year and coverage can be free for many, which includes those who receive unemployment insurance this year.
An analysis conducted by the non-partisan health-related think group KFF found that the number of people eligible for subsidies has increased by 20% because from the American Rescue Plan Act passed in March. Additionally, 4 of 10 people who are uninsured could be eligible for a free or nearly free plan.
You also can lower cost by choosing an insurance plan with a high-deductible. This means you'll have to pay hundreds of dollars from your pocket if you get injured or sick however, at least you won't face the kind of six- or five-figure costs that can bankrupt you.
Beware high-cost loans
The most costly methods to borrow are , car titles loans as well as loans that do not require a credit check. The high cost loans can make it simple to slip into a cycle of debt that you are unable to pay the loan and are forced to borrow again. Title loans can put your vehicle on the risk of having it seized because of non-payment.
These alternatives may not be as quick or easy, but they're often better for your financial health:
If you are in need of help to pay bills, start by checking 211.org which is a clearinghouse for both charitable and government resources.
If you're unable to pay back the loan then ask the lender about forbearance and other options for hardship.
If you own credit card, you should consider the cash advance. These typically incur double-digit rates of interest, however high-cost loans typically have triple-digit interest rates.
If you're employed, request a paycheck advance or the emergency loan.

Another option is if you're employed, such as Earnin, Dave or Brigit. Be cautious, however, because the fees can make these loans similar to payday loans, and trap you in a similar cycle of debt if you decide to depend on them.
Don't stiff the IRS
If you can't pay the tax due, it could be tempting to not file a return. But failing to file carries more severe penalties than not having to pay, according to CPA Neal Stern, a member of the American Institute of CPAs' Financial Literacy Commission. Furthermore, there's no limitation for audits when you do not make a filing. The IRS can follow you for many years or even decades later.
The IRS has payment plans that let you to pay for your tax bill over time. You can also charge a tax charge to a credit card , or think about getting an individual loan to pay for what you owe, Stern says.
The solution is to not ignore the issue. solution. There is a solution. IRS has automated processes that match up forms like 1099 and W-2 to tax returns. If the information is not correct, it can quickly trigger a computer-generated discrepancy notice and an audit Stern says.
If you are owed money and you don't pay, the IRS could seize your bank accounts or garnish your paychecks as well as other income until all of the unpaid taxes, penalties and interest are collected, Stern says. The IRS may even take possession of and even sell your home.
"The IRS is probably the most effective and ruthless collection agency that you will encounter," Stern says. "If you owe taxes, it's better to pay the maximum amount you can, as fast as you are able to."
The piece originated from NerdWallet and was first released by Associated Press.



Author bio Liz Weston is a columnist for NerdWallet. She is certified as a financial planner and author of five books on money which include "Your Credit Score."







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