4 Cash-Raising Problems (and better options)

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4 Cash-Raising Pitfalls (and better alternatives)
When you need cash fast be sure to take a moment to think about what options could hurt you in the long term.
by Liz Weston, CFP(r) Senior Writer | Personal finance, economics, credit scores Liz Weston, CFP(r), is a personal finance columnist host of the "Smart Money" podcast an award-winning journalist, and the creator of five novels on financial matters, among them the best-selling "Your credit score." Liz has appeared on numerous national television and radio programs such as the "Today" talk show "NBC nightly news,"" The "Dr. Phil" show and "All Things Considered." Her columns are carried by The Associated Press and appear in a variety of media outlets each week. Before joining NerdWallet, she wrote 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 that is co-dependent.





Aug 5, 2021


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







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If you've got more bills than income, the typical suggestion is to cut down on expenses and generate additional income. However, certain methods can be a lot more costly than other. These are the four ways that should be avoided, as much as possible, and the alternatives you should be thinking about as alternatives.
Be wary of raiding retirement plans
A significant portion of money contributed to retirement plans is withdrawn as hardship withdrawals, cash-outs when jobs change or loans which aren't paid back.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Committee on Taxation estimated that each year, 22% of the money that are made by those 50 or younger is prematurely withdrawn, mostly in cash-outs as employees leave their jobs.
However, they are typically expensive and can leave you with a small amount of savings in retirement. You typically must pay penalties and income taxes on distributions and you forfeit all the future tax-deferred compounding that money could have made.
You may have alternative options. If you're still employed you can borrow money the funds from the funds in your 401(k) or halt retirement plan contributions temporarily to free funds. If you're in possession of an Roth IRA, you can withdraw an amount equal to your contributions without owing taxes or penalties.
If you can't avoid a costly cash withdrawal, it is possible to reduce the impact by taking out only the amount you require and allowing the rest to build. For example, if you're leaving your job you could roll your 401(k) balance in an IRA and take only what you require to withdraw from your IRA. That could prevent having to withdraw the entire account.
Be sure to take advantage of health insurance.
You may be healthy now however, you're one dangerous injury or accident away devastating medical costs.
If you're not able to get access to health insurance coverage through your job or other sources, you can check for the Affordable Care Act exchanges at . Prices have been cut for most people this year, and coverage can be free for many, not just those who are receiving unemployment benefits this year.
An analysis conducted by the non-partisan health care think tank KFF found that the number of people who qualify for subsidies grew by 20% because of American Rescue Plan Act passed in March. Additionally, 4 out of 10 people without insurance could be eligible for a free or nearly free health plan.
You also can lower cost by choosing an insurance plan with a high-deductible. This means you'll have to pay thousands of dollars out of pocket if you get sick or injured, but at least you'll avoid the type of five- or six-figure bills that could bankrupt you.
Beware high-cost loans
One of the most costly ways to borrow are , car titles loans as well as loans that don't require a credit check. High-cost loans can make it simple to fall into a cycle of debt that you are unable to pay the loan and are then forced to take out again. Title loans can put your vehicle in danger of getting confiscated for nonpayment.
They might not be as swift or easy however, they're usually more beneficial for your financial wellbeing:
If you are in need of help to pay bills, you can start by checking 211.org, a clearinghouse of both charitable and government resources.
If you're unable to pay back the loan and you aren't able to pay it, talk to the lender about forgiveness or other alternatives to hardship.
If you own a credit card, consider cash advances. These typically incur double-digit interest rates, but the most expensive loans typically have triple-digit rates.
When you're working, request an advance on your paycheck or an urgent loan.

Another option if you're employed: such as Earnin, Dave or Brigit. Be aware but be aware that the costs can make these loans more expensive than payday loans, and trap you in the same cycle of debt if you come to rely on these loans.
Don't be stiff with the IRS
If you aren't able to pay your tax bill, it could be tempting to not submit a tax return. Failure to file is a risk that comes with far more penalties than failure to pay, says CPA Neal Stern, a member of the American Institute of CPAs' Financial Literacy Commission. Furthermore, there's no statute of limitations for audits if you do not file. The IRS may be able to pursue you for several years or even decades after the fact.
The IRS has payment plans that allow you to pay off your tax invoice over time. You can also charge a tax bill to a credit or debit card or look into a personal loan to pay for what you are owed, Stern says.
Ignoring the situation is no solution. It is important to know that the IRS has automated procedures which match forms such as W-2 and 1099 to tax returns. If something is missing it can quickly lead to the form of a computer-generated discrepancy notification and an audit Stern says.
If you are owed money and you don't pay it, the IRS can seize your bank accounts or garnish your paychecks and other earnings until all unpaid taxes, penalties and interest are collected, Stern says. The IRS can even seize and sell your home.
"The IRS is probably the most powerful and relentless collection agency that you will ever encounter," Stern says. "If you are owed taxes, you should pay the maximum amount you can, as soon as you can."
The article was written by NerdWallet and was first released by Associated Press.



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







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