4 Cash-Raising Pitfalls (and better options)

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4 Cash-Raising Pitfalls (and better options)
When you need cash fast be sure to take a moment to think about which options can hurt you more in the long run.
Written by Liz Weston, CFP(r) Senior Writer | Personal Finance, economics, credit scores Liz Weston, CFP(r) is a personal finance columnist, co-host on"Smart Money," the "Smart money" podcast an award-winning journalist, and the author of five books on money, including the best-selling "Your Credit Score." Liz has appeared on numerous national radio and television shows including"The Today Show, "Today" talk show "NBC The Nightly News,"" as well as the "Dr. Phil" show and "All things considered." Her columns are carried by The Associated Press and appear in hundreds of media outlets every week. Before joining NerdWallet, she was a writer for MSN, Reuters, AARP The Magazine and the Los Angeles Times. She shares a home with her family in Los Angeles with a husband as well as a daughter, and a co-dependent golden retriever.





Aug 5, 2021


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







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If you've got more bills than cash, the standard suggestion is to cut down on costs and make additional money. But some ways of could be more costly than others. Here are four things that must be avoided in the event that they are possible, and alternatives to consider instead.
Beware raiding a retirement plan
A significant portion of money contributed to retirement plans is lost through cash-outs and hardship withdrawals in the event of job changes, or loans that aren't repaid. A recent study for the Congressional Joint Committee on Taxation estimated that each year 22% of the money that are made by those 50 or less are withdrawn early, mostly in cash-outs as people leave jobs.
They are, however, usually costly and could leave you with a small amount of money in retirement. There are usually penalties and taxes on distributions, plus you give up all compounding tax-free that your money could have made.
There are alternatives. If you're still employed you can borrow money the funds from your 401(k) or stop retirement plan contributions for a short period to free up money. If you're in possession of an Roth IRA, you can withdraw an amount equal to your contribution without paying penalties or taxes.
If you are unable to prevent a costly cash withdrawal, it is possible to reduce the harm by withdrawing only the amount you require and leaving the rest to grow. For instance, if you're resigning from your job, you could transfer your 401(k) account to an IRA and take only what you require from the IRA. This could mean you don't have to cash out your entire account.
Don't skip health insurance
It's possible that you're healthy today but you're a serious accident or illness away from a devastating medical expenses.
If you don't have access to health insurance through work, look up your Affordable Care Act exchanges at . Prices have been cut for most people this year, and the coverage is available for many, not just those who receive unemployment payments this year.
An analysis by the nonpartisan health think tank KFF discovered that the percentage of people eligible for subsidies has increased by 20% because from the American Rescue Plan Act passed in March. In addition, 4 of 10 people who are uninsured would qualify for a free or nearly free plan.
You also can lower costs by choosing an insurance plan with a high-deductible. This means that you will have to pay many thousands out of your pocket if you get sick or injured and you won't face the kind of six- to five-figure bills that could bankrupt you.
Beware high-cost loans
One of the most costly ways to borrow is through auto titles loans as well as loans that do not require a credit check. These high-cost loans can make it simple to get into a vicious cycle of debt where you can't make the payments and you are then forced to borrow again. Title loans put your vehicle on the risk of having it confiscated in the event of non-payment.
They might not be as swift or as convenient, but they're often better for your financial health:
If you require help with paying 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 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 the cash advance. These typically incur double-digit rates of interest, however the most expensive loans generally have triple-digit rates.
If you're employed, you can request your employer to provide a paycheck advance or emergency loan.

Another option for those who are employed: such as Earnin, Dave or Brigit. Be cautious 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 stiff the IRS
If you're unable to pay the tax bill, it could be tempting to not submit a tax return. However, failing to file can result in much higher penalties than failing 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 if you don't submit. The IRS could come after you many years or even decades later.
The IRS offers payment plans that permit you to pay for your tax bill in installments over the course of time. It is also possible to charge your tax payment to a credit card or consider getting a personal loan to pay what you have to pay, Stern says.
It is not a good solution. There is a solution. IRS has automated processes which match forms such as W-2 and 1099 with tax returns. If there is a gap, it could quickly trigger an electronic discrepancy notice as well as an audit Stern says.
If you have a debt and fail to pay it, the IRS could seize your bank accounts or garnish your wages and other income until all of the unpaid taxes, penalties and interest are collected, Stern says. The IRS can even seize and sell your property.
"The IRS is probably the most effective and ruthless collection agency you'll encounter," Stern says. "If you are owed taxes, it's best to pay the maximum amount you can as quickly as you can."
The piece originated from NerdWallet and was first published by the Associated Press.



The author's bio: Liz Weston is a columnist at NerdWallet. She is a certified financial planner and author of five money books which include "Your Credit Score."







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