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4 Cash-Raising Problems (and Better Options)
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4 Cash-Raising Problems (and Better Options)
If you're in need of cash quickly take a moment to consider which options can hurt you in the long term.
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 creator of five novels about financial matters, among them the bestselling "Your credit score." Liz has appeared on numerous radio and national TV shows including"Today," the "Today" talk show "NBC Nightly News," The "Dr. Phil" show and "All Things Considered." Her columns are published through The Associated Press and appear in hundreds of media outlets weekly. Prior to NerdWallet, she wrote columns for MSN, Reuters, AARP The Magazine and the Los Angeles Times. She shares a home in Los Angeles with a husband along with a daughter and a golden retriever that is co-dependent.
Published Aug 5, 2021 at 5:00AM PDT
Edited by 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 at The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for various Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in mass communications and journalism from the University of Iowa.
A majority of the items featured on this page are from our partners, who pay us. This impacts the types of products we write about as well as the place and way the product is featured on a page. However, it does not affect our assessments. Our views are our own. Here is a list of and .
If you're faced with more bills than income, the typical suggestion is to cut down on costs and make additional money. But some ways of are more costly than other. Here are four that must be avoided if possible, and what you should be thinking about instead.
Beware raiding a retirement plan
A big chunk of the contributions to retirement plans gets sucked out in cash-outs in the event of job changes or loans that aren't repaid. A recent study conducted by the Congressional Joint Committee on Taxation estimated that each year, 22% of contributions made by people aged 50 or younger is prematurely withdrawn typically in cash-outs when workers leave jobs.
They are, however, usually costly and could leave you with a small amount of savings in retirement. You typically must pay penalties and taxes on distributions and you forfeit all compounding tax-deferred that your money could have earned.
There are alternatives. If you're still employed you could borrow out of you 401(k) or halt retirement plan contributions for a short period to free up cash. If you have a Roth IRA, you can withdraw an amount equal to your contributions without owing taxes or penalties.
If you can't stay clear of a large-scale withdrawal, you can minimize the damage by taking out only the amount you require and allowing the remainder to expand. For instance, if you're resigning from your job, you can roll over in your 401(k) account to an IRA and only take what you require out of the IRA. It could save you from having to cash out the whole account.
Be sure to take advantage of health insurance.
You might be in good health right now, but you're just one bad injury or accident away devastating medical bills.
If you're not able to get access to health insurance coverage through your job, look up the Affordable Care Act exchanges at . The cost of premiums has been reduced for most people this year, and coverage can be free for many, including people who get unemployment benefits this year.
A study by the non-partisan health think tank KFF found that the number of people who qualify for subsidies has increased by 20% because of American Rescue Plan Act passed in March. Additionally, nearly 4 of the uninsured people could be eligible for a free or close to free plan.
It is also possible to lower your premiums by opting for high-deductible plans. This means that you will have to pay hundreds of dollars from your pocket if you get sick or injured, but at least you won't face the kind of six- or five-figure costs that can bankrupt you.
Beware high-cost loans
Among the most expensive ways to borrow are , car loan title loans or loans that don't require a credit check. High-cost loans can make it simple to slip into a cycle of debt, where you are unable to pay the loan and are forced to borrow again. Car title loans can put your car at risk of being seized in the event of non-payment.
They may not be as quick or convenient however, they're usually better for your financial health:
If you require help with paying bills, begin by looking up 211.org which is a clearinghouse for government and charitable resources.
If you're unable to pay back the loan you can inquire with the lender about forbearance and other hardship options.
If you have credit card, you should consider a cash advance. These typically incur double-digit rates of interest, however high-cost loans typically have triple-digit rates.
If you're employed, ask your employer for an advance on your paycheck or an emergency loan.
Another option is if you're employed: such as Earnin, Dave or Brigit. Be cautious, however, because the charges can make these loans as expensive as payday loans and put you in a similar cycle of debt if you rely on these loans.
Don't be stiff with the IRS
If you aren't able to pay the taxes, then it might be tempting to not file a return. But failing to file carries much higher penalties than failing to pay, according to CPA Neal Stern, a member of the American Institute of CPAs' Financial Literacy Commission. Additionally, there's no limitation on audits if you fail to make a filing. The IRS could be able to pursue you for several years or even decades after the fact.
The IRS has payment plans that allow you to pay your bill in installments over the course of time. You can also charge a tax payment to a credit card or consider getting an individual loan to pay what you have to pay, 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, and if there is a gap, it could quickly trigger the form of a computer-generated discrepancy notification as well as an audit Stern says.
If you are owed money and you don't pay it, the IRS may seize your banking accounts or garnish your wages and other income until the remaining taxes, penalties and interest is paid, Stern says. The IRS can even seize and sell your property.
"The IRS is probably the most powerful and relentless collection agency you'll meet," Stern says. "If you are owed taxes, you should pay as much as you can, as soon as you are able."
This piece was written by NerdWallet and was originally published by the Associated Press.
About the author: Liz Weston is a columnist at NerdWallet. The author is also a registered financial planner, and author of five money books, including "Your Credit Score."
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