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Without breaking the bank

If you really needed to get your hands on some cash quickly, would you know how?

Here are some ways that you can raise cash in a hurry. It is important to consider the financial cost of your options and determine whether you can afford to make the additional debt payments you may incur because of added borrowing.

In other words, if you can’t pay for it now, what makes you think you will be able to pay for it later?

Life insurance loans

Borrowing from a life insurance policy with cash surrender value is possible if you have had it long enough to accumulate some cash value. However, be sure to consider your interest rate costs. You’ll be charged a fixed rate to borrow from a newer policy, with policies that offer variable rate loans charging slightly more. If you purchased your policy in the mid-1970s or before, you may be charged even less interest, which is a bargain, compared to the 18.9 % or more you’d pay to take out a cash advance on a credit card. Most policies allow you to borrow up to 95% of the cash values you’ve accumulated. Check with the insurance company that issued your policy or your insurance agent for more details before you decide to withdraw any funds.

Once you have an account established it is much easier to manage your money. I always recommend that you have a debt-free account and a regular bank account for your daily transactions.

Retirement Savings Plan loans

Money can be borrowed from your Registered Retirement Savings Plan without attracting tax to the withdrawal of funds if the funds are used to purchase your first home – the maximum withdrawal is $20,000 and must be repaid within 15 years even if the person files for bankruptcy. The writer does not recommend the withdrawal of RRSP funds for any reason other than retirement or a home purchase.

Borrowing against your house

If you own your home and have built up equity (which means you’ve either paid off part of your mortgage or the value of your house has increased since you’ve owned it), then you can borrow this equity either in the form of a loan or a line of credit. If you take out a home loan, you’ll get a lump sum of money immediately.

A home equity line of credit is issued in the form of funds you can draw on, as you need to, usually by writing checks you’re given when you’re issued the line of credit. You pay interest on the line of credit as you use it. If a job layoff or another reason for needing emergency funds is looming, apply for a home equity loan or line of credit before disaster strikes. Banks will be less enthusiastic to grant you credit if you’re unemployed or are already having trouble paying your bills. Keep in mind that the collateral for the loan is your house – you pledge it to the lender as part of the security on the loan – and if you miss a payment, the lender can initiate foreclosure proceedings to take possession of it.

Borrowing from the bank

As a last resort, if you run into an emergency and have no place else to turn, you can turn to the bank. Consumer loans, overdraft protection, and credit card advances are three options for cash that may be available to you. They each have different interest rates and overall costs. For example, credit card companies routinely tack on a 2% fee for giving you a cash advance, and they charge a higher interest rate on money withdrawn as a cash advance, anywhere from 16% to 22%. Consumer loan rates run between 12% and 17%, but make sure to check out rates offered by your local credit unions (if you have access to one), because they are always comparable or lower than rates charged by banks. The interest-rate charge for overdraft protection (which is a credit line that you can attach to your chequing account so you can write cheques and make withdrawals, even when your balance is $0) hovers around 18%. But remember, you can only apply for overdraft protection at your bank, and the line of credit it extends may only be $500 or $1000.

Other credit solutions

Try to be creative about borrowing, especially if there is some chance that you may not be able to meet payments on a new loan. If you have assets that are valuable, such as a boat, a second car, or jewelry, consider selling them. A night or weekend job or even a job you get through a temporary agency if you’re unemployed can also go a long way toward making ends meet. If you have a family member or friend who is willing to make a loan to you, agree to pay the interest and make sure you can repay the loan in full in a timely fashion.

And remember, if you can’t pay for it now, what makes you think you will be able to pay for it later? Don’t borrow money unless you really need to. Try to live within your means and have a balanced budget.

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