Need cash now? Some funding sources are better than others

WASHINGTON » When you’re in a financial crisis, it’s hard to think clearly. You need cash fast, and this pressure to find money gets in the way of considering the long-term consequences of your decisions.

But if you tap the wrong pot — a payday loan or credit card cash advance — you could make things worse.

Whether you’ve been laid off permanently or furloughed, here are the pros and cons of various sources of cash as outlined by Kelley Long, a certified public accountant and consumer financial education advocate for the American Institute of CPAs.

• Apply for any kind of work. “There are good companies that are desperate for workers right now,” Long notes. Grocery stores, delivery companies and distribution warehouses are adding positions due to increased demand. Financial institutions need more people for their call centers.

Pro: It’s work that pays. Con: Some of the jobs may put you at risk of contracting the coronavirus, so be sure to protect yourself.

• Unemployment insurance. Apply right now.

Pro: The $2 trillion stimulus package includes beefedup benefits for laid off employees, the self-employed, independent contractors, freelancers and gig workers. You may be eligible for an extra $600 per week as well as an additional 13 weeks of benefits. Additionally, if you had to quit your job for a coronavirus-related reason, you can still qualify for unemployment insurance. At CareerOneStop. org, a site sponsored by the Department of Labor, you’ll find information on how to file a claim and details about the newly added benefits as a result of the coronavirus pandemic. Click the link for “COVID-19 Unemployment Information.”

Con: You may feel embarrassed. Don’t let your pride get in the way of tapping this income source.

• Put long-term savings on pause. Dire times require extreme measures. If you’re still working but your hours have been reduced or you fear you’ll be laid off, stop making retirement contributions, even if you’ll miss out on a company match. Suspend contributions to 529 college-savings plan.

Pro: You’ll have an immediate inflow of cash.

Con: You’ll fall behind in saving for retirement or funding your child’s college expenses. But your short-term needs trump long-term goals right now.

• Ask for help from family and/or friends. There’s no shame in asking for assistance for circumstances beyond your control. You may want to ask for a loan, but first request the aid be a gift. There’s no telling how long you’ll be in a financial pinch. Don’t make a promise you may not be able to keep by insisting on a loan. However, if the person wants it to be a loan, put the terms in writing.

Pro: If it’s a gift, you don’t have to pay the money back.

Con: If you accept the money as a loan and you can’t pay it back, you could jeopardize your relationship.

• Retirement loan or withdrawal. If the only pot of money is your retirement account and you’re desperate, do what you have to do. Often employers will require you take a loan before making a hardship withdrawal, Long said. A loan is better because you won’t owe taxes on the withdrawal. But if you have to take a distribution, at least the new stimulus package waives the 10% penalty up to $100,000 for earlier withdrawals if you’re younger than 59½.

Pro: New and existing loan payments can be deferred for a year. If you pull money from your retirement account, the income tax due on the distributions may be spread evenly over three years, according to Fidelity Investments. Or the money can be repaid within a three-year period.

Con: You’ll be taking money out while the market is now down sharply for the year.

Here are the last two places to tap and should be reserved for the direst situations.

• Credit card cash advance and payday loan. This is costly cash. If you have no other choice, borrow as little as possible.

Pro: These are fairly easy to access.

Con: The typical cash advance rate is around 25%, plus there’s a 3% to 5% upfront fee, according to Ted Rossman, industry analyst for CreditCards.com. When the fees for a payday loan are annualized, they often amount to triple-digit interest rates — more than 1,000% in some cases. If you can’t pay the loan back by your next payday, things can quickly snowball out of control, Long points out.

These are extraordinary times, and you may have to go against all the conventional advice to find the money you need. But choose wisely to minimize long-term damage to your finances.

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