You need money.
Maybe it’s been over 100 degrees in your town for 36 straight days (like it has been in Dallas) and your electric bill is $200 larger than normal. Maybe you got in a car accident because nobody knows how to drive in your city (like all the people in Dallas). Maybe you got home last night and your Chihuahua was gone, and in his cage you found a note reading, “If you ever want to see Petey Pablo again, bring $200 to the shaved ice stand on Maple and Elm.”
For whatever reason, let’s pretend you need $200 in cash. And you need it as soon as possible.
If you don’t have an emergency fund or retirement accounts to take loans against, you’re going to have to get creative. Here are my recommendations on where to get cash in a pinch.
1. Miss a Payment
This may sound crazy, but in most cases you can just miss a payment and wait until your next paycheck. Then you pay off whatever you owe as soon as possible (including any late fees) and you’re in the clear.
A late payment will not affect your credit score unless it is at least 30 days late, so don’t worry about your credit score if you can make your payment by your next paycheck in two weeks. It’s much easier to pay a late fee than it is to take out a loan and pay that back with interest. I also recommend calling the company and letting them know about your situation. In many cases, companies will waive a late fee if you have always made payments on time in the past and you ask nicely.
In this situation, it is important to consider getting another job, decreasing your spending, or a combination of both if you are living paycheck to paycheck. Making one late payment is fine, but if your current income and spending means you’ll have the same problem next month, you need to address the root cause to prevent recurring late fees.
Now, if you’ve already made multiple late payments, or you are trying to come up with ransom money for your dog, this might not be an option. Here are a few ways to actually get cash when you need it.
2. Credit Card Balance Transfer
If you need cash right away and you have a good credit card, this should be the first place you look. This is not a cash advance; it’s a balance transfer. Lots of banks nowadays will offer “balance transfers” where they give you a blank check and allow you to write it to anyone, for any amount up to your credit limit. All you have to do is write the check to yourself, deposit it in your checking account, and you just made a balance transfer.
Usually there is a minimum fee (normally 3-5% of the amount of the balance transfer) and then you’ll pay interest on the loan at the standard purchase or balance transfer rate. Lots of cards run promotional balance transfer APRs as low as 0% for as long as 18 months. USAA is charges a 3% balance transfer fee, but they are otherwise a pretty good organization and won’t try to jack you on the fee calculations.
3. Get an Unsecured Loan at a Bank
There is such thing as an unsecured loan. This means there’s no car or house the bank can come take if you don’t make payments; they are just giving you money and believing you when you say you’ll pay them back. This is a risky loan, so it can be hard to qualify. And even if you do qualify, expect to pay high fees and interest rates on the loan.
The important thing is to do this at a real bank (not a payday loan establishment) and make sure to review all the documents before you sign anything. The interest rate on these loans should be between 10-20% APR. Anything up to 30% is theoretically acceptable, but will be very expensive in the long run if you don’t get the thing paid off early. And remember to address the root cause by getting another job, reducing spending, or both.
4. Credit Card Cash Advance
If you don’t have a balance transfer offer, your next option should be a cash advance. Again, this will require a credit card, but the difference here is that your interest rate will be higher. The strange thing about cash advances are that your cash advance limit is usually much lower than your spending limit. I have to reiterate, the balance transfer is a much better offer, but I imagine there could be situations where a cash advance is your only option.
Be prepared for a high annual interest rate between 20-30%, but at least you’ll have the money you need. I hate to beat a dead horse, but when using this method it is even more important to address the root cause and either bring in more income or reduce spending elsewhere. High interest loans will spiral you further and further into debt if you don’t pay them off quickly.
5. Borrow from a Friend or Family Member
Lots of people would put this at number one because in many cases, this is an interest free loan. I put it lower on the list for two reasons.
First, I don’t like the idea of mixing friends or family with money. When I loan money to my friends or family, I treat it as a gift. That way, I never really expect to get it back and it doesn’t put a damper on our relationship. However, most people aren’t in the financial and/or emotional situation to forgive a personal loan. Friendships are some of the most valuable things in our lives, and risking them for a $200 loan seems ridiculous.
Second, I believe in personal responsibility. If you have a friend or family member bail you out anytime you get in trouble, then trouble isn’t so bad. You might find yourself getting in trouble more often because you know someone will be there to clean up after you. If you can take out a loan at a reasonable interest rate to make your payments, that is a good solution you can handle without needing anyone else.
If you do borrow money from someone you know, you should offer to pay them some interest on their loan. Or better yet, offer to buy them something they want on your credit card (if you have a card and it hasn’t reached its limit), and then have them pay you in cash. That way you are really borrowing money from the credit card company and just using your friend to change a regular purchase into a cash advance.
6. Only When You Have No Other Options, Consider a Payday Loan
If the first five options don’t work, then I recommend going back and trying them all again. If they still don’t work, I hate to say it but you’re in deep trouble.
The only thing left I can think of is a Payday Loan, and these things are scary. They usually charge a 15% fee to borrow money for just two weeks. Keep in mind, 15% in two weeks is 390% in interest over one year. Earlier I was saying that 20-30% from an unsecured loan or cash advance was high. This is 10 to 15 times more expensive than that.
The only time you should ever consider a payday loan is if you are 100% sure you can pay it back and will never need another one. Something like 80% of payday loan customers are repeat visitors, and this is a highly destructive cycle. When you are paying 400% APR, that’s a debt spiral that can suck you in so quickly that you’ll have to keep borrowing money to pay off your payday loans until you eventually declare bankruptcy. Take this article as an example where a woman used payday loans first and eventually took a cash advance from a credit card to pay off the payday loans.
The only reason I even included payday loans on this list is to give you all the reasons not to take one. If you get to the point where a payday loan is your only option, you’re probably looking at declaring bankruptcy in the near future.