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Scrounging Up Cash When You Don't Have a Dime

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Life happens. And not always right on schedule. Worse yet, sometimes it coughs up an expensive emergency.

If that happens, and you don't have an adequate emergency fund, there are other places to get the cash.

How to make the best of a bad borrowing situation
None of these options is great, or even good. But if you must, you must. Here's a general pecking order of places to get the cash:

1. Call in those IOUs. Think about who owes you, and start at the office. If you have a flexible-spending account or have incurred reimbursable business expenses, submit your receipts. If you regularly get a tax refund, adjust your withholding. Doing so will immediately increase your take-home pay.

2. Sell stuff. You may be surprised how much you can make off of stuff that's just gathering dust. Clean house and hold a garage sale, or sell things on eBay or Craigslist.

3. Sell your subpar investments. Identify stocks and mutual funds (or even CDs or bonds) that you hold outside your regular retirement accounts. In tax terms, it's best to sell the ones that have lost you money. If you sell at a loss, you can offset other gains and pay less in taxes on those. But if you've made money, prepare to pay those capital-gains taxes come next April.

4. Put it on plastic. Credit card debt can be a slippery slope. If you have no choice but to run up your credit cards, come up with a payoff plan ASAP.

5. Borrow from your home very, very carefully. If you must, borrowing against your home equity will probably provide you the lowest rate, and the interest may be tax-deductible. That said, proceed with caution. You're risking the roof over your head (aka a secured asset) should you be unable to pay the money back.

6. Borrow from your future self. Here again, I urge caution. You pay a steep price -- both in taxes and lost future growth -- when you dip into your retirement accounts before age 59 1/2. Before that age, you'll generally pay a 10% penalty and ordinary income tax for money withdrawn from traditional IRAs and 401(k)s. (You may be able to get the penalty waived in some emergency medical circumstances, but check in with the IRS before you start spending that extra money.) Taking from a Roth IRA may be a better option. You can withdraw your contributions (though not your investment gains) at any time, without a tax penalty.

Scared into saving more? Good! Even if layoffs aren't looming and no other money maladies seem likely, an emergency stash of cash is what keeps you from painting yourself into a financial tight spot -- a corner you can easily avoid by making the right arrangements.

Related links:

To avoid nonemergency emergency spending, Fool.com columnist Dayana Yochim keeps her emergency cash stash someplace where it cannot be accessed by an ATM. The Fool has a disclosure policy.


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