My guess is you are reading this post because you need money ASAP and you don’t want to pay an arm and a leg for the cash. Am I right? Good. We’re both on the same page.
In this post, I’m going to give you some good leads on potential sources for quick and inexpensive money.
Best places to borrow money:
1. Yourself
This may surprise you but I’ve run across lots of situations where people already have (some or all) the money they need but didn’t see it.
Do you already have the money you need? Are you sitting on a pile of cash in your savings or emergency account?
As I said, I meet with people all the time who have the money they need but somehow forget they have it. This happens all the time.
For example, just yesterday I met a couple who had accumulated $20,000 in personal loans and credit card debt. The personal loan interest rate wasn’t terrible but they were paying 12% on the credit card debt. Aye Carumba!
At the same time, they were sitting on $30,000 in their savings account which was to be used for emergencies.
I explained that having credit card debt and paying 12% was officially an emergency and they should tap that savings to pay off the debt.
They told me that they didn’t want to touch the emergency money and preferred to borrow the money they needed.
I told them that I understood but I explained that if they encountered an emergency before they had time to rebuild their emergency fund back up, they could then look to take out a loan.
I went on to explain that since the bank was paying them 1% on their savings and the credit card company was charging them 12% for the debt, they simply had to make the smart move and pay off the high cost debt using the low earning savings.
If you are sitting on cash or investments but need money for other reasons, you might have solved your own problem.
Sometimes people like the idea of holding on to those savings and emergency accounts. I get that. But please think about the costs and risk before taking on debt.
Remember, if you can pay off a 12% debt – or take steps to avoid paying 12% by using existing capital, that’s like earning a guaranteed 12% with no risk. Of course your situation might be different.
That’s why it’s always good to check with your financial advisor. But in most cases, you are better off using your own money rather than leaning on credit cards and personal loans.
And before we move on, let’s take another look at this same idea with a slightly different spin.
You may not have all the money you need but you might be able to “create” the money you need a lot faster than you think. Let’s examine this by way of an example.
Another couple wanted to borrow money to pay off credit card debt (smart) while at the same time doubling up on their mortgage payments and contributions to 529 accounts for the kids (not such a good idea).
It’s wonderful to put dough aside for the kids and to pay off that mortgage as fast as you can. But you have to go back to the cost/risk question.
If the cost of borrowed money is high, you should probably put all your resources towards paying that off first before putting money aside to pay for other goals.
One caveat – it almost never makes sense to “borrow” money from your retirement assets. This requires a post all by itself, but in a nutshell, there are two major reasons for this.
First, depending on the kind of retirement account you are “borrowing” from, the loan proceeds may be taxable and you may even have to pay a 10% penalty on the money.
Even if the taxes don’t apply, the bigger issue is that once you start down this path, it’s easy to not pay the money back and thereby torpedo your future.
A good retirement plan does not include tapping in to your retirement savings for current lifestyle payments friend.
Again, this topic deserves a post all on its own and I will write more on this shortly. For now, just trust me and do not borrow from your retirement accounts if you can avoid it.
2. Your family and friends
Borrowing from family and friends is something that most people tend to shy away from. I understand this. But before you dismiss the idea, let’s consider the benefits.
Assuming you make your payments (and if you aren’t sure you can make those payments don’t even start approaching these people), it could be a win-win.
You might be able to reduce your interest rate significantly and they might be able to earn more than the bank is paying. Muy Bien!
If you decide to pursue this, present your would-be lenders with a written out repayment plan which includes your personal income statement showing income and expenses.
This should prove to them that you’ll have the cash to make your payments. It also shows them you mean business.
3. Other Credit Card Companies
Many credit card companies offer you no-interest loans for up to 18 months when you roll your debt over to them.
They do this because they realize that most people will forget about it and not want to go through the hassle of rolling it over again so once that introductory period is finished, they can zing you with sky-high rates.
Fortunately, you don’t have to put up with that.
Just invest a little time, find a good no-interest offer, roll your debt over to the new company and be diligent about paying it off over that time.
If you can’t pay it off complete just do the best you can and be sure to set a reminder a month before the time expires so you can roll the debt again.
4. Personal Loans
If none of the ideas above work, you can always contact a peer-to-peer lender or online financial institution to arrange a loan. These are fast and (usually) cheaper than credit cards.
The companies I like in this space are Lending Club, Prosper and Upgrade.
Of the three, I like Upgrade right now because unlike the other two lenders, Upgrade uses money from their own investors. That means they don’t have to find a number of private people who are willing to advance you money.
The company itself has huge investors lined up and Upgrade itself makes the “yes or no” decision. That means you’ll get your answer quicker and (potentially) at a lower rate.
5. Abstinence
This choice is actually my #1 favorite option. Assuming you aren’t trying to refinance debt but you want a pile of dough in order to undertake a project, you can always just delay or tell yourself “no”.
Of course, there are times when it does make sense to borrow money. But in my experience, it really pays to take a hard look at your project and ask yourself if it’s as urgent as you think.
If you want to do something that you don’t have the money to do right now, maybe that’s the Universe’s way of saying it’s not meant to be. I don’t know this of course. I’m just saying you want to consider it.
If you need to get your hands on money fast and inexpensively, these ideas can help. Take a little time and push back against the impulse to solve your cash problem immediately.
It might take you a few extra days to arrange the loan but that could be time really well spent.
Marcos says
Neal, I was strongly advised by my bank to move a big portion of my portfolio to sma. Didn’t like the strategy from the beginning, since most of my investment choices are from my own research. They are not fantastic, but much better than when I followed literally all my financial advisor’s instructions . Although almost 10 years old, your article about sma is crystal clear, and converged with my intuitions.
Thank you very, very much.
Ryan says
Some great tips here. Do you know if the P2P sites you mention here have seen the rates drop on the loan side? Curious if this mirrors banks and credit union rates at all given our current interest rate environment.
Ashley Hoober says
Its so true that we often already have some or most of the money were looking for! I find that people are just so afraid to look into their savings, or afraid of losing interest (not realizing the interest on loans). Thanks for the wonderful tips!