The best ways to raise cash fast

By Liz Pulliam Weston

When you need money fast, the last thing you want is a lecture.

Yes, maybe you should have planned better, spent less, saved more. That's what the finger-waggers would say, anyway.

But you didn't, and here you are. What you do next, though, could determine whether this bind is a hiccup in your financial plans or the start of worse troubles.

Here's my list of the best ways to raise cash, in order, along with two methods you should avoid. (The list assumes that you don't have an emergency fund; if you did, that would be the first place you should turn to for quick cash.)

The best way to get your hands on some scratch is to:

Sell something

The hands-down best way to raise money is to convert stuff you already own into cash. You won't be obligating yourself to future payments, as you would be by borrowing money, and you don't have to invest a lot of time to reap the reward. Consider selling:

• Household possessions. You can list higher-value stuff on an auction site such as eBay, and bulky items that are expensive to ship, such as a car or treadmill, on Craigslist. Computers, cell phones, televisions and video game players may also be worth something, particularly if the items are only a year or two old. Otherwise, a yard sale could help you turn clutter into cash.

• Nonretirement investments. If you have stocks, mutual funds or other investments that are held in taxable (as opposed to retirement) accounts, consider selling them. First on your list should be any investment that's lost value since you bought it, since you won't be incurring taxes on the sale and you may be able to use the loss to offset other income. Talk to your tax pro for details.

• Heirlooms. You may steel yourself to part with Granny's jewelry or china, only to learn what appraisers already know: "old" doesn't necessarily equal "valuable." If you can't part with a couple of hundred bucks to hire an appraiser, you may want to take your items to more than one dealer or jeweler and compare offers.

A tip: If you're selling precious metals like gold or platinum for their scrap value, avoid the companies that advertise heavily. Their money is going to their ad budget, not to ensuring you get the highest price. Read "How to sell your old gold jewelry" for details.

Or you may want to:

Cash out

Like raiding your brokerage accounts, tapping other savings has financial consequences. The biggest one: You risk squandering money that you might need more in the future.

Still, these can be a ready source of cash in the right circumstances:

• Certificates of deposit. If you bust into a certificate of deposit early, you typically lose up to three months' worth of interest.

• Whole life policies. Regular term insurance policies don't have any cash value, but so-called "whole life" policies have an investment component that typically builds up worth over time. If you have one of these policies and no longer need it -- because you don't have financial dependents, for example, or you have sufficient term insurance -- you may be able to extract that value by cashing out. If you still need the insurance, another option is to take out a loan against the policy. But if you don't pay the money back, you risk having the policy collapse, meaning you would lose your coverage.

The next best way to raise money is to:

Earn more

Asking for a raise is always worth a shot, but in this economy big boosts in pay are hard to come by, and smaller ones may not generate the quick cash you need. So consider:

• A second or third job. If your health and circumstances permit, taking on another job can really help you through a crunch. Employment that involves tips -- waiting tables, tending bar, parking cars -- will put money in your pocket the fastest. See "Need an odd job? Give blood, watch porn."

• A side business. Pick one with low startup costs, such as baby-sitting, dog walking, house sitting, poop scooping. If you have particular skills -- as a handyperson, say, or a tutor -- use those to generate cash. See "20 ways to earn an extra $100 a month."

Your next-best bet is to:

Hit up Mom and Dad

For this to be an option, your parents need to be able and willing to help out.

If your parents aren't both flush and generous, leave them alone. Hitting up folks who are already strapped is juvenile, selfish and cruel. Hitting up folks who aren't inclined to share just creates bad feelings.

Continued: Keeping the IRS happy

If they're receptive, though, you can:

• Ask for a gift. Anyone can give anyone else up to $12,000 a year without having to file a gift-tax return. The recipient doesn't have to pay taxes on the money, either. So if you have a family of four, your parents potentially could transfer up to $96,000 a year ($12,000 times two parents times the four of you). Using the so-called "annual gift exclusion" is a part of estate planning for many wealthy families, because such transfers can help rich parents reduce the holdings that might otherwise incur estate taxes after their deaths. But estate taxes will be a concern only if your parents are well off. Currently, estate taxes don't apply until the estate is larger than $2 million.

• Ask them to pay a medical or tuition bill. You can get around the $12,000 limit if your parents pay certain bills directly. The unlimited exclusion applies to medical bills and tuition for you or your family. But the payment must be sent directly to the medical provider or school -- if the money's in your hands, however briefly, the $12,000 limit still applies. Talk to a tax pro for details.

• Ask for a loan. Your parents can loan you money and charge you a below-market interest rate, as long as the rate isn't too low, said Doris Merrick, tax director at Brinton Eaton Wealth Advisors, a financial planning firm in Madison, N.J.

To avoid IRS wrath, the rate your parents charge can't be lower than the IRS' Applicable Federal Rate for the month in which your parents make the loan, Merrick said. For loans made in January 2009, the annual Applicable Federal Rate was:

• 0.81% for loans lasting up to three years.

• 2.06% for loans of three to nine years.

• 3.57% for loans over nine years.

Your parents also should draw up proper loan documents that both of you sign and, if the loan is for a home, have the mortgage recorded with your county. Your tax pro has details, and you may want to use a site such as VirginMoney to handle the payment details. (For more details, see "How to loan money to family.")

If none of the options so far will work, your next choice may be to:

Borrow smart

If you must borrow from someone other than your folks, aim to keep the interest rate low, the payments manageable and -- if possible -- the debt as short-lived as possible. Some options:

• Tap home equity. Lenders are freezing or lowering limits on home equity lines of credit in many areas of the country. If you still have access to yours, though, or have enough equity in your home to entice a lender, HELOCs can be a low-cost source of emergency cash. Borrowers with the best credit can get variable interest rates lower than the prime rate. For the first 10 years of a HELOC, you pay only interest, although you can pay down the principle you owe at any time. Another option is a home equity loan, which is an installment loan that comes with fixed payments and a fixed rate. The current average is just under 8%.

• Reverse mortgage. If you're 62 or older and have substantial equity in your home, you probably can access it through a reverse mortgage. You can get a lump sum, a stream of monthly payments or a line of credit you can tap at will, and the loan doesn't have to be repaid until you move, sell or die. For more information, check out this AARP tutorial or real-estate writer Tom Kelly's book, "The New Reverse Mortgage Formula: How to Convert Home Equity into Tax-Free Income."

• Hit up friends or other family. If your parents don't have cash to lend, maybe your friends or your rich Aunt Tildy can help out. There are plenty of risks for them and for you, of course. Read "Lending to a friend? Look out" for details.

• Consider a social lending site. Sites like Prosper and Lending Club tap of community of borrowers willing to lend money to strangers. Borrowers with the best credit can get personal loans with rates below 9%. As with most other loans, rates are higher the worse your credit.

• Talk to your credit union or bank about a personal loan. Interest rates for people with good credit are around 15%; you may be able to get a slightly better rate from a member-owned credit union. For more, read "Ditch your bank for a credit union."

Continued: Borrow from (but don't cash out) your 401(k)

• Borrow from your 401(k). The big advantage: a low interest rate, usually just one or two percentage points above the prime rate. The big disadvantage: If you lose your job and can't pay the loan back, it becomes a withdrawal, complete with taxes, penalties and the loss of future tax-deferred returns. In fact, borrowing is one of the "7 ways to mess up your 401(k)," and it's particularly dangerous in times of rising unemployment.
  
• Margin loans. Brokerages allow you to borrow up to 50% of the value of your investments, with the interest rate depending on the amount borrowed. The big downside: If the value of your investments plunges, your loan could be called. If you can't pay back the borrowed money immediately, your brokerage will sell your investments to raise the cash. You may be smarter to simply sell the securities yourself when you can get a good value, rather than risking having them sold at fire-sale prices.

• Use a credit card advance. This is a seriously expensive source of funds, and one you shouldn't even consider until you explore other options. Cash advances from credit cards typically incur interest rates of 20% or more; the finance charges start to accrue from the minute you take out the loan.

• Pawn-shop loans. Even if you've never stepped inside a pawn shop, you probably know how they work. You take in something of value -- jewelry, a TV, your guitar -- and the pawn shop gives you a high-interest loan using the item as collateral. The interest rate may or may not be regulated by your state and can range from 20% to more than 100%. Most of the time, you're better off selling the item instead of pawning it; you'll recapture more of its value and you won't waste money on interest.

As risky as the two last sources of funds are, they still beat the following alternatives.

Whatever you do, don't do this . . .

• Cash out an IRA or 401(k). Unless you're over 59-1/2, you'll owe taxes and penalties on your cash-out that will eat up one-quarter to one-half of the withdrawal. Worse, you can't put the money back, so you've lost all the future tax-deferred returns. (Figure every $1,000 withdrawal will cost you $10,000 or more in lost future retirement income.) You especially don't want to cash out a retirement account, which is protected from creditors, to pay credit card bills or medical debt, which could be erased in bankruptcy.

• Borrow from a payday lender. Payday lenders want to be seen as good guys -- willing to help you make it to the next paycheck by allowing you to write a postdated check. The problem is that this well of funds can quickly become a sinkhole. The fees payday lenders charge typically translate to an annual percentage rate of 400% or more, and many people wind up renewing their loans because they can't pay them off in time.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated Jan. 22, 2009