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6 Ways to Beat a Cash Crunch
Pay Off Debt
One of the most rewarding ways to cut your costs is to reduce or eliminate monthly finance charges that you incur on your credit cards, home equity line of credit and other debts. Pay down the balance on your highest interest-rate debt first and pay more than the minimum payment each month, so you can take advantage of what Belluardo describes as a "snowball" effect: "Even if you pay the same amount every month, more and more goes to principal, which means that the debt gets paid off faster," he says.
Cassandra Hubbart, AOL
The Record
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6 Ways to Beat a Cash Crunch
If your budget is like that of so many other households, it may seem like you never have quite enough cash on hand to pay all your bills at the end of every month and still set aside a few extra bucks for a rainy day.
Click through our gallery to see six tried-and-true techniques financial planners suggest that can help you improve your liquidity and boost your cash flow without resorting to such drastic measures
(To page through gallery, mouse over the image on left and click the right arrow.)
6 Ways to Beat a Cash Crunch
Stop Spending
The first line of defense against a personal cash crisis is to slash your budget so you're living within your current means, says financial planner Karen Keatley, owner of Keatley Wealth Management in Charlotte, N.C. Examine your checking account and credit card statements for the past few months and identify any opportunities to reduce discretionary purchases or put the kibosh on automatic subscriptions and membership renewals that consume cash.
6 Ways to Beat a Cash Crunch
Pay Off Debt
One of the most rewarding ways to cut your costs is to reduce or eliminate monthly finance charges that you incur on your credit cards, home equity line of credit and other debts. Pay down the balance on your highest interest-rate debt first and pay more than the minimum payment each month, so you can take advantage of what Belluardo describes as a "snowball" effect: "Even if you pay the same amount every month, more and more goes to principal, which means that the debt gets paid off faster," he says.
6 Ways to Beat a Cash Crunch
Get Rate Cuts
Even if you're not able to make a sizable dent in your debt, you can ask your credit card company to lower your interest rate or you can transfer your balance to a different credit card that has a lower rate. Either way, lower finance charges will reduce your monthly costs, improve your cash flow and help you pay off your debt sooner. Be cautious about balance-transfer offers: Some credit cards have high fees that outweigh the benefit of a lower interest rate.
6 Ways to Beat a Cash Crunch
Earn More Interest
Another way to improve your monthly cash position is to transfer extra cash in your checking account into higher yield investments such as short-term CDs or money market funds. Even a savings account could be a smart move if you have any cash that's not earning some sort of return, however small the amount may be.
The downside is that these types of investments are "sort of a losing game" because they rarely earn a high enough return to overcome inflation, Keatley warns. Worse yet, bank fees can wipe out or exceed any interest you earn on a checking or savings account. If you have multiple accounts that are dinged to the tune of $10 or $12 every month, you might want to reduce those costs by consolidating your cash into fewer accounts.
6 Ways to Beat a Cash Crunch
Tap Your Equity
A severe cash shortage that can't be ameliorated by spending cuts or investment reallocations may necessitate some type of short-term debt to resolve. Planners generally suggest a home equity line of credit first, followed by a retirement account loan and then credit card debt only as a last resort. If you have equity in your home and a means to repay the debt, getting a home equity line can be good strategy.
6 Ways to Beat a Cash Crunch
Borrow Against Savings
If you have an individual retirement account, or IRA, you can take out cash without incurring an income tax penalty as long as you repay the full amount within 60 days, according to Robert Bartley.
"The IRS rule is that you can take money out of your IRA, and if you can prove that you put it back in, it's not considered a withdrawal," he says.
If you have a 401(k) retirement plan through your employer, you can borrow up to $50,000 of your own funds. Be aware, however, that if you don't repay the full amount before you leave your job, whatever you still owe will be treated as a premature withdrawal subject to income tax penalties, Bartley explains.
Read Entire Article at Bankrate.com
6 Ways to Beat a Cash Crunch
