The Best (and Worst) Ways to Raise Fast Cash

What credit crunch? Here are 17 ways to get your mitts on some money, ranked from best to worst.

1. Tap Your Emergency Fund

Pros: Duh - this is what an emergency fund is for. And with most cash investments yielding less than inflation, you won't be missing much.

Cons: Draining it leaves you unprepared for the next crisis. So start building that cash cushion back up ASAP.

2. Sell Some Investments

Pros: Nonretirement ones, that is. If it's been a while since you've looked at your portfolio, it probably needs rebalancing anyway - so sell asset classes that you're over-weighted in (probably bonds, given the pathetic return of most stocks lately).

Selling securities that have done well locks in your gains; selling losers lets you reduce your capital-gains tax bite. You can write off $3,000 a year in investment losses and carry over the excess into future years.

Cons: You'll owe capital-gains taxes of up to 15% on an appreciated investment you've held for more than a year; if you've held it less than a year, you'll owe ordinary income tax.

3. Ask the Folks for a Gift

Pros: The IRS never taxes you on a cash gift you receive. (Yippee!) However, the giver may owe tax if he or she bestows more than $12,000 on you in any one year. A married couple can give you $24,000 total in a year, tax-free. So if your parents are planning to leave you an inheritance, let them know you could use some of it right around, uh, now.

Cons: Psychological only. (Is money from Mom ever really free?)

4. Bust Into a CD Early

Pros: A certificate of deposit is cash you already own - and you can get at it fast.

Cons: Cashing in a CD before it matures triggers an early-withdrawal penalty that varies but is typically three months' interest on CDs of less than 18 months to six months' interest on CDs of two years or longer, according to Bankrate.com. To pry open a one-year, $10,000 CD earning 4%, you'd pay a penalty of about $100. One consolation: You can deduct it on your tax return.

5. Cash in Your Whole Life Insurance Policy

Pros: Because whole life policies are typically poor investments, it's not like you'd be sacrificing very much. You can replace your coverage with cheaper term insurance.

Consider Deanna and Andrew Thomas, 43 and 41, of West Hills, Calif. When Deanna's income as a realtor fell, the Thomases racked up $16,000 in high-rate credit-card debt. So they're now planning to cash in the two whole life policies - $125,000 in coverage for Deanna and $150,000 for Andrew - they bought back in the '90s. They expect to receive $21,000. To replace their coverage, they plan to buy $1 million worth of much cheaper term insurance (cost: about $200 a month vs. $158 in whole life premiums for a quarter of the coverage). "We think it's a wonderful option because we don't like to be in debt," says Deanna. "Starting anew feels good."

Cons: You won't have any cash to get out unless you've paid premiums on a whole life policy for at least two years - and it may take many years more until your policy is worth a sizable amount. You'll owe regular income tax on the gains. Finally, it can take a few months to get replacement term life insurance, which you'll want to do before you cash out your whole life policy. The Thomases started the process in May and in mid-July were still waiting for their paperwork to be processed.

6. Borrow From Family or Friends

Pros: There's no limit on how much you can borrow - beyond what your loved ones are willing to lend, of course. And the interest rate can be lower than a bank would charge.

When Ashish Rajadhyaksha, 34, couldn't get a $60,000 loan from his bank to cover operating expenses for MoonSoup, the New York City child-development center he opened in 2005, his wife Gurmeet's sister, Manjeet Kaur, agreed to lend him the money. Rajadhyaksha insisted on signing a formal agreement and paying 10% interest: "I made the investment worth her while."

Cons: You'll need to pay "reasonable" interest on loans above $10,000, per IRS rules. Check what local banks are charging for personal loans (about 10% to 15%) and don't pay more than one percentage point below that, advises Michael Eisenberg, a C.P.A. in Los Angeles. Another drawback: If you're not crystal clear about the terms of the loan, you can ruin your relationship. So get it in writing, including the amount borrowed, interest rate and repayment terms.

7. Take Out a Home-Equity Line of Credit

Pros: HELOC interest rates average just 5.7%, according to mortgage tracking firm HSH Associates - and because interest on loans of $100,000 or less is tax deductible, the real cost is even lower. HELOCs also have low up-front fees.

Those advantages prompted Pam Massey, 43, and her husband D.L. Byron, 41, to take out a $100,000 HELOC in June. The couple's home has long been in need of a renovation (daughter Angela, 12, sleeps in the basement) but they haven't yet found the right contractor. With a HELOC, they don't have to start paying interest until reno bills arrive. "We wanted to be flexible," says Massey.

Cons: HELOCs can be hard to get: You'll need a credit score of 680 or better and more than 20% equity. HELOCs are also harder to keep than they once were. Jason Bloom of Elliot Bay Mortgage in Bellevue, Wash. says some of his clients' HELOCs have been frozen recently because their house fell in value or their bank tightened lending standards.

"It's a widening trend," says Bloom. Finally, HELOC interest is variable, so it can climb uncomfortably high. Rates hit 10.3% in 2000.

8. Do a Cash-Out Mortgage Refinancing

Pros: It may be easier to get a bank to approve a cash-out refi than a HELOC. Many lenders still let you borrow as much as 90% of your home's value. Rates are just under 7% for a 30-year fixed, and the interest you pay on your primary mortgage up to $1 million is tax deductible.

Cons: Taxes and fees are hefty - you'll pay about 3%. Because you're refinancing your entire mortgage, you'll owe that fee on the whole loan, not just on the cash you're getting out. And if you borrow more than 80% of the value of your home, you'll probably have to buy mortgage insurance, which would add $175 a month to a $400,000 loan.

9. Borrow From Your 401(k) or 403(b) Plan

Pros: You're borrowing money from yourself at a low rate (usually prime plus one point, or 6% recently) - so the interest you pay goes right back into your account.

Cons: Not every plan will let you take a loan (about 85% do). Some restrict borrowing to a home purchase, education or medical expenses. You're limited to borrowing 50% of the vested amount. You must start paying the money back right away, and if you leave your company you have to pay up immediately. But the biggest drawback is the loss of potential investment gains.

10. Borrow Against Other Investment Accounts

Pros: Anyone with an investment account can qualify for a so-called margin loan, which costs nothing to open. The rates are decent: typically 6.2% to 7.3% for accounts with at least $50,000 in assets.

Cons: It's a bad idea to borrow more than 25% of the value of your stockholdings (even though you're allowed to borrow up to 50%). That's because drops could trigger an automatic sale.

Say you have $100,000 in assets and borrowed half of that. If your portfolio falls 10%, you are now allowed to borrow only $45,000, or $5,000 less than what you borrowed. Assuming you don't have the cash on hand, your broker will have to sell double the difference, $10,000, to get you back in line with the 50% limit, lowering your investment account to $80,000. If the stock market keeps falling, this can be a vicious cycle of forced selling when stocks are already down.

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