The CARES Act was passed in response to the coronavirus pandemic. To help the American people deal with the economic impact, there are several forms of financial assistance in the stimulus package. This included increasing the amount people are able to withdraw from their retirement accounts (penalty-free). Taking money from those accounts isn’t the best move though. Here’s why and where you should borrow money from instead…
Why You Should Avoiding Borrowing From Retirement
There are plenty of reasons why you should think twice before you dip into your retirement accounts. The COVID-19 pandemic won’t last forever and eventually, you’ll still want to retire.
Not to mention, it isn’t yet clear as to whether or not you’ll be subject to interest or have to pay the amount your borrow back in the future. This may differ between financial institutions and the type of account (401K vs IRA, for instance).
Additionally, there are many other sources of financial assistance available at this time. Instead of taking money from your future, consider using the resources available now and see how far they get you. Then look at your other options. But first, think about where you should borrow money instead of your retirement.
3 Places Where You Should Borrow Money Instead
There are a number of places you can get money if you really need it, but you certainly want to avoid title loan shops unless you have the one you trust and have experience with. If at all possible, you also want to avoid pawning items that are valuable to you or similar action. Instead, you should borrow money from these sources instead…
1. Your Emergency Savings
Whatever emergency fund you have, now is the time to use it! You have that money set aside for times like these. Once your finances stabilize again, you’ll be able to refund your EF and continue working on your other financial goals. Most of all, you’ll be thanking yourself later when you have that money set back for your retirement still.
2. Look For a 0% APR Credit Card
If you have good credit, now is a good time to leverage it to your advantage. Search for some 0% APR credit cards or personal loans to help you through your rough spot. Of course, it is still important not to borrow more than you can pay back (once you’re back to work).
3. Consider a Home Equity Line of Credit
Individuals who own their own may have some equity in it. When it comes down to it, this is a second mortgage. So, you will be making an extra payment every month. However, because interest rates are so low right now, a home equity line of credit would be fairly inexpensive where interest is concerned.
In the end, it is important for you to do what you need to for yourself and your finances. If withdrawing money from your retirement account is what you need to do to get by right now, by all means, you should. Before you do, think about some of these other ways you might be able to borrow.