Need to Borrow Money? Here Are Your Best and Worst Options

Home equity lines of credit (HELOC): Home equity lines of credit also involve borrowing against your home’s equity, but you don’t take a lump sum. Instead, you’re approved for a line of credit to use as needed, and will be required to repay the entire amount you borrow at the end of a designated period. There are often fees and closing costs, and while interest rates on whatever debt you incur are around 5.29% as of this month, HELOCS often have variable rates, so the rate you pay could end up higher. Because your house is collateral, the risk level is also high.

401(k) loans: Borrowing from your 401(k) may seem like a great solution to your cash flow issues since you pay the interest to yourself. But there’s a huge risk. If you leave your job, you either have to pay the entire loan back right away, or take a huge tax penalty. In fact, tax penalties hit if you don’t pay the loan back on time for any reason. Moreover, you’re jeopardizing your retirement security and losing tax benefits, because you’ll repay your loan with after-tax funds, but that money is treated the same way as your tax-deferred contributions when you withdraw it in retirement.

Cash advances: Credit cards lenders will also loan you cash to pay for things you can’t charge. The interest rates on those cash advances are usually exorbitant, with median rates of 24.24%, according to CreditCards.com. This option should be considered one of your last resorts, something to consider only when you’ve exhausted nearly all other avenues for borrowing.