A dozen timely ideas on how to pay unexpected bills and weather tough times. By Mary Beth Franklin, Senior Editor and Stacy Rapacon, Online Editor December 1, 2008 Editor's note: This story has been updated since it was published. Suddenly, the traditional wisdom of putting aside cash for an emergency seems more important than ever. With the economy still struggling, it makes sense to have three to six months' worth of living expenses -- even more if you can manage it -- tucked away in a safe place. In the meantime, read on to discover more ways than you probably ever imagined to turn your hard assets into cold cash if you need to. 1. Sell investments The whole point of establishing an emergency fund is to avoid selling stocks and mutual funds in a down market. But if you must sell, you can raise some cash and lower your tax bill at the same time. Sell losers in your nonretirement accounts by year-end and you can use your losses to cash in an equal amount of investment gains tax-free. Then, you can use your losses to offset up to $3,000 of ordinary income and carry over excess losses into future years. 2. Take out a margin loan What if you have investments that you don't want to part with? You can borrow up to half the value of your taxable investment account. But this could be a risky strategy in today's volatile market, warns William Jordan, head of Sentinel Capital Management, in Laguna Hills, Cal. A decline in your portfolio may boost your loan-to-account-balance ratio above the 50% limit. If you can't satisfy your broker's demand to deposit more money to boost your account balance, you may be forced to sell even more assets to cover the margin call. Advertisement 3. Tap your home equity Of course, the best time to apply for a home-equity line of credit is before you need it so you can hold it in reserve. And many homeowners with existing home-equity lines of credit have seen them reduced or frozen, reflecting declining home values, says Keith Gumbinger, vice-president of HSH Associates, which analyzes consumer-lending trends. But you may still be able to establish a credit line -- as long as you have more than 20% equity in your home, steady income and a credit score of about 720 or higher, says Gumbinger. Your best source for a loan may be a local bank, a savings and loan, or a credit union that wasn't affected by the subprime-mortgage fiasco. 4. Research government aid New homeowner Robert Wheeler escaped the wrath of Hurricane Ike when he evacuated Kingwood, Tex., near Houston, in September, but his house didn't. When he returned, he wasn't prepared to cover the $3,000 deductible on his homeowners insurance to deal with the fallen trees that destroyed his garage and damaged his house. "I had only about $500 set aside for emergencies," Wheeler says. "And a lot of contractors won't take credit cards. They want cash upfront." Ineligible for a home loan or line of credit due to increased equity requirements, Wheeler, 28, was thrilled to learn he could apply for a low-interest loan from the Small Business Administration. Despite the name, you don't have to own a business to qualify. Homeowners and renters in declared disaster areas are eligible for loans of up to $200,000 to repair or replace damaged real estate and personal property. In some cases, interest rates are less than 3%. For details, go to www.sba.gov and click on "disaster assistance." To investigate other government aid, go to www.usa.gov and select "benefits and grants." Advertisement 5. Boost your take-home pay If you received a tax refund last year and your financial situation hasn't changed substantially, too much tax is being withheld from your paycheck. Try our easy-to-use calculator to figure the correct number of allowances you can claim to boost your take-home pay. You may also want to readjust your withholding allowances if you got married, had a child or bought a home this year. If you qualify for some of this year's new tax breaks, such as the $7,500 tax credit for first-time home buyers or the $500 property-tax deduction ($1,000 for joint filers) for homeowners who don't itemize, get a jump on lower taxes now by filing a new Form W-4 with your employer. 6. Cash convenience checks You know those blank checks credit-card companies send you in the mail? Instead of chucking them, consider cashing them. But be careful, says Gerri Detweiler, credit adviser for Credit.com. "If you slip up and miss a payment, even by a day, you could see your interest rate skyrocket," she says. Be sure to read the fine print and watch out for fees, which recently were as high as 4% of the transferred balance. That's $200 you'd have to pay upfront to cash $5,000. When you get a sheet of checks in the mail, carefully review the terms on each check. One might offer a 0% annual percentage rate for six months, while another may carry a 6.99% rate until the balance is paid off. The higher-rate offers are becoming more common, says Detweiler. Still, if you're careful and you know you can pay back the loan before the promotional offer expires, credit-card checks can be a good deal. "Make a photocopy of the offer and keep it with the bills so you have a record of what you were promised," Detweiler adds. Advertisement 7. Borrow from your 401(k) Most workplace-based retirement plans allow you to borrow up to half of your balance, but not exceeding $50,000. The loan comes due in full if you leave your job, so this is not a good choice if your job status is tenuous. If you fail to repay the loan on time, the money will be treated as a distribution, making it subject to federal and state taxes plus a 10% early-withdrawal penalty if you are younger than 55. 8. Withdraw from your Roth IRA You can withdraw your contributions to a Roth IRA (but not your earnings) tax-free and penalty-free at any time. However, you'll sacrifice any future growth of those funds. You can't redeposit the money you withdraw, but you can continue to contribute up to $5,000 in 2008 and 2009 (plus an extra $1,000 if you are 50 or older) as long as your income doesn't exceed $116,000 if you are single or $169,000 if you are married filing jointly. 9. Tap your life insurance If you have whole life insurance -- the kind that builds up a reserve inside the policy -- you can borrow up to the full cash value. You do not have to repay the loan; if you don't, the death benefit will be reduced by an equal amount. You have to keep paying the premiums if you want to keep the policy in effect. If you no longer need the insurance or have replaced it with a less-expensive term policy, you can simply surrender the policy and keep the cash. Policyholders 70 or older, or younger people with medical conditions that reduce their life expectancy, may be able to get a bigger payout by selling their insurance to a third party. The buyer continues to pay the premiums and collects the death benefit when the insured person dies. But the life-settlement market is experiencing problems of its own, says fee-only life-insurance consultant Glenn Daily. New tables that reflect longer life expectancies are reducing payouts, and the nationwide credit crunch is making it harder to structure settlements attractive to both buyer and seller. You can find an estimate of how much you might get at Daily's Web site, www.whatsmypolicyworth.com. But, he says, "I would exhaust other possibilities before I sold my life insurance in this marketplace." Advertisement 10. Borrow from strangers To pay his way through college, Max Stephenson is depending on the kindness of strangers. But he's no Blanche DuBois. Far from a tragic figure, Stephenson believes his future to be so promising that thousands of people ought to invest in him. In August 2008, about a month before the 18-year-old began classes at New York University, he sent a mass e-mail to plead for tuition assistance. He explained that his dad worked three jobs and his mom was immobilized due to complications from hip surgery. Even with grants and scholarships, he'd still need $25,000 to cover the whole bill. "That is the amount my parents would have to borrow," says Stephenson. "I refuse to tap into their future, even if they had the funds to repay it. They've done enough for me." Instead, he's asked 10,000 people to donate $2.50 each; by mid October, total donations had reached almost $11,000. Help came from more than 2,000 individuals sending as little as 66 cents and as much as $500. If guerrilla marketing is not your style, you can tap strangers' largess through LendingClub.com. The social lending network offers a forum where hopeful borrowers list their desired loans for two weeks and potential lenders invest in them. To post a loan request, you must have a FICO score of at least 660 and a debt-to-income ratio (excluding mortgage) of less than 25%. You can borrow an unsecured loan between $1,000 and $25,000 with interest rates starting at 6.39%. Once a loan finds a lender and gets funded, borrowers pay processing fees of 2.25 to 4.5%, which are subtracted from the loan. So, for a $5,000 with a 2.5% processing fee, for example, only $4,887.50 will reach the borrower’s bank account. There are also fees for late or unsuccessful payments. Propser.com is a similar site to consider. 11. Lean on family and friends If people close to you are willing to help, keep things from getting messy by setting up a formal loan agreement. Virgin Money USA specializes in managing loans between friends and relatives. Packages for business, personal and student loans range from $99 to $299, plus $9 per payment for loan servicing with electronic transfers. It's up to you and your lender to negotiate an interest rate and repayment terms. 12. Sell your stuff Clean out your jewelry box and fill up your piggy bank. In mid October, gold was hovering around $850 an ounce. And if the dollar weakens, the value of gold will likely go up. So you might be able to get even more bucks for your baubles. "If you have old gold jewelry, it's certainly a good time to sell," says Howard Rubin, senior consultant with Auction Market Resource for Gems and Jewelry. Rubin advises that you shop around at auction houses, estate buyers and jewelers to compare offers. Better yet, visit an appraiser, reachable through the National Association of Jewelry Appraisers. For a per-item or hourly fee (typically $50 to $200 per hour), the appraiser will evaluate your jewelry. If it has a good trademark, such as Tiffany or Cartier, you're in luck. "Those things sometimes sell very close to retail price," says Rubin. And if it's a piece that's no longer in production, "it could have collectible value, as well as intrinsic value," he says. To sell your less sparkly stuff -- such as book collections, DVDs or vinyl albums -- set up a shop online. With 85 million active members, online-auction giant eBay will likely draw the greatest number of potential buyers to your virtual yard sale. Sellers pay listing fees from 10 cents to $4 and closing fees from 6% to 15% of the value. Other sites to try: Amazon Marketplace, Overstock and Craigslist.