From credit cards to payday loans: where to turn when you're short on cash

For many Americans, making ends meet can be a monthly — if not daily — struggle. And when emergencies pop up, finding cash to cover the expense quickly and cheaply is an even bigger challenge.

About 38 million Americans live in poverty, according to the latest data from the U.S. Census Bureau. That's roughly one in 10 people who earn less than $13,000 a year ($26,200 for a family of four), according to federal guidelines.

Yet many more who live above the official poverty line are barely scraping by and regularly run out of funds before their next paycheck. That includes Micah*, a 32-year-old living in Orange County, Calif. He makes about $40,000 a year, but has struggled to afford basic necessities, including a place to live, since failing to finish college in 2008. "I have been paycheck to paycheck my entire adult life," he tells CNBC Make It.

"I have done many different jobs and sacrificed quite a bit in order to make it work, to survive," he says. Many times he runs out of money before payday and simply goes without or picks up an odd job.

Yet when your budget is tight, you're not typically able to save the recommended 20% of your income. When emergencies occur, you're left scrambling to find the cash, be it extra rent when a roommate suddenly moves out or an unexpected medical emergency.

When facing these types of situations, Micah turns first to friends and family. "We're talking things like unexpectedly needing a plane ticket, covering rent when a roommate left out of the blue — things that have a time-sensitive, non-negotiable nature to them that have severe consequences for not making the deadline," he says. The loans usually fall in between $300 and $1,000, and each time it has taken more than a year to pay it back.

But if you don't have a support system, you may be forced to rely on high-cost options. Here's a look at where you may be able to squeeze out some cash, or borrow it, without spending too much time or money.

If you can put off other bills and put the cash you do have toward your financial emergency, that's one of the first solutions experts recommend, especially if it's a one-time or short-term issue. You may be able defer utility bills through the energy bill assistance programs most companies offer, including major providers such as ComEd, Duke Energy, FirstEnergy and PSG&E.

You can also typically call your bank or credit card company and ask to defer your payment. For longer-term solutions, many also offer hardship plans, which allow consumers to sign up for some combination of a payment schedule with lower interest rates, smaller minimum payments or lower fees and penalties. Both of these options, however, may have an impact on your credit score.

"It took entirely too long for me to learn that calling institutions you owe money to, explaining your situation and asking for some kind of grace for payback is nearly always the correct course if you can't pay on time," Micah says, but adds that requesting more time is often a limited-use function. "You can only ask the bank for a deferment on your car payment so many times," he says.

With credit card interest rates sitting at about 17%, racking up a balance can get expensive quickly. And 38% of American workers end up carrying that balance month to month, according to a survey fielded by Salary Finance of over 2,700 U.S. adults working at companies with over 500 employees. Nearly half of those who have credit card debt owe at least $3,000.

Source: Salary Finance

That said, if you can pay your balance off by the end of the month, a credit card essentially offers an interest-free loan for 20 to 30 days, depending on your specific card.

While not everyone has access to a credit card, banks have done a pretty good job of increasing the availability. "There are plenty of credit opportunities out there across the country...at rates that are lower than 36%," Christopher Peterson, a senior fellow with Consumer Federation of America, told members of Congress at a hearing on high-cost lending options.

A personal loan is an unsecured loan from your bank, which is generally used to consolidate debt or make a big purchase. But these loans don't universally offer cheaper interest rates and like all loans, you'll need to apply and get approved. If you have a low credit score, you may risk getting declined, or approved with a high interest rate.

If you're worried about the interest rate, try checking out a credit union, Graciela Aponte-Diaz with the Center for Responsible Lending suggests. For most types of loans, the interest rate is capped at 18% at credit unions, while the average rate for a three-year loan is 9.37%, according to the National Credit Union Administration.

If you have a 401(k) and are facing major debts, some employers give the option to take out a loan. These loans are not taxed, but do have some restrictions. You can only take out up to half of your vested account balance and not more than $50,000, no matter how high your total balance. All loans need to be repaid within five years with interest (this is set by your plan, based on the prime rate, which is currently about 4.75%), or you'll be hit with taxes.

You can also check to see if your plan allows hardship withdrawals. Keep in mind that these are classified as emergency situations that pose "an immediate and heavy financial need of the employee." You will have to pay taxes on this money, taxed as ordinary income, and you may also have to pay the 10% early withdrawal penalty.

Source: Salary Finance

If you have a Roth IRA, you can withdraw any money you've invested at any time, without taxes or penalties. After your account has been open for at least five years (and you've reached 59½), you can withdraw any investment earnings without incurring the typical 10% penalty.

Of course, this option only works if you've opened a retirement account and contributed to it — about 66% of millennials don't have any funds invested, according to Salary Finance. Additionally, you need to consider the opportunity cost to draining these funds. A $5,000 balance today could be worth $57,900 in 35 years, assuming a 7% annual rate of return.

Some banks charge overdraft fees when you overdraw your checking account. Instead of having your debit card declined or the purchase cancelled, your bank will cover the difference and charge you an overdraft fee, usually between $30 and $35. But these can get expensive quickly. If your bank issues an average fee of $35 on an overdrafted purchase of $100, you're paying an APR of well over 12,700%.

Source: Salary Finance

Keep in mind you can opt out of your bank's overdraft protection and you will not have to pay a fee. Instead, your card will be declined if there's no money in your account. You can only opt out of overdrafts on one-time transactions made with your debit card, so if you use checks, or if you have recurring payments set up and you go over your current checking balance, you may still be charged an insufficient funds fee.

If you're considering a loan from a payday or car title lender, which often charge APRs of 400% or more, go back through all the options above. Or get creative and look for things around your house to sell. Even pawnshops typically offer better rates than payday and installment loans, which you can get in most states by walking into a store with a valid ID, proof of income and a bank account. Car title lenders, on the other hand, use the clear title on your vehicle as collateral for the loan.

"These high-cost options are horrible for people," Aponte-Diaz says. "These [loans] are not access to credit, they're access to debt."

Borrowers often can't pay back the loan right away, so they get sucked into a cycle of borrowing. Nearly 1 in 4 payday loans are reborrowed nine times or more, research conducted by the Consumer Financial Protection Bureau found. Plus, it takes borrowers roughly five months to pay off the loans and costs them an average of $520 in finance charges, The Pew Charitable Trusts reports. That's on top of the amount of the original loan.

Roughly 9% of American workers have taken out a payday loan in the past 12 months, according to Salary Finance's survey. Younger employees are much more likely to turn to these types of loans, with about 15% of those under 34 borrowing from a payday lender.

But Aponte-Diaz say that payday loans should be a "last resort," since these types of high-cost loans regularly "dig people deeper into debt," rather than helping them out.

There will always be a next time, be it a broken down car or a sick kid to take care of. In order to avoid turning to high-cost credit options, you need to take a hard look at which parts of your life are actually "immediately essential," Micah advises. You can likely live without more than you think, and what you cut out could be going into an emergency savings fund. Even $5 or $10 a week can add up over time.

That said, there's a "chronic misunderstanding" around giving advice to those who are living in poverty, Micah says. "People look for ways to cut expenses, and often go to ridiculous lengths to do so," he says, usually at the expense of their time and health. You cannot, for example, live off of dollar store ramen long-term. "You will slowly starve while your hunger pangs are somewhat alleviated," he says.

Anyone living paycheck to paycheck should make a time budget in addition to a financial one, Micah says. "If you really want to get out of the poverty trap, you have to consider the utility value of time in addition to money expenditures," he says. The bus pass may be cheaper than the used car payment, but what is the value of two hours of your time on your daily commute added up over a year or two years?

"Perhaps the very coping mechanism that gets people through extreme poverty — focusing on the very near term — is what prevents us from making the choices that will help the most in the long run," Micah says.

*Subject asked to be identified only by his first name to protect his privacy.

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