6 Ways To Borrow Money That Are Cheaper Than Using a Credit Card
More Americans are turning to credit cards when they’re low on cash, but financial advisers say they should be a last resort.
According to the New York Federal Reserve, credit card debt hit a new record, reaching $1.23 trillion in the third quarter of 2025. The average interest rate is close to 25%.
Interest payments add up, especially if you make only the minimum monthly payment.
Financial experts say Americans should look at less expensive ways to tap short-term liquidity, such as life insurance, family and friends and even their 401(k) and banks.
“Using your credit card now should be the ground floor,” Dan Casey, investment adviser and founder of Bridgeriver Advisors in Bloomfield Hills, Michigan, explained to USA Today.
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Credit cards are OK for small purchases that you can pay off monthly, but if your balance continues to grow, experts say to use these less expensive options.
1. Life Insurance
Universal or whole life insurance typically includes a cash value feature allowing you to have a tax-free, low-interest rate loan and keep your money invested. Casey said it’s fast and only takes days to deposit into your account. The only fee is the interest rate, and you don’t have to pay it back until you’re able to.
2. Family and Friends
There’s no harm in asking family and friends to loan you money. Casey said you can even include a 5% interest rate and a contract.
3. Home Equity Loan
Because home equity loans use your home as collateral for the loan, interest rates are typically lower and terms are flexible. The interest is tax-deductible if you’re using the funds to build or improve your home. The only downside is that getting one can take up to two months.
4. 401(k)
Interest rates are lower than other loans, and you pay the interest back to yourself instead of the lender. They’re also tax- and penalty-free and do not impact your credit score. Repayments are typically deducted from your paycheck. However, USA Today warned that you must fully repay the loan if you lose or change your job. A default is also considered a withdrawal, and you’ll owe taxes and a 10% penalty if you’re under 59.5 years of age.
5. Personal Loan
Interest rates depend on your credit score and history, the amount you need and the lender’s requirements. Casey noted that a personal loan may be better than a 401(k) loan if you can get a low rate. If you pay off the loan early or miss a payment, there are typically penalties or fees.
6. 401(k) Hardship Withdrawal
Hardship withdrawals don’t need to be repaid, but they are permanently removed from your retirement account. There are strict rules, and you must also pay taxes and penalties on the withdrawal.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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