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Getting a structured settlement lump sum cash out might be just the answer to your current financial problem. But then again, maybe not. Take a moment to read about three people who should have thought more carefully about selling their payments and see what you can learn that applies to your situation.
The year was 2006 and Joey was a few years into his structured settlement. Joey decided that he would feel better if he owned his home free and clear, so he took a structured settlement cash out to pay off his home loan. At the time interest rates were around 5.75%, a bit high by 2013 standards, but pretty good at the time. Of course, selling his payments cost Joey more than that – but he felt it was worth it just to know that his house was paid off and he was prepping for retirement. Unfortunately, just a year or so later the housing market crashed; Joey’s house is now worth a fraction of what he paid for it. On top of that, Joey wants to move – now he can only sell his house for pennies on the dollar and has no financial reserves to call upon.
If you are considering a structured settlement lump sum cash out to pay off your house think about Joey, and what you might learn for your own situation. Interest rates heading into 2014 were extremely low – far less than you would pay to sell your settlement payments. What are they today? Structured settlement annuities rates don’t change as quickly as house value or interest, so that’s something to consider.
Well, you say, paying off my house will provide peace of mind. Fair enough; that’s a valid reason to make any decision. But think about it: What if your life changes, again? If you have a mortgage you always have the option to short sale, or even simply give up your home in a Deed in Lieu of Foreclosure process – this would allow you to get rid of a house that had lost its value while still receiving your settlement payments. These may not sound like great options, but they are things to consider before you decide to pay off your home.
A friend told Maggie about a “sure thing” stock that would make her millions. Maggie sold her settlement payments to purchase the stock – already planning how she would spend her earnings. Then, the bottom fell out and the company went belly up, her stock left worthless. Every penny that Maggie had was gone.
There is no such thing as a “sure thing” – except for a structured settlement. Your structured settlement money is guaranteed to keep on coming, month after month, there when you need it. Be careful before you roll the dice with that money – as they say, a bird in the hand is worth two in the bush. This simply means that the money you have coming now is a comfort, it pays your bills, and helps you live – never gamble with money that you cannot afford to lose.
Paying off high interest credit card debt seems like the best thing that one could do with a structured settlement lump sum, right? Think again. Regis paid off his credit cards, and it felt great, until he wanted a new television set. And the latest video game system. And new wheels for his car. And… well, you get the idea. Regis charged those cards right back up and now, four years later, he has no settlement income and the same credit card debt that he had before.
Selling your settlement to pay off credit card debt is not a wise decision if you simply charge the cards up again. CNN finance advisor Clark Howard is concerned that too many people who consolidate or in other ways pay off their credit cards simply charge them back up, which leaves them worse off than they were originally. One of the structured settlements benefits is that it protects you from your own bad habits.
If you are considering a structured settlement cash out to pay off credit card debt ensure that you are mentally prepared to change your habits. Cut up your cards. Close the accounts. Vow to yourself that you will never buy anything less than a car or house on credit again. If you feel that you can live without credit, even without your debit card (living on cash is the safest way to prevent overspending) then paying off existing debt is a wise decision for you. Check out our Strategic Capital website in detail because there we give you some advice on managing your money in these, and other, situations.
We all make bad decisions from time to time. If you have made some bad financial decisions that you now regret, there is nothing to do but forgive yourself, learn from the experience, and move on. Famed financial adviser Suze Orman says that the biggest obstacles to financial security are fear, shame and anger. You need to forgive yourself for any mistakes in the past and move on, in a better direction. But it is possible that selling your structured settlement will help you recover from a previous bad decision, as long as you are careful and think it through.