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How to Successfully Obtain a Business Loan in 2017

How to Successfully Obtain a Business Loan in 2017

Owning a business requires a certain level of financial backing to make things work. Without the proper funds, businesses fail and are unable to surface in a sea of debt and insurmountable payments. Taking out a business loan is advantageous as it provides you with the amount of cash you need to invest into your company. Business loans are different from personal and auto loans, as they are specific to company owners who are running a successful service. It is vital to understand the process of obtaining a loan and how to successfully get the cash you need.

Make a Game Plan for Your New Loan

You need to have a solid and thorough understanding of where the money is going to be used. Let’s face it, anyone can take out a loan and be given cash. However, a business loan is specific to business use, which means that you need to put those funds toward the inner workings of your company. You might spend the loan on marketing, advertising, product distribution or a remodel, but the idea is to spend the money on business-related expenditures. If you’re borrowing $10,000 as part of the loan, you should know where every penny of that $10,000 is going before you even get approved.

Go for a Loan When Your Business is Established

New business owners assume that they can take out a loan, start up the business of their dreams and pay it off. Unfortunately, this is not the case as most banks will deny loans to brand new business owners who don’t already have their companies established. A whopping 8 out of every 10 new businesses fail each year, and banks recognize this as a risk factor. Risk factors are a big no-no for financial institutions, which is why they deny so many business loans.

Compare Loans for the Best Rate

Business loans have interest rates just like any other type of borrowed money. The average interest rate attached to a business loan is six percent. Companies can go as high as charging 8.5 percent to their borrowers in order to make more money, so be wary of the company you’re choosing for the loan. If you have a bad credit score, your loan is inevitably going to have a higher interest rate. Business owners with bad credit often ask another person to apply for the loan so that substantial interest rates are not an issue.

Know Your Paperwork

The application to obtain a business loan is different from other varieties because documentation needs to be given to the bank that is specific to your company. You will need to present business taxes, expenditures, sales and client traffic statistics to be approved for a loan. If this information is not presented in a clear and concise manner, the bank can deny you the money you need for the business. Most banks will give you a checklist of documents that need to be brought in before you even visit the bank.

What if the Business Fails Even When Well-Established?

A key advantage to obtaining a business loan as opposed to a personal loan is that it is lent out to a corporate entity. This means the loan will not need to be paid off if the business should fail years down the road. In the case of business failure, the company assets are liquidated and the amount is used to pay back a part or all of the loan. This prevents the owner of the company from going bankrupt in the case of company collapse because only the business will be effected.

Creating a successful brand often requires financial aid, and the best way to achieve this is through borrowed money from a reputable bank. Even though taking out a loan can be scary, it can be one of the most advantageous things you do as a new company owner. After all, the cash you get from the loan can go towards things that will increase the appeal and affluence of your business. Don’t expect the loan to be approved overnight, even if you have excellent credit and all of the necessary paperwork, as it could take weeks or months to receive approval.

How Debts in Collection Can Affect Your Credit

How Debts in Collection Can Affect Your Credit

Your credit score is one of the most important numbers in your life. Your credit score is the score that makes it possible for you to secure a loan, and it directly affects the interest rates you’re offered. Without good credit, you can’t get a low rate. Without a low rate, you might not be able to afford the house you want or the car you need. Without good credit, you might not even qualify for a loan. Many employers won’t hire a person with bad credit, because they fear allowing people with financial difficulties around the personal and financial information of others. Your credit score matters, which is why it’s imperative consumers are made aware of precisely what happens when you have a debt in collection.

Delinquent Payments

The first thing consumers should understand is there is nothing to worry about regarding collections if a bill is just a little late. If you find the mortgage payment in the bottom of your handbag a week after it’s due, you needn’t worry. You have a 10 to 15 day grace period with most banks, and a simple phone call can help rectify this situation. You can pay over the phone or online in most cases, which means your payment is never officially late.

When it comes to credit cards, medical bills, and other debts, collections agencies typically don’t come calling for at least 180-days. Some creditors find it nearly impossible to seek repayment from customers, and they end up sending their accounts to collections. Delinquent payments or payments you accidentally made late are not a cause for collections.

Collections Activity

When a payment is sent to collections, it’s best to pay it as quickly as possible. Collection agencies don’t hesitate to put that on a person’s credit report, and it has a seriously negative effect on your overall score. It can make your credit score drop dozens of points or more. The longer it sits in collections, the more damage it does to your account. If you find an account in collections, there are a few steps you can take.

Verify the Debt

Sometimes collections debts are real, and sometimes they’re a mistake. A creditor might mistakenly forget to post a paid bill to your account and send your bill to collections. When you see it come through, verify the debt is real. You can do this by checking your own financial records, or by calling the company where the debt originated to explain to them you’re positive that bill is not delinquent. Oftentimes you’ll find it’s not delinquent, but a mistake was made. Then it’s up to the company to make the collections act go away.

Pay the Debt

If the debt is valid, pay it off as quickly as you can. Even though collections stay on your credit report for years, lenders aren’t going to deny you a loan simply because there is an account on your credit report if it’s been paid off. They are favorable to consumers who can show they’ve paid their debts and corrected their financial mistakes. It’s something many lenders look for when they see collections on someone’s account. If you cannot pay the bill in full, ask if you can make arrangements to pay it off in smaller installments, or if there is a way you can pay it off for a discounted rate. You’d be surprised how many people are willing to work with you. Any payment is better than no payment.

Collections are serious business, and it’s a good idea to get them paid off as quickly as possible. You don’t want your credit affected more than it already is, so you’ll want to pay the bill and make the negative marks go away. It’s not always easy or enjoyable to deal with collections accounts, but it’s imperative you handle them as quickly as possible. Your financial future depends heavily on how quickly and efficiently you act to handle accounts of this nature and this level of seriousness.

Debt Settlement for Debt Relief – Pros and Cons

Debt Settlement for Debt Relief – Pros and Cons

There’s very little joy in life when you find yourself in a constant battle with creditors that simply want you to honor your obligations. If you have let your debt situation turn sour, you undoubtedly have to be wondering where you can find the exit. Assuming you understand the harsh consequences of bankruptcy, you might want to consider debt settlement as an alternative.

You Are Not Alone

Every year, millions of Americans find themselves knee deep in debt. Every quarter of every year, the U.S. Federal Reserve takes an in depth look at consumer debt in the United States. In its report dated September 2016, the truth about credit card debt was exposed. Americans were carrying $729 billion in credit card debt as a collective body. An astounding 15% of all Americans had consumer debt in excess of $15,000, resulting in the need to use an average of 13.9% of their disposable income on monthly payments. That’s called walking the tightrope of debt.

Debt Settlement as a Solution

By the time you start missing payments and receiving calls from your creditors, you will find that debt management and/or debt consolidation are no longer viable solutions for your debt issues. In order to make those options work for you, you still need to have a good credit score and rating. Before you hit bankruptcy, which you should consider a last resort, a debt settlement process might be a viable alternative.

Debt settlement entails working through a qualified and accredited debt counselor to try to negotiate more favorable terms with your creditors, specifically, credit card companies and unsecured debt lenders. Not only will you be seeking a better interest rate and lower monthly payments, but you will also be looking for your creditors to forgive a portion of the debt.

The Pros of Debt Settlement

If your debt counselor is successful in negotiating debt forgiveness, you could see your consumer debt reduced by as much as 50%. It really depends on how effective the counselor is at presenting your current financial situation and long-term prospects. In case you are wondering, most creditors will consider debt settlement in lieu of facing the prospects of you seeking bankruptcy protection where they run the risk of getting nothing.

After getting your debt reduced, there’s a distinct possibility your advocate will be able to negotiate forgiveness of late fees and a reduction in your interest rate. With a lower interest rate, your monthly payment amount should drop enough to cut your monthly cash outlays and give you a little breathing room. It’s worth noting that while creditors may be willing to negotiate, all bets are off should you continue having payment issues.

Over the long haul, you could end up paying off your consumer debt sooner rather than later. You’ll also have the opportunity to slowly restore your credit rating. In fact, some creditors will remove derogatory remarks should you tow the line and successfully abide by your new debt agreement until your debt is paid off.

The Cons of Debt Settlement

As should be reasonably expected, there are some significant consequences related to the debt settlement process. Your are going to be responsible to pay a fee to the debt settlement company should they successfully reach an agreement with your creditors. Should you default on the new agreement, all of those give backs could be revoked, forcing you into bankruptcy or a lawsuit.

The most significant hit will be to your credit rating. By admitting you can’t honor your debt obligations, your creditors will rightfully report the delinquency to the credit reporting agencies. The initial hit to your credit score and rating will be almost as severe as a bankruptcy discharge. With that said, you could find yourself working your way out of “credit prison” in much quicker fashion with a debt settlement. As you make your adjusted payments on time, you credit score will slowly start to rise.

As you go through the debt settlement process, you will hopefully take a look at your lifestyle and how you manage your finances. With a little planning and a few adjustments in attitude, you should be able to put an end to the stress related to dealing with unmanageable debt.

Mortgage Forgiveness Debt Relief Act

Mortgage Forgiveness Debt Relief Act

The Mortgage Forgiveness Debt Relief Act was brought up in the year 2007. After the consent of the Congress, this law was effected to offer relief to all homeowners who faced closure and still owed the government tax on forgiven mortgage debt. This act as per say generally permits taxpayers to skip paying tax on their houses that have already faced closure due to debts.

The debts that qualify for the Mortgage Forgiveness Debt Relief include the one acquired from mortgage restructure and that forgiven due to foreclosure.

Cancellation of Debt

Many would go into thoughts on what the cancellation of debt is. Whatever the cancellation of any debt meant before this act could be explained as follows. Whenever you take a loan from any commercial lender, you are supposed to pay back the funds. If the lender decides to write off your debt, then as per the law, you are required to include that amount as your taxable income. This is because you were obliged to pay the funds back, and it is naturally expected that you had sourced for the money. This is why your lender or financier is required to inform the tax authorities that they have canceled your loan and then subsequently the amount that you should be taxed. This is where the Mortgage Forgiveness Debt Relief act comes in handy to save you from tax on your principal residence. You can get the details of the mortgage forgiveness at https://www.irs.gov/uac/home-foreclosure-and-debt-cancellation.

How long is the Act valid?

Severally, the Mortgage Debt Relief Act has had a possible expiry. Many have been worried and sought to know if an extension has been provided. Through the years, 2014 to 2016, there has been the speculations that it may never be renewed. To the joy of many, this act has gone through and is still functional in 2017.

Under the Tax extenders provisions contained in the 2016 Appropriations bill, the Mortgage Debt Relief Act got its tenure extended. Many could not see it coming, but in December 2015, the Mortgage Forgiveness and Debt Relief Act of 2007 was extended. This was not, however, glaring in the eyes of the public, and only a deep scrutiny could unravel this favor to the homeowners.

Many homeowners are still suffering due to ownership of homes that are facing or have already faced foreclosure. This act, as it is, gives such homeowners a tax exclusion which is a big relief to them. Income accruing from short sales and debt forgiveness has been lifted off their backs after being an unbearable burden. Visit http://inclinelawgroup.com/mortgage-debt-relief-act-extended-through-2016-finally/ site to review all the details of mortgage forgiveness.

What does the extension of this act mean?

The extension of the Mortgage Forgiveness Debt Relief Act 2007 is good news for homeowners. This Act will continue to protect homeowners, and that means debts will not be a problem. If by any chance you had given up your house for a foreclosure, the extension is still here to bail you out on tax. Other issues that it still protects you against include loan modification in 2015 or short sales. The site https://www.linkedin.com/pulse/mortgage-debt-relief-act-extended-through-2016finally-von-baeyer has more information on the issues that may affect mortgage forgiveness.

Exclusion from canceled debts

One may qualify for Exclusion for Canceled debts under any of the following;

  • Insolvency exclusion,
  • bankruptcy exclusion

Insolvency exclusion

As a debtor, you may be insolvent when your total liabilities exceed the market value of what you own as assets. The IRS does allow the exclusion when it gets to this level. The insolvency exclusion amount, on the other hand, is the canceled debt which is over and above the fair market of one’s assets.

Bankruptcy

You may receive a debt cancellation after filling a form for bankruptcy. Your debts can be exempted after going through the bankruptcy process. It is, however, vital that you exploit all other avenues before settling for a bankruptcy case. For more information regarding the other options that you may have, apart from filing for bankruptcy, and their relationship to Mortgage Forgiveness, you can visit https://www.thebalance.com/canceled-mortgage-debts-3192877.

8 Tips for Dealing With Debt Collectors, Collection

8 Tips for Dealing With Debt Collectors, Collection

When a debt goes unpaid, creditors often send your outstanding balance to a debt collector. This is a company that purchases debts from creditors and works hard to get you to pay them off. They tend to use scare tactics, they use methods that aren’t always legal, and they’re not usually above intimidation and harassment techniques to get consumers to pay. The Fair Credit Reporting Act provides consumers with rights regarding debt collectors, and those rights protect you when you are being harassed by debt collectors. Knowing your rights makes a difference, and these tips also help when it’s time to handle debt collection efforts.

Ask for Information in Writing

Consumers are allowed to ask for a written letter detailing every aspect of the debt. Collectors have only 5 days to provide this to you following their first call. Never speak to a debt collector without first asking for this information in writing.

Ask for Verification of the Company

Sometimes debt collectors aren’t legitimate companies, and they’ll call to scare you into giving them money. Your job is to ask them for their contact information. Get the name of the company, the phone number of the person to whom you are speaking, and ask to call right back. Hang up and check the validity of the company online. You’d be surprised how many people call posing as debt collectors to scare you into giving up money when they have no actual reason.

Validate the Debt

Check your own records to validate the debt. Did you have this debt? When was the last time you sent a payment to this creditor? Is the debt real? How old is the debt? Get as much information regarding your debt as you possibly can, and write it all down.

Know the Statute of Limitations In Your State

Every state has a statute of limitations regarding unpaid debts. For example, if you live in a state where the limit is 4 years, you cannot be sued by anyone more than 4 years after the date of the first missed payment on that account. If your accounts are older than the limit in your state, you can rest assured that while collection agencies can call all they want, they can’t sue you if the statute of limitations is up. Additionally, that debt only remains on your credit report for 7 years.

Dispute the Debt

If the debt is an old one, usually more than 7 years, you can dispute it. It should have disappeared from your credit report by now, and that means you can dispute owing it. Most of the time, this works for consumers unwilling to pay a debt this old.

Keep All Call Records

Write down the time, date, number of calls, and to whom you speak each time a debt collector calls you. You are entitled to several considerations, and you want to see if this company is working against those considerations.

Request Collectors Stop Calling

Your right as a consumer is to ask your debt collector to stop calling. They are required by law to cease and desist all calls to your phones at home and at work. This means you’re able to ask them in writing to stop calling and the companies are legally bound to do so.

Know the Restrictions

Debt collectors are restricted by the federal law. They may not call between specific hours, they may not use specific language, and they may not repeatedly call. There are many restrictions in place to help those who are being harassed by debt collectors, and getting to know the laws makes it easier for you to determine when a collection agent is breaking the law and treating you unjustly.

Debt collectors mean business, but there is often very little they can do. It’s up to you to know the laws and get to know the procedures and policies surrounding the debts you owe. Once you know your rights and the laws surrounding the Fair Credit Reporting Act, you are able to better understand how to effectively deal with debt collectors and what they mean to your personal finances.

Nine Ways to Manage Debt

Nine Ways to Manage Debt

It can be staggering to find out that only 20 percent of Americans are free of any kind of debt. The most common form is mortgage debt, followed closely by debt accumulated by credit cards and student loans. Living in a constant sea of debt can cause unnecessary stress, a hit to your credit score and an inability to live the life you want. Just because you’re experiencing debt problems right now does not mean that they won’t go away. Unfortunately, expecting the financial problems to go away on their own is not going to do anything for you. Diligent work on your budget and managing your debt requires some work on your own part to get things done.

1. Understand Your Debts

Before you can do anything to manage your debt, you need to know how much you owe. Gather all of the necessary paperwork, statements and bills to determine how much you owe each month in the way of debts. Make a list of these debts and calculate how much it all comes to when paid in a timely manner. Adjust this list as your debts become resolved or change.

2. Work with a Debt Consolidator

Oftentimes, a person might experience a situation in which they owe more than they make. Saying that you can just pay your bills on time in this circumstance doesn’t work, since you’ll constantly be struggling with money and may not have the funds needed for essentials like food, utilities and clothing. Debt consolidators are specially trained to reduce debts to a more reasonable amount. You don’t always have to work with this type of expert, but they are critical in times when you owe so much that you are not able to make payments without going hungry as a result.

3. Make Payments on Time

Setting yourself up for payment reminders or using your online bank account to group bills in one convenient location will help you remember to pay those bills. Being consistently late on bills because you forgot to pay them should never be an issue with so many bill reminding technologies put into place, and being late on one bill will add up over the course of time because it’ll feel like you can never catch up. There are many mobile apps you can download to manage bills and send yourself alerts for when they’re due.

4. Always Make the Minimum Payment

When you don’t make the minimum payment on a bill, additional service and late payment fees are attached for the next time you go to pay. These late pay fees can add up exponentially when it’s done to each of your bills. By making the minimum payment, this prevents these charges from being added to your payments.

5. Decide Which Debts are Most Important

Dealing with credit card debt should be the top priority for repayment. Choose the credit card that has the highest interest rate, as this is the one that is costing you the most money. Use your list of debts to prioritize your debts from the ones that are costing you the most money to the least.

6. Pay Off Any Collections

If you have limited funds for paying off debt, put the focus on keeping your other accounts well-paid. Don’t put good standing accounts at risk just because you’re experiencing debts with other companies. Pay past debts when you can afford to do so and be aware that creditors will continue to put your account in collections so long as you owe them money.

7. Use Your Emergency Fund

If you have an emergency fund to fall back on, now is the time to use it. This can include accounts such as a 401K, life insurance plan and savings accounts. If you don’t already have an emergency fund, try to fit it into your budget to start building one. This prevents you from going into debt when an emergency hits home like a hospital bill or broken appliance.

8. Create a Realistic Monthly Budget

You need to keep your finances on a strict budget in order to tackle your debts. Overspending is a leading cause of debt accumulation. If you’re constantly spending your hard-earned money on things you don’t need like fast food meals and new jewelry or clothing, you’ll never make a dent in your debt problems. Put yourself on a restricted budget and don’t deviate from the plan unless it is an emergency.

9. Recognize When You Need Help

There may come a time when you’re trying everything you can, working on a budget and paying your bills and you can’t seem to catch up with yourself. This is often a sign that you need additional help from a professional. Debt consolidators and budget accountants are there to assist you in managing your funds and getting them under control so that debts are paid off in a timely fashion.

Buying a House? How to Save for a Down Payment

Buying a House? How to Save for a Down Payment

Purchasing a home is one of the largest investments you’ll ever make in your life. When you put a larger down payment on the property, this reduces the amount you owe substantially. Experts recommend a 20 percent down payment on a home, reducing mortgage payment amounts and preventing you from going into debt. While it is not necessary to put a down payment on a home, doing so will have the house paid off quicker and prevent foreclosure issues from becoming a problem.

Here are some tips for saving for a down payment on a home:

1. Figure Out How Much to Save

It’s a good first step to figure out how much you should be saving for the down payment in the first place. Let’s say that your budget for a home is $200,000. This means that in order to have a solid down payment, you’ll need to stash away $40,000 for the upcoming sale. You don’t have to save for 20 percent of the down payment, but this specific amount guarantees long-term home stability and prevents accumulating debt when having a hefty mortgage payment each month. The more you save for the down payment, the better off you’ll be when purchasing the property.

2. Avoid High-Risk Saving Investments

It might seem tempting to put your down payment account into a stock, bond or get-rich-quick scheme, but you could potentially lose all that you have saved overnight if things go sour. Putting your down payment into a savings account or certificate of deposit guarantees slow, but steady growth.

3. Make Room for a Budget

Right now, you may be living with your parents, friends or in a rented apartment. No matter what your expenditures are right now, setting up a budget can provide you with the additional funds to set aside for the upcoming down payment you hope to make. Try to eliminate unnecessary spending, such as going out to eat every other day, buying new clothes when you don’t need them or spending money on frivolous activities that can be totally avoided.

4. Establish an Automated Savings Plan

Automated savings plans are great for the lazy investor. You can connect your paycheck or other source of income directly to your savings account, avoiding the hassle of doing it manually. If you’ve had issues in the past where you had the money to save, but you forgot to do it, this is the account you’re going to need. Put as much money into the account as you can possibly afford, as a tiny amount won’t accumulate much over time.

5. Benefit from Financial Windfalls

Tax refunds, birthday gifts, wedding presents and bonuses from work are all considered windfall money. You might have heard people say that if it’s unexpected money, you should spend it on something frivolous for yourself. This is the exact opposite of what you should do with these funds. Put this extra money into your savings account to buy a home and you’ll be glad you did.

6. Don’t Be Rigid to the Point of Falling Into Debt

One of the worst things you can do is become so rigid in your down payment savings account that you neglect other bills. Life is inevitable and things can happen that require an emergency savings fund. Expensive car repairs, medical bills or even the loss of a job necessitates additional funds to prevent you from falling into debt. If you need to dip into your down payment account for one of these emergencies, don’t feel bad about it. It’s better to stay in a rental than to go into debt after buying a home because of unpaid bills.

Your experience buying a home will be both exciting and horrifying. There is a certain level of fear that comes with being locked into a mortgage with a bank. Foreclosures have hit an all-time high with more than 250,000 families experiencing the loss of their properties every three months. Because of these staggering numbers, it can be terrifying to think that it could potentially happen to you if you don’t keep up with mortgage payments. The best way to prevent foreclosure is to reduce the amount you owe on the home, making payments more reasonable and affordable. The method used to facilitate this is putting money toward a considerable down payment.

5 Simple Steps to Saving For A New Car

Driving a reliable car is imperative. It’s how you get your kids to school and yourself to work. It’s not an option for many who live in rural areas where public transportation is a school bus, and getting to work involves using your personal car as there are no other options. Unfortunately, cars lose their value quickly. They are expensive, and they can leave you in serious debt. Driving a brand-new car off the lot means instant depreciation of at least $5,000, which means you put down a large down payment or you drive off the lot further in debt than you arrived. No one appreciates debt, so it’s time to learn how to save for a new car using cash.

Calculate the Cost of A New Car

What do you want to drive? Do you have a small family or a large one? Your new vehicle must be large enough for your family to fit, so you’ll need to consider this. Now take into consideration what you can buy this car for. It’s recommended you do not purchase a brand-new car. Try one that’s slightly used or a model year old. This helps you save significantly on the price of a car since someone else already took the depreciation of this car on your behalf. It’s basically a brand-new car, but it might have a few thousand miles on it. The savings are worth it. Now you know what you can buy the car you want for after researching it, and it’s time to save.

Take A Look at the Budget

What can you afford to put away for a new car? Is there room in the budget to save $1,000 per month until you’re able to reach the desired amount of a down payment to keep your monthly payment within the budget or to pay cash for a new car? Can you afford to save only $200? Whatever you can afford to save, you need to save. Add it to the budget as an expense until you can afford your new car.

Cut Down Other Expenses

There are other expenses you can cut down if you take the time. Do you need to pay $150 per month to your cable company when you really watch Netflix and spend time watching your favorite shows live on the internet? You don’t. Call the cable company and cancel that plan. Can you lower your cell phone bill by choosing a smaller plan? Can you lower your credit card payments by asking for a lower interest rate? Call everyone on your list of expenses each month and ask for a lower package or switch to a new company that offers a smaller payment.

Take all the savings from these efforts and apply them to your new car fund. You’ll be surprised what you can accomplish in terms of savings by simply asking for a discount. It’s easier than you might expect, and it’s always beneficial to your finances.

Apply Unexpected Funds to Savings

Do you receive a tax refund? Use it for your new car. Did someone leave you a bit of money? Use it for a new car. Any money that’s not expected each month should be applied to your new car. If you’re someone who works for an hourly rate rather than salary, take each additional amount of overtime pay and apply it to a new car.

Don’t Settle for A Car

Now that you have the funds to shop, do it. Don’t buy the first car you see. Negotiate, walk away, and wait for someone to call you back with a deal. You know what you want, what you can afford, and you won’t deviate from that. As long as your requests are reasonable, there isn’t a car dealer who isn’t willing to work with you to make a sale and increase their commission. It’s simple, and you can save money on a new car by negotiating, which is another way of saving money for a new car.

Driving a reliable car is important, but it’s not something that has to be unaffordable. You can make sure your car is paid for in cash or your monthly payment is within your budget by using these savings methods when it’s time to purchase a new car. Don’t let yourself fall into the trap of accumulating excessive debt just for a new car.

The Differences Between a Structured Settlement and a Lump Sum

The Differences Between a Structured Settlement and a Lump Sum

When a person is awarded a payout in a personal injury claim or similar lawsuit, they often have the choice of how they wish to receive their money. They could choose to receive the entire amount upfront, or they could receive the payments over time. There are advantages and disadvantages to each type of payment.

The Lump Sum Advantages

A lump sum payment means that the entire amount of the settlement is paid all at once. While this may seem like the preferable option at first, there are a few disadvantages. The key advantage to a lump sum is that all of the money is accessible to you to do with as you wish. This gives you greater flexibility in case unexpected expenses or opportunities arise.

Management

One of the biggest problems with a lump sum payment may be your personal ability to manage such an amount of money. Many settlements exceed the actual costs of an accident if non-economic or punitive damages have been applied. If you don’t have a clear plan for managing or investing the money, then you probably aren’t going to make the best use of it. It is also worthy to keep in mind that when a structured settlement company pays an annuity to you, it collects interest, so you will end with more than the original settlement by the time the payouts are complete. Unless you have an investment with similar or greater returns prepared, you may actually lose money by taking it as lump sum.

Wasteful Spending

Most people want to believe that if they are handed hundreds of thousands or millions of dollars that they will be responsible with the money and make it last. Experience tells us that this is not typically the case. It is human nature to spend money on luxuries when that money is available. Very large settlements may allow a person to live comfortably for a lifetime, but only if the money isn’t squandered. The best way to control your spending may be to make sure you don’t have access to all the money to begin with.

The Structured Settlement Advantages

A structured settlement breaks the payout of the settlement into parts. There is a huge amount of flexibility with this payout method so that a person who plans correctly can make the system work for them. Payouts do not have to be the same for the entire term. It is common to take out a large first payment to cover immediate expenses and boost depleted savings accounts and then prolong payment of the remainder. Payments can also be set to increase or decrease over time. Responsibility for payment is often handed to a third party as an annuity where the unpaid amount will begin to collect interest and act like an investment.

Less Flexibility

While structured settlements give great flexibility at the start, they are not flexible at all once set. The payment plan and term cannot be changed in any way once created. This can be a problem if unexpected expenses occur and you need access to the money. This is one reason that certain businesses have arisen to take over structured settlements and give you the lump sum upfront. Taking a loss by using these services would be the only way to get the money.

Possibility of Loss

While remote, there is a possibility that the unpaid amounts of a settlement will be lost if the entity responsible for payment goes bankrupt. There is a greater risk of this if the payment remains with the business that was sued. Most institutions that handle annuities, by contrast, are considered financially secure.

The choice to take a lump sum or a structured settlement is not as easy as it first appears. It is important to carefully consider your current and future financial position when making the choice. The lump sum gives greater flexibility but overall less money or reliability, while the structured settlement may give you more money overall and last longer. Your attorney or financial advisor may also be able to help you with this decision. You only get one chance, so it’s important to choose wisely.

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