You may have seen advertisements for companies that offer to pay you money now for money that you would be getting later. The most well known of such companies is J.G. Wentworth, which says they will pay you “one lump sum of cash” and go by the slogan “It’s your money. Use it when you need it.” People with large inheritance or insurance policies, annuity funds or even lottery winnings make seek this option to get their hands on the money faster.
While this may sound too good to be true, the problem is that few people actually know how this type of transaction works. Rather than struggle with debt, many people may choose to go with this option, not really knowing what they are getting themselves into.
While there are times that companies offering these services might be beneficial, it is usually not in the best interest of those experiencing a financial hardship. The reason is that the process basically creates a loan transaction, in which you receive money now in exchange for the company receiving a portion of your long-term payout in return. The amount that the company will receive includes all of the fees for the loan transaction plus about 15 percent more in interest payments. Not only will the company make a substantial amount more off your long-term payment, but they also stand to profit from the amount earned in interest on the entire account balance over time.
Although some would not consider the amount of profit the company makes off of the money that is already due to you, there are more risks. If you use an annuity fund as the source of your long-term payouts, you will be responsible for the fees and taxes associated with cashing out a portion of the loan early. Further, once you pull out cash from these funds you cannot put it back, leaving you with a reduced balance that earns less in interest over time. Transactions with these companies should be carefully reviewed because even though they offer to give you money that you can use to pay off credit card debt or medical bills, both of these debts could be resolved by more traditional debt management options.