Cashing out annuities to pay off debt

Consumers with bad credit history may be tempted by television advertisements for companies that promise to allow a debtor to cash out an existing annuity to finance medical bills, debts or any other expenses for which they need cash immediately. Such annuity cash-out schemes certainly have benefits for some consumers, but there are some potential costs to consider, according to Consumer Reports.

The most important factor for consumers to consider is that companies who help cash out annuities collect a portion of the cash as payment. Depending on the emergency nature of a consumer’s financial situation and the interest rate he is paying on his debts, cashing out an annuity and making such a payment may or may not be in a consumer’s best financial interest.

There are also alternative options to consider. Negotiating with the company paying the annuity may result in higher monthly pay-outs. If a negotiation with the annuity-paying company doesn’t work, it may be a good idea to shop around for the firm that the consumer will enlist to cash out his annuity. Doing so may guarantee a higher pay-out and therefore may allow the consumer to use more of his annuity to pay off debts.