Using Annuities for Big Purchases (vs. Credit Cards)

Figuring out how to make a large purchase can be a stressful part of household budgeting. When something comes along that costs a lot more than a family has budgeted for spending, whoever is responsible for the financial planning has to sit down and sharpen their pencil.

A lot of people choose to put these larger purchases on a credit card. On the face of it, this might seem to make sense because if the money is not in the bank, it can be paid off over time according to a person’s credit limit. But there are some hidden dangers in this kind of arrangement. Two significant ones are the interest it will generate and the threat that this debt will snowball into something the credit card holder can’t manage. Those people using credit should know how to calculate the APY in annual interest and what effect this debt can have on the person’s credit score.

Let’s discuss an alternative to making a big purchase on a credit card.

Annuities and Saving

As a financial vehicle, an annuity is becoming a common way to manage money. Essentially, the annuity is money held in a fund that pays out to a beneficiary over a period of years.

Some annuities require the holder to pay into the account on the front end. Others are funded by court settlements for personal injury cases or other kinds of legal resolution.

In either case, the annuity is set to pay out a specific amount of money regularly for the term of its payout horizon.

Annuities and Lump Sums

Although the annuity is intended to pay out over time, annuity holders can choose to cash in the asset and get a lump sum of money upfront.

So when you’re facing a big purchase, this can be an effective way to plan ahead, rather than using an available credit limit to sink yourself into debt.

In other words, using an annuity is making use of assets you have to avoid taking on additional financial responsibilities with their own costs, both in terms of interest and potential default.

Taking the annuity avenue allows you to secure the actual cash to buy whatever it is you’re looking at without taking on that more significant debt responsibility. By contrast, something like a home equity loan puts you under substantial financial pressure by using a primary residence as collateral. Ditto for an auto title loan or another collateral loan. Of course, there’s always an informal family loan, but these come with their own potential problems.

Talk to District Settlement Finance about getting these annuity lump sums to take on big purchases like medical bills, a new vehicle, or funding for a family member’s education. Unlike many types of loan scenarios, this is a sustainable way to meet a financial challenge. Annuities can help keep you “in the black” with your household budget and allow you to move forward confidently.