So: the “miracle” has happened and you’ve won the lottery. Nobody realistic plans on what they would do if they won the lottery — they dream about it, but they don’t think about what would realistically happen. However, believe it or not, people do win the lottery quite often. Unfortunately, winning the lottery is the easy part. The hard part is deciding what to do with your money next. Film and television often make it look like you win the lottery and cash just comes raining down — when this is hardly the case. In fact, figuring out what to do with your lottery winnings is a much more complicated process than anyone would imagine. You’ll usually be given two choices: you can either take your lottery winnings in a lump sum, or take them in an annuity form, as lottery payments. Many choose lottery payments initially, often because they’re pressured to do so, or given the impression that this is the more financially sound decision. Unfortunately, taking an annuity is not necessarily the best way to handle your money, especially if you’re looking to reduce debt. Below, we’ll explore the different options you’ll have as a lottery winner, and which ones offer the best ways to reduce debt.
Lump Sum Versus Annuity: What It Really Means
On the most basic level, a lump sum is the “get cash now” option when it comes to lottery winnings. You’ll receive a large amount of cash at once, which can do a lot for a person’s finances. Choosing an annuity does not mean that you won’t get your money — you’ll just get it in a different manner. Annuities come in several varieties. However, they all involve having your money doled out in payments, usually on an annual level. Two of the most popular types of annuities involve annual payments. One offers payments over the course of 25 years, while the other offers payments over the course of a lifetime. This second annuity troubles some people after they choose it, simply because they later realize that they may very well never receive the total amount of their money prior to death. Many find that annuities do not grant them the financial freedom they envisioned after winning the lottery. Payments are measured, and are not necessarily the best options should you want to reduce debt in a big way. You should also consider the fact that you will likely have a large amount of money automatically taken from your winnings by the state, and much more will go to taxes over the years. Luckily, if you find yourself annoyed with your annuity, you don’t have to simply accept it. You can in fact sell your annuity for a lump sum, and therefore get the money and financial freedom that you deserve.
Selling Your Annuity To Reduce Debt: The Basics
Many households across America have a large amount of debt to contend with. There is nothing to be ashamed of if you are one of many facing debt. However, many are not vocal about their problems simply because they are ashamed. In fact, 70% of Americans say that the stigma of credit card debt is worse than that of other kinds of debt. Staying silent due to stigma doesn’t help anyone involved, though. If you confront your debt head-on — especially if it’s credit card debt — you’ll have much better results than you would if you sit around hoping for a miracle. And yes, confronting your credit card debt can include using that “miracle” of a lottery win to pay it off. With the average American household paying $950 in interest each year, however, you’re going to need more than a yearly payment to take care of real debt. This is way selling your annuity for a lump sum could be what it takes to reduce your debt or even eliminate it entirely.