A common question I hear is, “Where do people actually get the money for settlement purposes?” I know we all wish we could just win the lottery, then we wouldn’t have any more financial problems. But you and I both know the statistical likelihood of that happening is slim to none.
Over the past 10 years, here are the most commons ways our clients have secured funds for settlement purposes:
1. Love Money. It’s called “love” money because it comes from family and friends that love you and want to help you.
It’s not like you go to them asking for a free handout or bailout. But rather it’s in the form of a personal loan. Then after your debts are settled, you make arrangements with that friend or family member privately to pay them back.
If you have a rich uncle that wants to just “gift” you the money and doesn’t need you to repay him, God bless your rich uncle!
But whether the money is in the form of a loan or a gift, “love” money is one of the most common sources of securing funds for settlement purposes.
2. Refinance or Home-Equity Loan. Obviously if you do not own a home, this isn’t even an option.
Critics of this option sometimes argue that using one of your assets to obtain funding is the equivalent of “converting unsecured debt into secured debt”. Technically, that is a true statement.
However, let’s lay you take out a $25,000 low-interest home equity loan to settle $50,000 of high-interest credit card debt, it might make financial sense to do this.
3. Retirement Account. You could liquidate or take a loan against your retirement account.
Yes, you might have to pay taxes or penalties for early withdrawal. But you also might conclude that the amount of potential debt relief far offsets any taxes or penalties you would incur.
Normally it is a good idea to avoid tapping into your retirement account.
But if you’re strapped for cash, possibly on the verge of bankruptcy, and you desperately *need* to resolve your excessive credit card debt, using your retirement account might be a short-term sacrifice you’re willing to make. You’ll just have to run the numbers and see if it makes sense.
4. Sell Something. A car, a boat, an RV, your Harley-Davidson motorcycle, a piece of property, etc.
Maybe you sell your existing home and downsize to one that’s more affordable.
5. Accumulate Funds Over Time. Just set aside funds, month after month, as you get them (i.e. from your paycheck, tax refund, year-end bonus, etc.). This is what the majority of our clients do.
Not everyone has a family member that can loan them a lump sum of money, and not everyone has stuff they can sell. So you might just have to be diligent and accumulate your settlement funds gradually, and settle your debts one-by-one as funds become available.
The Bottom Line Is This
If a person wants to settle their credit card debts bad enough, they can usually find a way to secure the necessary funds for settlement purposes.
Not always, but usually.
If you know right now that there is absolutely no way you can secure sufficient funds for settlement purposes, better to find that out *now* so you can explore other options.