Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Cash In AnnuityThe decision to cash in an annuity to pay off credit card debt can be a good move, or a bad one depending on your specific circumstances. There are many things to consider but the bottom line is that cashing in an annuity to pay off credit card debt should be your last resort.

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The following article will provide additional information about cashing in annuities and when it is a good option.

Why Should Cashing in my Annuity to Pay off Credit Card Debt be a Last Resort?

It may seem tempting to cash in an annuity and pay off a credit card debt. Then you will have everything paid off and you can start saving again. As tempting as this is, it should be your last resort. First of all, there are surrender charges and fees involved in cashing out an annuity or cashing out an annuity early. You will be giving up a portion of your money to pay off your debt.

Secondly, you will be losing interest on your annuity which could end up being more than your credit card debt, if you let it build up. Compounded interest is building up on your annuity each year you leave it alone. When you cash it out early, you not only pay a penalty, but give up some of the interest that will be earned on the total amount if left alone until the pay out date.

Thirdly, most credit card companies are willing to work with you to pay off your debt either through lowering interest rates, working out a payment plan, or settling your debt for a fraction of what you owe. Working with these options offered by your credit card company should be your first option. Even though it may take time, your future will be secure through your annuity.

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In What Situations Should I Cash Out My Annuity?

There are some situations when cashing out your annuity is a good idea. Consider the following scenarios:

  • If you are about to lose your home due to debt or unpaid mortgage payments, cashing out your annuity may be a solution. Keeping your family in a home is very important to peace of mind and feeling safe. This does not mean that you should cash out your annuity just to stay in a home that you can’t afford. If you still have the option to sell your home and move into a smaller home or negotiate with the mortgage company you should do it. However, if you have no other alternative, cashing out your annuity to save your home is a solid option.
  • If you or a loved one is suffering from a terminal illness, you may want to cash out your annuity and give the money to loved ones or take the dream vacation you always wanted to take. In this case, you do know what the future holds and can make decisions about your money before you die.
  • If you are battling an illness and your insurance does not cover necessary medical treatments or if you want to try non-conventional medical treatments and need cash, cashing out your annuity is an option. You have to weigh the pluses and minuses of both situations before making your decision.

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In What Situations Should I Not Cash Out My Annuity?

There are some situations in which you should not cash out your annuity. For example, don’t do it to:

  • Invest in a trial business
  • Start a business
  • Purchase a vehicle
  • Take a vacation
  • Fund a college education

All of these events have other means of financing available and cashing out an annuity is not worth the money lost. Each person needs to make their own decision based on their family needs, but protecting your annuity for the future and for true emergencies should be a priority.

If you don’t have an annuity yet and are looking for one, consider comparing what different companies have to offer online through an online comparison tool. These types of online tools allow you to compare rates and choose the annuity company that best meets your needs.

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