GRANT FAGAN

Future Payments Are Discounted.

Considering the time value of money, sums received on future dates are discounted to compute their "present value", i.e., value now. This is typically done using prevailing interest rate in the market. For example, we found that 10000 dollars invested at 5% interest, paid quarterly, become 10510 dollars at the end of one year.

Hence, the present value of 10510 dollars received one year from now is only 10000 dollars. Present value is always based on a rate of interest, and the "interest compounding" method used. Interest compounding means the frequency with which interest is computed and added to the principal. In our example above, the compounding was done every quarter. Next quarter's interest would be computed on this interest-added principal amount.

The future payments you receive under a structured settlement are discounted in a similar fashion. Each of the payments would be discounted based on when it is received. Consequently, the amount you receive now, based the present values of all the different payments, would be much less than their total.

Use the Cash Well.

• It is possible that you are cashing out your structured settlement to meet unavoidable necessities, like paying off a debt or meeting medical expenses. In such a case, you have no option but to use the cash to meet these.
• However, if the cash out is for other purposes, try to invest it in a way that earns you a good return. For example, you could invest it in a home, in a suburb where property prices are going up. Or take up a vocational course that would enhance your employability.
• If you already have a decent income from other sources, you might even consider taking a vacation to recharge yourself.

Try to earn a return that would be higher than the interest you paid for cashing out. (The discounting of structured payments to present value is actually a kind of interest payment.)

• Select A Buyer Carefully.

The buyer of your structured payments should have certain qualifications.