After winning a settlement, or taking out a settlement loan, you may be tempted to go on vacation, buy a car, renovate your house, or use the money for another personal indulgence. After all, you’ve been through a lot – and such an indulgence could boost your confidence, relieve stress, and help you adjust to your new life.

But is this acceptable?

The Legal Perspective

From a legal perspective, you can use your settlement proceeds for anything. The settlement money is designated to compensate you for the expenses you’ve incurred, including some expenses that are difficult to quantify (such as your pain and suffering).

As far as the law is concerned, money is readily interchangeable; if you’ve already paid off your medical bills with your own money, the settlement cash merely serves to replenish that money, so it doesn’t matter how you use it from there. And if you have debt, but use your settlement money for some extraneous indulgence, you’ll simply need to pay off your debt using different money.

Why You Should Be Careful How You Spend Your Settlement Loan

There are many different reasons why you should be careful how you spend your settlement loan money. Spending $15,000 on a lavish vacation or $25,000 on a new car could hurt you in several ways.

Consider:

• Optics for the case. As your lawyer will likely tell you, spending your settlement advance recklessly or in pure pursuit of pleasure could make you look bad or possibly influence the direction of the case. For example, let’s say you’re awarded a settlement advance for $20,000 and you use $10,000 to take a trip across Europe, taking photos of your adventures on social media. Defense attorneys could use these photos and information on your trip as evidence that you’re not in pain or that you’re no longer suffering as a result of the accident (even if you are).
• Taxes. In some cases, your settlement will not be taxable. In other cases, it will be completely taxable. In still other cases, a portion of your settlement will be taxable while the rest is tax-free. It gets complicated, so make sure you discuss this with your lawyer and a financial advisor. No matter what, you should avoid spending money recklessly until you fully understand the tax implications of this money and prepare for them.
• Debts and bills. You’ve likely incurred significant debt, or you have significant bills to pay as a result of your injuries. The hospitals and doctors were good enough to treat you, and now you have to pay them back. If you blow all your money on personal indulgences, those bills and debts won’t go away; in fact, many of them may start accruing interest, leaving you in a much worse financial position than when you started.
• Personal financial responsibilities. You have other financial responsibilities as well. You may have a mortgage, groceries to pay for, utilities to cover, and kids to support. If you waste your money on something that’s only good for short-term pleasure, you won’t be able to manage these more important responsibilities.
• Additional debts and liabilities. If you’re especially reckless, you may end up accruing debt you didn’t intend; for example, you might take out a loan to finance your new car or use your credit card to cover additional expenses you face while on vacation. If you aren’t careful, these debts can easily accumulate and overtake your personal finances. Poor planning like this is one reason why the average credit card debt in the United States is $6,270 per household.

The Best Strategy

So what’s the best way to use your settlement money?

• Account for taxes. First, account for taxes. You may not owe any taxes, but you won’t know for sure until you consult with a tax professional. This is a personal financial obligation to the government, and not something you can afford to avoid – so it should be one of your highest priorities.
• Create a high-level plan. Once you’ve accounted for taxes, you’ll want to create a high-level plan. What are you trying to achieve with this money? Is your goal to end this phase of your life with as little debt as possible? Or are you interested in achieving some other financial objective?
• Set your personal priorities. Sort out all your expenses, bills, and debts, then start setting personal priorities. Which of these are most important to pay off or pay down first? Which ones can afford to wait for a while? Note that some bills and debts will be more pressing than others.
• Pay off your debts. Once your highest priorities are accounted for, consider using your settlement money to pay off your debts, especially those that accrue compound interest. If improperly managed, excessive debts can wreck your finances; paying them off can put you in a much better position.
• Make smart investments. After that, consider investing a portion of your settlement money. Assets like stocks, bonds, and real estate can all help you generate cash flow using nothing more than your starting capital; it’s also a great way to grow your wealth over time.
• Indulge. If you’ve tackled all these items and you’ve accomplished all your personal financial goals, then feel free to indulge. Whatever’s left can be used however you see fit, guilt-free.

Are you eager to get access to your settlement money? Unfortunately, if you wait for the case to resolve and to get your money the slow way, you could be waiting for weeks, months, or even years. But with the help of a settlement loan (also known as pre-settlement funding), you can get access to your capital immediately. Apply now with Capital Now Funding and see just how easy it is!