Just inherited $50G. How to manage this?

CatGarbler wrote:

...

The inheritance is modest, $50G. ... What's the best way to allocate this to get out of debt, ...

Our mortgage has an interest rate of 3.75. ... Our 50 year old house needs to be painted and needs new windows. ...

Credit card 1 balance: $18,000 at 11.5%

Credit card 2 balance: $8000 at 15%

Credit card 3 balance: $3000 at 16%

....

I inherited a smaller amount of money, and based on what I did, I'd recommend the following:

(1) First thing that I would do is pay off the above 3 credit cards. This will initially cost you $29k, but will save you $3750 per year. So you'll get this money back in less than 8 years. Maybe plan a vacation for a year from now that costs no more than $3750. If you don't pay off the credit cards, you'll still pay $3750 in interest over the next year, so you won't have any money left for vacation.

(2) It's unclear if the house "needs" new paint and "needs" new windows. If it's just asthetics, skip it. However, if its to prevent water intrusion, then its worth it. What did you take out the home improvement loan for? Anyhow, if the house needs repairs to prevent water intrusion that could result in greater damages, I would spend up to the remaining $21k on that. If the repairs are only for asthetics, I would do none of them.

(3) Look to see if there are other investments for your money, if the house does not "need" repairs:

* although your mortgage interest rate is low, would paying off a portion of the principal, allow you to avoid paying PMI or MIP? If so, that could be a good investment.

* using some of the money to attend a night school, online school, or trade school, might be a good Return On Investment if it enables you to increase your or your wife's pay

* is it possible to use some of the investment to move into a better neighborhood with better public schools, which will save you money spent on private schools?

If the above don't apply or there aren't better investments, I would pay off the $14k home equity loan.

(4) With the remaining $7k, you could put it in the bank, or buy something that you always wanted. I spent about $7k fixing up our backyard by adding a hot tub, some artificial grass, some crushed granite, and a trampoline for the kids. It makes our backyard usable again, since it used to be a mud pit for the dogs that tracked mud into the house. Anyhow, going out into the backyard is now like a nice outdoor extension of the house, which is like going on a mini vacation, so it was well worth the money.

Put it all towards your credit card and car loan debt. Pay off everything.

get out of debt.

And find out how to not get in debt again.

Get rid of your credit cards. Or find a job. No one should be carrying that much credit debt.

I think it's a little crazy that you're advising someone that has gotten themselves into $29k of credit card debt to start planning $3750 vacations, and get a hot tub and artificial turf in their back yard.

Geezus, no wonder most Americans are broke.

UsedToBeKnowItAll wrote:

I think it's a little crazy that you're advising someone that has gotten themselves into $29k of credit card debt to start planning $3750 vacations, and get a hot tub and artificial turf in their back yard.

Geezus, no wonder most Americans are broke.

So what I said was "First thing that I would do is pay off the above 3 credit cards. This will initially cost you $29k, but will save you $3750 per year. So you'll get this money back in less than 8 years. Maybe plan a vacation for a year from now that costs no more than $3750. If you don't pay off the credit cards, you'll still pay $3750 in interest over the next year, so you won't have any money left for vacation."

In other words, if he pays off the credit cards, he'll save $3750 over the next year to do something fun like go on a vacation. If he does not pay off the credit cards, he'll pay $3750 over the next year in interest, and he won't have any money left to do something fun like go on a vacation. Either way, he spends $3750 over the next year. If he has no credit card debt next year, why would he not go on vacation? I suppose he could invest it all, never go on vacation, and spend the money when he retires - if he lives that long.

If his money problems are from a bunch of little weekend vacations throughout the year, why not spend some money fixing up his yard. Then he can do a staycation. Either way, he'll spend the same amount of money. But fixing up his yard could increase the value of his house, and make it more attractive to buyers if he sells.

This is pretty simple. Pay off the first four debts on "the hit list" and leave the car loan alone for the time being.

That would leave you with $7000 and I would put it in ALLY Demand Notes account. This is currently earning ~1.75% on a $7K account. Try to hold onto that for emergencies. Use it in a way that you don't get into $40,000 worth of debt again.

Maybe over the next two years double up that car payment and accelerate that account payoff. Or triple it up? Use the $1000 or so that you HAD BEEN using for credit card payments the last several years, you won't have that any more. Use $300-400 a month on top of that from your windfall fund, until that fund has dried up. That auto loan will be clobbered in no time ... probably 10 months.

Try really hard to NOT USE YOUR credit cards for anything that you can't pay for at the end of the month. Living debt-free is THE BOMB.

Pay off 100% of the credit card debt IMMEDIATELY.

Do not listen to scorpion runner whatever you do.....horrible advice

As others noted, pay off all your credit card debt. Put 5k in savings to avoid CC problems if you foresee that as an ongoing issue...and invest the other 16k.

Don't just pay off your debt, PAY OFF THE DEBT WITH THE HIGHEST INTEREST RATE FIRST.

Do you have a home equity loan or a home equity line of credit (HELOC). I know this is hindsight, but you should have gotten a HELOC and consolidated the other debt into that.

My condolences on the loss. Would pay off the 3 cards and let the other debt ride. Split the remainder into non-qualified (i.e., taxable) equities account and a high yield savings. GS has a good product called Marcus that is currently at 2.05% for the latter. Would not rush to put into IRAs or other qualified retirement accounts without knowing more about your financial situation. Seems like you could benefit from establishing a rainy day fund and preserving optionality with regard to cashing out the equities in the future to pay for home repairs, etc. I’m a financial advisor in California and happy to talk with you about any of this if you’d like.

This

There are very few states with an inheritance tax...

Edward Scissorhands wrote:

You should take the kids out for ice cream and then buy yourself a good pair of scissors. Use them to cut up your credit cards.

Great advice. Paying off credit card debt should be #2, right after taking the kids out for ice cream.

It looks like your family needs to learn to live within your possibilities.

Do a class or read a book about how to manage your finances.

Yeah. I read what you said. We're advising someone that has gotten themselves into $29k of credit card debt. The last advice he needs is to start planning additional expenses, like a $3750 vacation, or a hot tub, or new landscaping. Those are frivolous expenses that you should plan when you have 6 months of emergency savings in the bank.

If he pays off the credit cards, hopefully, he'll be cash positive, and not on the path to rack up another $29k in credit card debt. It's unlikely he'll have $3750 "extra" considering the negative course he was already on.

If you don't have 6 months of emergency savings in the bank, your vacations should be a $300 drive to a national park and camping, if anything. Not a luxury, all-inclusive $3750 resort. Geezus.

"Why not spend some money fixing up his yard?" Because he can't afford it! Dude is $29k in the hole. His house is falling apart. He has no savings. Why don't you buy a private jet, so you can save on airfare? Your advice sucks.

CatGarbler wrote:

Thank you for any constructive help you can offer.

So how are you doing, OP? Cut those credit cards up yet? Stay strong! And keep us updated.

Buy ur wife fake boobs.

Not sure if others have said the same thing, have only read OP.

Pay off the high interest debt immediately.

Also immediately, transfer the Home equity and Car loans loan to a 0% interest account (some accounts offer this for a 12 month period to new customers). Pay off that debt in monthly instalments over 12 months, that'll take pressure off you.

That leaves you with 21k that you haven't paid off immediately, that you could use as an emergency saving fund, or even invest. It's your money so you can do what you want, but personally I wouldn't invest it unless it's 30-40% of your total wealth (a good Buffet principle to follow). So if you have another 30k saved up, that would be a good time to invest the 21k in value stocks. Go for growth stocks if you want more risk, the return is great but there might be 6-12 months of pain, so again, growth stocks are only something I'd invest in if you have another 60-70% of funds saved up.

Sorry for your loss, I hope your family heals.

The dude won't be $29k in the hole if he uses part of the $50k inhereted to pay off his debt. Then he'll have $21k left, and $3750 each year thereafter, since he won't have to pay interest on the debt.

Anyhow, it seems that most posters thinks the OP should use $29k to pay off the credit cards. Most of the disagreement comes from what to do with the remaining $21k. A lot of advice is sound financially, but you are dealing with someone who makes irrational decisions, otherwise, he would have never accumulated the high interest credit card debt. Thus, I think any advice needs to consider the OP on a psycological level.

The OP just lost his mom, so his life sucks. So telling him that his life is going to continue to suck because he can only spend $300 on vacation, eventhough he just inherited $50k, is not going to get through to him. He should use some of the $21k he has left to buy something he really wants, not needs. Otherwise, all of the sound financial advice given on this board will be ignored.