What to do with a windfall? Advice needed!

[Judique]

We bought our house 6 months ago. Our debt load is currently completely manageable right now - but we want to have kids and I want to be a SAHM. My goal is to decrease our monthly expenses so that can happen. My DH's idea of investing doesn't exactly make that happen.

Well then, it seems like time for a compromise!

You said the money came from both your families, so some should follow your ideas and the rest can be invested by your husband - similar to your own proposal in your original post!

Sounds like you know what you want and your wants and goals are realistic -at least in my opinion.

I was a SAHM for a short while way back when. Then got part time jobs and eventually became employed full time. There are definitely benefits to both situations! Good luck with your decisions!

 

[starry_solo]

I would pay down debt, but the 1% interest rate doesn't seem so bad. Hmm

 

[Irin997]

Doesn't have to be all or nothing. Compromise.

$30,000

I would do it in thirds.

$10,000 let DH invest.
$10,000 immediate debt reduction (def. car first)
$10,000 savings (EF, next car fund, etc)

And because you bulked up your savings, I would throw everything (income) coming in toward debt reduction to get that down ASAP.

Good luck.

This is a great idea and one that I've considered. It would work for both of us and I know I would feel better getting some of this debt off our backs.

 

[Irin997]

Thanks!

 

[FLmomof6]

My thought was to pay off the car and SL #2 & 3.

This is EXACTLY what you should do. If I remember correctly, that is what Ramsey would say. In fact, it wouldn't be such a bad idea to use some of your cash reserve towards the remaining debt. Then use the money you would have paid towards those 3 loans to quickly pay off the remaining debt.

We are also expecting a windfall. We only have 1 debt remaining......about $6,000 on dh car. We are paying that off, putting braces on 2 of our kids (about $4,000 total after insurance). Then we will increase our 401k contributions (dh employer matches at 50%, and it will decrease our taxable income).

Just curious, have you read any of Ramsey's books? If not, I suggest reading The Total Money Makeover, before you do anything with the windfall.

 

[ilovemk76]

Through the generosity of my DH's parents and my grandparents (all related to family deaths), DH and I have received $30,000. DH wants to invest $25,000, and save $5,000. I want to pay off debt. What would you do?

We currently have about $20,000 in cash and liquid reserves/investments as it is.

Our debts are as follows:

Student loan #1 @ 4.38% with 18 years left - $25,051
Student loan #2 @ 5% with 15 years left - $11,750
Student loan #3 @ 1%, not sure how much longer - $2,100
Car loan @ 4.49% with 2.5 years left - $7,560

My thought was to pay off the car and SL #2 & 3.

You do with your inheritance as you want and let DH do with his inheritance as he wants. Pay off your student loans, if you have any.

An inheritance is not a marital asset and will still be yours upon a divorce, not implying anything here.

 

[pigletto]

I know for me, I'd want the debt GONE. You are looking at about 45,000 in debt. That would be almost gone by paying off 30,000 (assuming no penalties for paying it off early). It may not be the most sound financial advice, and even in this thread opinions differ. I would just want as much of that yolk around my neck gone as possible. I would pay down the remaining 15,000 as quick as possible. You could be debt free in a year or two. That to me is just more appealing than any other option.

 

[cornflake]

If he can reliably generate 9-10% then he's right, you'd be coming out ahead, regardless of the debt, those interest rates are all under half that.

However, I agree with the poster said divvy it up - who inherited what? You pay off your loans with what you inherited, he invests what he did. If he's right, he's gonna win tho, so don't bet too big on who'll come out ahead in 10 years.

 

[shortbun]

I'd pay off just what you said and add those payments to my investments but in a less risky funds than the 1st 10K. You can use the money/income to live on when your children come and you aren't working.

 

[ICF]

You have $46K in debt. There shouldn't be a question as to what to do with the money.

I'd pay off Student Loans 1 & 2 --- as those probably are causing you to pay the most in interest each month

Once the debt is paid off....then you can invest.

 

[laliwalden]

I would totally pay down debt. To me, getting rid of student loan debt would be a HUGE accomplishment. It is something that is not going to be coming back. (well, assuming you will not be returning to school)

 

[Woth2982]

Have you done the math on SL 1&2 at 18 years and 15 years that is a LOT of interest! You will probably end up paying more than the current principal. Have your DH do out an amortization schedule and see what the total amount you will pay over the next 18 years is. I just paid off my student loans with an inheritance I got from my grandpa and my savings are now 10x what they were just 6 months ago. It makes a huge difference. I would keep the car loan and pay off the school loans first.

 

[DawnM]

You have $20K in cash AND you received $30K in a windfall. Am I reading that correctly?

I am all about paying off debt and once we made the decision we paid off all our debt pretty fast. It was the best feeling ever. I hate debt. We do still owe on our house.

So my vote is to get rid of debt.

 

[pyrxtc]

Through the generosity of my DH's parents and my grandparents (all related to family deaths), DH and I have received $30,000. DH wants to invest $25,000, and save $5,000. I want to pay off debt. What would you do?

We currently have about $20,000 in cash and liquid reserves/investments as it is.

Our debts are as follows:

Student loan #1 @ 4.38% with 18 years left - $25,051
Student loan #2 @ 5% with 15 years left - $11,750
Student loan #3 @ 1%, not sure how much longer - $2,100
Car loan @ 4.49% with 2.5 years left - $7,560

My thought was to pay off the car and SL #2 & 3.

pay off student loan #2 and #3 and the car loan. You will still have money in the bank and the payments that went towards those other things can now pay down loan #1.

 

[Ln42]

Have you done the math on SL 1&2 at 18 years and 15 years that is a LOT of interest! You will probably end up paying more than the current principal. Have your DH do out an amortization schedule and see what the total amount you will pay over the next 18 years is. I just paid off my student loans with an inheritance I got from my grandpa and my savings are now 10x what they were just 6 months ago. It makes a huge difference. I would keep the car loan and pay off the school loans first.

This is excellent advice. I too vote to go after the debt. Look at what that 25k would cost you to carry over 18 yrs. If there are no penalties for paying it off early, I would put your money there as its the highest rate for the longest time. Then go after the next highest interest rate. I would wait to pay off the 1% loan as it costs you the least to keep.

I am a SAHM and getting rid of the debt is the single best thing we did. Good luck with your decision!

 

[punkin]

Guaranteed 9 percent in this environment is impossible. Only very risky investments will produce that return now. I suggest you pay off your higher interest debt and put some money in savings.

 

[cornflake]

Guaranteed 9 percent in this environment is impossible. Only very risky investments will produce that return now. I suggest you pay off your higher interest debt and put some money in savings.

Nothing, I agree, is guaranteed, but she said her husband is a trader by profession. Presumably he knows whereof he speaks.

I've been earning over that on an acct for like three years now, it's not statistically particularly risky. It's not like he promised 50% returns.

 

[csharpwv]

OK, the first question I have for the OP is this:

Have you incurred any NEW debt...is your monthly budget balanced to live debt free on a monthly ongoing basis?
Same question...rephrased... are you paying off OLD debt?

If you can pay off OLD debt, and NOT continue to incur debt on a monthly basis, then by all means pay off the debt!

However, if your budget isn't balanced and it won't matter that your debt is paid off - SAVE/INVEST the money!

I don't want to imply anything or suggest that your budget isn't balanced

I just wanted to make the point to anyone reading that paying off debt doesn't work when the debt is ongoing, and the budget isn't balanced - so monthly debt accumulation is a habit that MUST be changed to get on the right financial track.

Do you have a good financial planner?

If you don't then.... GET ONE!

There is so much about financial planning that the general population doesn't understand, and doesn't apply to their income, savings, retirement funds etc etc etc

We have a nice nest egg saved, especially for our age... and we were paying a financial advisor literally HALF of what we made on our account last year - and when I realized that I hit the roof!
He called us once a year and sent us a Coffee cake each Christmas...that's it.

I shopped around and found a guy a block from our house that has been absolutely incredible! He called me a week before Christmas to talk about the possible effects of the fiscal cliff mess in the US right now - and at the end of the conversation, I felt as though I had just attended a short financial workshop - and was smarter, JUST because he cared enough about our investments to make a 10-15 minute phone call to assure we knew what was at stake, and what to get our permission to do what was necessary if on December 30th congress continued to sit on their hands.

We are even in a better tax situation because of the way our accounts are invested.

SO, in short - find a great advisor to help you make the right decisions based on YOUR life over the next 50 years.... not on your current financial situation.

IF you could save the amount you are currently paying out each month over the next three years, and it would EQUAL your windfall - then yeah, you are FAR better off paying down the debt. However, if you are looking at more like 10 years to save up what you have in your hands right now, then you might want to reconsider.

Saving and investing when you are young is SO critical to getting to your eventual dollar amount needed to retire comfortably.

It is SUCH a tough decision to think about investing and paying off debt...you see as cash going out the door each month.

BUT you DH is correct that you MAY be better off be saving/investing - BUT depending on your current and foreseeable future financial situation, it MAY be better to wave goodbye to your debt!

SO, I say....... go see a professional financial advisor! You won't regret it! Make a plan!

 

[stayhomemom77]

I'd suggest paying off the car and loan #2 and letting him invest and/or save the remainder of the money (about 1/3 of it). It shouldn't take too long to pay off loan #3 if you divert the car payment and loan #2 payment to #3 and then you can go all out at #1 until it's paid off. When that's done he'll be able to save and invest all that money that currently goes to debt repayment.

Good luck to you!!

 

[Cheshire Figment]

See that's exactly how I feel. But DH seems to think that if our investments can earn a return of 9-10% then we are making out ahead. BUT we want to add to our family and have me become a SAHM and I keep telling him that if we have fewer debts and payments, that will be much easier.

I would pay off debt too. Pay off the car first and keep that car for a very long time. Not having a car payment is huge. YOu can still make that car payment right to your savings account everymonth. Then when it is time for a new car, you can pay cash and never have a car payment again. That is what we do. Keep each vehicle about 9 years.

Seriously, he is confident in a 9-10% return? I would pay down debt for sure. Also, do you own a home/pay on a mortgage?

I don't know where he got that number, but yes he is. He works as a trader so he knows the markets well.

Yes, we bought our house 6 months ago.

I don't know of any safe investment that will currently pay 9% - 10%. Being a trader is not a safe investment; one of my tax clients managed to lose over $20,000 in two years by being a day trader in addition to his regular job.

Mike (CPA, Retired but still doing taxes).