Tons of Debt but Motivated - Please HELP!

[solvision]

Personally I would use the inherited money to wipe out both credit cards and the car loan. This will improve your debt to credit ratio by $28,100.

In addition to that it will now give you $883 a month to utilize. Now dont make the mistake most people make and let your living costs go up at this time. If you have the discipline, keep the cards, but and just take them out of your wallet to avoid temptation. If you feel that you might use them, then cut them up.

Now you have some options. You can either take the $883 and make additional payments off the mortgage. If you do this, you should have the 2nd mortgage completely wiped out by Christmas 2014 or you can put it in to an interest baring account (find one that compounds daily) or start paying off your student loans with that now.

You have around $60k left from the inheritance at this point, i'd keep $20-$30k and put it into an account, take the remainder and wipe it off the 2nd mortgage. This means it would be paid out in about 2yrs.

So after 2yrs, you would have $20k in the bank (by then around $22700), no additional bad debt (just student loans) and $1874 per month to use for investment.

[momofla]

That was actually my first thought to pay off the car and free up that money. Discipline is the key there. I am quite motivated, and would love to apply that money to the existing 2nd mortgage. My greatest concern with this money is that I cannot do the same thing I have done so many times before. It has to be used in a way that changes our future, not just today.

I am really contemplating all of the ideas that have been set forth. Thanks so much for your consideration. Please feel free to add if you have any thoughts.

[wincrasher]

I would clear the slate of debt as much as possible with that money, and then start building your retirement saving going forward. A clean balance sheet gives you alot of flexibility going forward.

Pay off your debts in order of highest interest (also factoring in tax consequences). As much as people tout investment earnings (8% a year - ha!), they are not guaranteed and highly suspect these days. The best interest you can earn is the interest you pay yourself by retiring debts early.

Good luck to you - think you are on the right track.

[AshleyB]

I also agree with putting the inheritance aside for a few months and letting the rawness wear off a bit.

I was thinking to use the inheritance to towards debt reduction starting with the HELOC. I would pay that off first because it would free up so much extra cash per month. You could have all the debt listed (except for student loans) paid off in 2 or 3 months.

That would leave you $4174 (the 2300 you have now for debt repayment plus the payments you are getting rid of) per month for saving/investing/ paying down your student loans.

[momofla]

I guess I wasn't clear. The $2300 include the debt payments (991, 548, etc). Does this change the advice?

[jpg7n16]

Originally Posted by momofla

That was actually my first thought to pay off the car and free up that money.

Originally Posted by solvision

Personally I would use the inherited money to wipe out both credit cards and the car loan. This will improve your debt to credit ratio by $28,100.

Mehhh if you're going to pay off anything, pay off the 2nd mortgage - it's charging more interest and has twice the payment of the car loans. If you'd like the $500 from the car loan being gone, you'd love the $1000 from the 2nd mortgage being gone.

Originally Posted by momofla

I guess I wasn't clear. The $2300 include the debt payments (991, 548, etc). Does this change the advice?

Not really.

If you had $2300 extra - control expenses, refine/prune your budget, get out of debt by eliminating the highest interest rate debt first, invest for your retirement when all you have left is low interest rate debt.

If you only have $2300 - control expenses, refine/prune your budget, get out of debt by eliminating the highest interest rate debt first, invest for your retirement when all you have left is low interest rate debt.

The advice doesn't really change.

I guess the advice is more about the process, than the amount.

[momofla]

I think I have narrowed things down.

Here is what I'm thinking...

Plan A: Payoff car and credit cards (lowest interest rates but less cash out) which frees up approx 950/month. This leaves me quite a bit of money to invest.
I will also use the freed up monthly cash to put toward the second, but it will take approx 3 years to pay off.

Plan B; Pay off the 2nd mortgage (higher interest rate 5.63). this also frees up about 990/month. The other bills can be knocked out in less than a year but quite a bit less of the inheritance would be left for investing.

I know that in the end it is up to me, but I really appreciate the opinions of others. I want to use this money to make a difference in my future...one way or the other. I just don't know if it is better financially to pay off debt or invest a larger chunk of cash.

[snafu]

You seem so much more determined to get value from your money, willing to explore various possibilities and plans. I recommend your Plan B. Once debt clears, I hope you will consider contributing a monthly set sum to a ROTH. At $1,000. a month, you could return your $90,000. inheritance in under 7.5 years [presuming investment in a dividend paying MF]the major sum derived by reducing sums paid in interest.

Consider how much you save from the interest portion of your 2nd mortgage payment. How much have you already paid in interest on CC debt? How much of the car payment is ascribed to interest?