Where Should $150,000 In Settlement Money Go?

[questions]

I'm currently $70,000.00 in debt with credit cards. I also have a mortgage ($121,000.00) and 2 car loans (total $50,000.00). Recently I received some settlement money of $150,000.00. I have 2 grown children (33yrs and 28yrs) and my husband and I have 401k's totaling $140,000.00. We are only 52 and 51yrs old, still 8 years before retirement.

My question is:

Should I use this money to payoff the credit cards (interest rates range from 8-12%), mortgage(5.5%) or car loans(5-8%)?

Help what should I do?

[Diolla]

I am going to assume that the settlement was becaus of medical problems and the cc debt was because you used them to help you through a difficult time.

I would pay off the cc debt, then the car loans and set the 30,000 back in a fairly liquid account to help you with any unforseen (read emergency) problems that come up. IMHO you have too much car but at least you can get them paid for.

I would take the payments, or at least a portion thereof, and save that if at all possible. You have been living without that money and it would give you a nice boost to your retirement funds and emergency funds so you don't have to rely on cc again.

[TBH]

I agree with Diolla about what you should do with the money, but I think you should really take a hard look at how you got into so much debt in the first place. You have an opportunity to get out of debt with this settlement. How are you going to avoid racking up the debt again? I'd cut up the credit cards. Keep one for convenience but pay it off every month. If you don't have the discipline to do that, don't keep any of them. I also agree that you have overspent on cars considering your age and the size of your retirement accounts.

Stick around this board. You will be in good shape moving forward but only if you can change your habits a little.

I'm making a lot of assumptions here. Feel free to chime in with more info and then we can give you some more specific advice.

[Hedy]

CC debt seems like a logical answer, IMO.

[anonymous_saver]

I agree, pay off the Credit Cards ASAP. Pay off the cars as well (although I think it may be a good idea to downsize on those). If taxes are not taken out of this money then the rest should go towards an emergency fund for you and your husband.

Also, it scares me that you and your husband have $140,000 towards retirement and plan on retiring in 8 years. I think you need much more money towards retirement than you currently have. With this credit card and car debt gone, I would put up to the max in your 401(k)'s and contribute to Roth's as well.

If you can, it may be helpful to put down your take home pay and your monthly expenses down for us to see if we can help you try to budget your money a bit better so that you don't get into credit card debt again.

By the way, congratulations on making this change in your life, it's going to feel AMAZING.

[Ini_g]

My recomendation is: the credit cards first, the rest to your mortgage.

But you need to have your debt low as possible.

[Ima saver]

I would pay off the credit cars first, then the cars. I would put the remainder in savings and contribute to your roth ira's if you have them.

[Vapors]

Credit cards first ASAP. Then the cars. I wouldn't pay off the mortgage until everything else is done (emergency fund, max 401k and Roths). At least you get money back from the government for your mortgage interest payments.

Start saving more now. You still have 10 to 13 years left to get that savings up. Depending where and how you live, you need way more than $140,000, especially since you still having some debt (mortgage).

[parafly]

Pay off the CC's immediately.
Money left: 80K

Sell both cars.
Money left: 80K, assuming you break even.

Buy two dependable, used cars for 10K each.
Money left: 60K

Set up an emergency fund in a high interest online savings account.
Money left: 45K

Max out Roth IRA's.
Money left: 38K

Invest in bonds and mutual funds.
Money left: 8K

Treat yourself to a nice extended vacation.
Money left: 0

Don't allow yourself to ever get in debt again.
Priceless.

[disneysteve]

Originally Posted by questions

I'm currently $70,000.00 in debt with credit cards. I also have a mortgage ($121,000.00) and 2 car loans (total $50,000.00). Recently I received some settlement money of $150,000.00. I have 2 grown children (33yrs and 28yrs) and my husband and I have 401k's totaling $140,000.00. We are only 52 and 51yrs old, still 8 years before retirement.

Pay off the credit cards first, absolutely.

Despite being deeply in debt, you spent a huge amount on 2 cars. I would sell them and replace them with something much more affordable. Even if you lose money in the process, you'll come out ahead in the long run. For example, you owe 50K. Let's say you sell them for a total of 40K. You can use 10K from the settlement to pay off the loans. Then use another 10K to buy 2 cars for 5K each.

That will leave you 60K. Use 10K to fund each of your Roths for 2007 (5K each since you are over 50). That leaves 50K. Use that to boost your savings.

As for retirement, I'm not quite sure how realistic it is for you to retire in 8 years. Counting the 50K from the settlement, you've got 190K in savings. At 7%, that will grow to about 332K in 8 years. That can provide retirement income of a little over 13K/year. Will that be enough along with any pension? You won't be eligible for SS for 10-11 years so you can't count on that for early retirement. What about health care? You won't have Medicare for 13-14 years. And what about the 121K mortgage? How do you intend to repay that in 8 years?

[LivingAlmostLarge]

I would not pay off the CC, sorry but are you going to run them up again? That's the reason I wouldn't do it because what have you learned? What if in 5 years you owe another $30K? Then what with no more settlement money coming in then your up the same creek.

I might pay off the cars, but I'd rather sell them and replace them with cheaper stuff.

I would probably stick the money into an investment account for retirement. I hate CC debt, but what I hate more is paying off CC to charge them up agian.

[Elgin526]

1) Cut up all CC's but one, and put that one someplace you can't get to it easily (like a bank deposit box).
2) Pay off CC's
3) Make a budget and stick to a budget, and pay everything in cash for now on. No more charging.
4) Sell cars to pay off car loans, buy something cheap but reliable. If that is not an option for some reason, then just pay off car loans.
5) Put 3 to 6 months worth of living expenses in a high yield online savings account. This is now your emergency fund.
6) Take what's left and go see an independent certified financial planner, he/she can help you use that money to help kick-start your retirement. It doesn't sound like you have enough and you'll need to play catch-up with that.
7) Now that you have no CC and car payments, max out your contributions to your 401k plan every year. If you have any left after maxing out your 401k, let your CFP know and he/she can help you invest the rest.

[Bluezy]

Originally Posted by questions

I'm currently $70,000.00 in debt with credit cards. I also have a mortgage ($121,000.00) and 2 car loans (total $50,000.00). Recently I received some settlement money of $150,000.00. I have 2 grown children (33yrs and 28yrs) and my husband and I have 401k's totaling $140,000.00. We are only 52 and 51yrs old, still 8 years before retirement.

My question is:

Should I use this money to payoff the credit cards (interest rates range from 8-12%), mortgage(5.5%) or car loans(5-8%)?

Help what should I do?

What type of settlement was it? What state are you in? This information is important because you will need to know if the settlement is considered tax-free and plan accordingly. I would place the settlement into two different high yield savings ($75k each) until you ascertain what this settlement could do to you tax wise.

Once you address any possible tax issues, address that high CC debt. What is it from? Look for 0% balance transfer offers, and stop sending ASAP! If you find that you are in the clear with your settlement funds, pay the cards off.

Finally, I would also scale down on the vehicles. Personally I never purchase a vehicle much over $10k; new cars depreciate as soon as you drive them off the lot, and you end up owing more than what the car is worth. If you obtain other vehicles you will save on insurance as well as payments.

Good luck to you and all the best in the future!

[cbmeeks]

You should put 100% of what you clear after any taxes towards debt. Smallest to largest.

Check out Dave Ramsey's plan.

[sweeps]

Originally Posted by cbmeeks

You should put 100% of what you clear after any taxes towards debt. Smallest to largest.

Eek!

Pay off debts highest interest rate to lowest. Anything else will cost you more money in interest.

[disneysteve]

Originally Posted by sweeps

Eek!

Pay off debts highest interest rate to lowest. Anything else will cost you more money in interest.

Agreed. Dave Ramsey's point, which is valid for some people, is that they need the motivation of seeing the number of debts drop even though it actually costs them more money.

The best way, financially speaking, is paying off your highest rate debt first. If, however, you have a bunch of stupid little debts (a few hundred here and there), knocking a few of them out first to make the big picture look less imposing isn't such a bad idea and really won't cost you that much in the long run.

[Ima saver]

too bad the person asking the question never comes back on this forum to give us more details.

[tinapbeana]

that's b/c the person never came to the forum. the questions are sent to jeffrey by email and he posts them here. i think he said he gives the people the link to the thread so they can view the responses, but they'd have to create an account to be able to actually reply and some people aren't willing to do that...