parental advice - what to do with $20,000???

[alliswill]

My parents, mid 50's, will soon be receiving $20,000 from an inheritance check. and they are needing advice on how best to use it. here are some facts:

- joint annual income $23,000 (my dad's job includes housing)
- NO HOUSE (no house payments)
- no savings
- about 20,000 in debt, primarily credit cards
- about $800 per month currently goes toward debt.

One goal they have is to purchase a house so they can build equity and also have a place to live if they ever lose their job or retire. They also would like to get out of debt but have not be overly diligent in doing so. which option to you think best?

1. use the 20k to put down on a house and starting building equity immediatly and continue to pay off debt.

2. put the 20k into an IRA and invest it since they don't have any savings yet.

3. use the 20k to pay off their current debts. Then use the money they would have been paying on debt to save for a downpayment on a house. then sink money into an IRA.

I am leaning toward option #3. what do you think? Option 1 simply increases their debt ratio and adds to their monthly payments. Option 2 would not probably not earn as much as they are currently spending on debt. I'm thinking it would be best to get rid of their debt, save for a house, then invest into an IRA. i think that what they decide to do with this 20k could greatly impact their financial future. what would you do in their situation?

thanks,

Craig

[Tree0164]

Here is what I would do

1) Pay the 20k towards debt
2) Create an emergency fund so that they don't get into debt agan
3) Start saving towards retirement they should try to max it out Roth IRA
4) While housing is currently included in their salaries is there anyway that they could get additional income now. I don't see being able to buy a house in the future with the current salary. They should probably consider renting.

[aida2003]

For me the scary thought here is that if your parents are not CC debt averse then after paying off the debt they'll accumulate it again. I'm not a psychologist and have no clue about such behavior though. I've read only that if people get a gift to pay off their CC debts, they tend to sink into the same debt again.

I'd rather invest in retirement in this situation and let $800 work its way in debt reduction. BUT if the parents have learned and know that it's detrimental to carry CC debt, then yes, they should pay the debts.

[disneysteve]

I agree with #3 as the ideal option, but I also share aida2003's concern. Why do they have CC debt nearly equal to their annual income? That's a lot of debt.

If the debt situation has been taken care of, then take the 20K and pay off all the debt. That will free up $800/month. They can use that to build savings for an EF and a downpayment.

Just be sure that they have stopped using CCs to buy things they can't afford.

[Seeker]

Originally Posted by alliswill

My parents, mid 50's, will soon be receiving $20,000 from an inheritance check. and they are needing advice on how best to use it. here are some facts:

- joint annual income $23,000 (my dad's job includes housing)
- NO HOUSE (no house payments)
- no savings
- about 20,000 in debt, primarily credit cards
- about $800 per month currently goes toward debt.

One goal they have is to purchase a house so they can build equity and also have a place to live if they ever lose their job or retire. They also would like to get out of debt but have not be overly diligent in doing so. which option to you think best?

1. use the 20k to put down on a house and starting building equity immediatly and continue to pay off debt.

2. put the 20k into an IRA and invest it since they don't have any savings yet.

3. use the 20k to pay off their current debts. Then use the money they would have been paying on debt to save for a downpayment on a house. then sink money into an IRA.

I am leaning toward option #3. what do you think? Option 1 simply increases their debt ratio and adds to their monthly payments. Option 2 would not probably not earn as much as they are currently spending on debt. I'm thinking it would be best to get rid of their debt, save for a house, then invest into an IRA. i think that what they decide to do with this 20k could greatly impact their financial future. what would you do in their situation?

thanks,

Craig

Okay, I just cannot imagine this situation. How in the world do two adults in their mid-50's have a yearly income of 23k (including housing) and have "no savings"? They are essentially spending 2k a month on what ?

Is this military -- is there any kind of pension here? Something has to be missing. I just don't see how they can "retire" given that the above is the whole picture of the situation here.

If they pay off 20k of the debt, it would be a good chunk of what is owed, but without knowing the history of that debt, how can you control what they will use that 800 per month for in the future? How much house will 800/month buy in today's terms?

If they save 800/month for a year they will have 9600. I don't know which state this is, but ultimately I don't see your folks could get any kind of a loan for any house based on their income. If they continue to save that amount for 10 years they will have 96k; but is that realistic? Will it buy a house for them in that area.... and they will be in their mid-60's at that point.

If the above picture is all there is, then these folks will need more money for a house. How will they live once they have that house and could they ever realistically "retire"? They will still continue to need an income if only to pay their "needs" -- roof, food, etc.

Nothing personal here, just trying to understand this...

[sweeps]

Originally Posted by Seeker

Okay, I just cannot imagine this situation. How in the world do two adults in their mid-50's have a yearly income of 23k (including housing) and have "no savings"? They are essentially spending 2k a month on what ?

2k per month isn't that much -- even not including housing. OP said $800/mo is going to paying off credit card debt. Let's say $500 for food, $300 for a car payment, $200 for gas and car maintenance, $300 for insurance, $100 for clothes. That's $2200 right there and I'm just getting started.

[responduser]

Originally Posted by alliswill

My parents, mid 50's, will soon be receiving $20,000 from an inheritance check. and they are needing advice on how best to use it. here are some facts:

- joint annual income $23,000 (my dad's job includes housing)
- NO HOUSE (no house payments)
- no savings
- about 20,000 in debt, primarily credit cards
- about $800 per month currently goes toward debt.

One goal they have is to purchase a house so they can build equity and also have a place to live if they ever lose their job or retire. They also would like to get out of debt but have not be overly diligent in doing so. which option to you think best?

1. use the 20k to put down on a house and starting building equity immediatly and continue to pay off debt.

2. put the 20k into an IRA and invest it since they don't have any savings yet.

3. use the 20k to pay off their current debts. Then use the money they would have been paying on debt to save for a downpayment on a house. then sink money into an IRA.

I am leaning toward option #3. what do you think? Option 1 simply increases their debt ratio and adds to their monthly payments. Option 2 would not probably not earn as much as they are currently spending on debt. I'm thinking it would be best to get rid of their debt, save for a house, then invest into an IRA. i think that what they decide to do with this 20k could greatly impact their financial future. what would you do in their situation?

thanks,

Craig

Contact a Financial Planner.

[Scanner]

I agree with a lot of the sentiments here.

Personally, I'd tell them to throw it at retirement.

Why?

Because it's obvious they haven't really thought about it until now and by earmarking it, they are taking a huge psychological step forward.

Yes, it's probably better number wise to retire the c/c consumer debt but they need to realize that time is not their friend now and it's running out.

Good luck.

PS: I don't know how they could get a mortgage. . .I know if I was a lender, I wouldn't give your parents a dime of money. Sorry to be harsh but I think it's time for everyone to start being realistic.

[Seeker]

Originally Posted by sweeps

2k per month isn't that much -- even not including housing. OP said $800/mo is going to paying off credit card debt. Let's say $500 for food, $300 for a car payment, $200 for gas and car maintenance, $300 for insurance, $100 for clothes. That's $2200 right there and I'm just getting started.

$300 for auto insurance monthly? $500 monthly for food for two people? $100 monthly for clothes? Wow! Sorry, but I find these costs very high. We pay $150 per month for two cars (one purchased last year -- it would have been $100 per month for the two of us with the old car). We don't buy cloths monthly.... and maybe spend $200 a year for clothing. Food? I haven't calculated that out with the rise in prices, but that should be 300-500 depending on the area.

But I know that 2k does not go far... Sweeps. I was just looking at income and outgo. I realize that 800 of the two thousand is going toward the CC debt. But how much of that CC debt is current? If they throw 800 at it per month and not accumulate anymore, then more or less in two years the CC debt would be gone.

But just excluding debts, I guess my real question is what are the monthly expenses?

Two thousand per month is a lot of expenses for a couple that has housing, no property taxes, housing insurance, etc. Most people pay somewhere around 1/4 to 1/2 their income on housing and those costs. Repair/maintenance/insurance/property taxes, etc.

So where does the majority of this 23k per year go? 9600 to cc debit -- but are they continuing to charge?

But truthfully, can any of you ever see this couple owning a house ? Or retiring ?

[maat55]

They should payoff their debt and cut up their CC's. Then take every penny they can get to build an EF and invest. If they have to later, they can buy a cheap mobile or cheap rent and continue to invest.