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Tons of Debt but Motivated - Please HELP!

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    #16
    Thank you for the great advice. I completely agree about holding onto the money for six months. In the meantime, I will continue to pay down debt in the order suggested. I will also research where to invest the money. The advantage of the ROTH is that taxes won't have to be paid when I get the money, right? This is life insurance money which is not subject to taxes. Should I still invest the same way?

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      #17
      As far as I can see, you have already organized well a large part of your debts. I think you will be able to pull through most of the plans that you have laid out.

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        #18
        Originally posted by momofla View Post
        Thank you for the great advice. I completely agree about holding onto the money for six months. In the meantime, I will continue to pay down debt in the order suggested. I will also research where to invest the money. The advantage of the ROTH is that taxes won't have to be paid when I get the money, right? This is life insurance money which is not subject to taxes. Should I still invest the same way?
        Roth's are completely tax free when you withdrawl them at retirement.

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          #19
          Originally posted by bjl584 View Post
          Put the car payoff in slot #3 and the SL in slot #4. Even though the interest rate is lower, I would still be inclined to get the auto loan paid off, because it is a depreciating asset and it has no tax advantage.
          Meh I still go with the student loans - they're backed by no assets at all, they're not bankruptable, and even after the tax break they're still charging more than the car loan.

          Originally posted by momofla View Post
          The advantage of the ROTH is that taxes won't have to be paid when I get the money, right? This is life insurance money which is not subject to taxes. Should I still invest the same way?
          Like LR said, it's all tax free on withdrawal - once you're past age 59 1/2. So you two could deposit $10k/year for the next 25 years, and if it somehow grows to $1 million - you'd get all $1 million tax free. Just like the insurance money.

          And yes, the insurance money was tax free - to your family upon receiving it. It's now your money. But if you then invest that money, any earnings are new income to you - which is normal since you're just investing your own money. The Roth is just an account that lets you invest your own money and makes any earnings income tax free. Whether you invest that account in stocks, bonds, CDs, real estate, or cash - because it's in the Roth account, it's all tax free.


          Which is why I'd really like to see you guys put at least the $10k in for 2010. After April, you can never go back and add it, but you can always go back and take it out if you change your mind. And in the Roth you could just hold it in cash, like your bank account. Nothing says Roth money has to be risked.

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            #20
            I guess if OP does put SL before auto loan, then the auto loan will probably be paid off by the time the SL's are paid off anyway. Term on SL is probably 20 years. If you double up and manage to pay them off in say 5 years, then the auto loan will probably be gone on its own anyway.

            But, if there is such a thing as good debt, then that catagory would include mortgages and student loans. Everything else I would consider bad debt. That is where I would focus my attention first.
            Brian

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              #21
              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.

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                #22
                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.

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                  #23
                  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.

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                    #24
                    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.

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                      #25
                      I guess I wasn't clear. The $2300 include the debt payments (991, 548, etc). Does this change the advice?

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                        #26
                        Originally posted by momofla View Post
                        That was actually my first thought to pay off the car and free up that money.
                        Originally posted by solvision View Post
                        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 View Post
                        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.

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                          #27
                          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.

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                            #28
                            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?

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