Investing versus paying off credit cards

**lovcom** · 11-15-2009, 10:34 AM

I'd suggest you pay off all your credit card debt, and keep a portion of the rest for emergency fund. Going forward, don't carry anymore consumer debt (non-mortgage).

**EconoMutt** · 11-15-2009, 10:43 AM

Originally posted by lovcom View Post

I'd suggest you pay off all your credit card debt, and keep a portion of the rest for emergency fund. Going forward, don't carry anymore consumer debt (non-mortgage).

I'd second that motion

**Dokukaeru** · 11-15-2009, 11:07 AM

Definitely do not plan to carry any consumer debt in the future, but is it a bad idea to ask to use this money to pay off the high interest debt now? Would it be better to just leave the money invested and just pay the cc debt over time, trying to move the cc debt to lowest possible interest rates?

**jasonnoguchi** · 11-15-2009, 07:36 PM

invest only when it makes a consistent guaranteed return of MORE THAN your interest on credit card debt.

**Kris10Leigh** · 11-16-2009, 05:43 AM

I think this is as much a personal choice as it is a numbers game. You may want to weigh the interest lost in debt for CC's and for student loans vs. the interest that would be gained if all the money were invested.

For me personally, the debt would have to go. I carried a lot of stress along with the CC debt and was desperate to get rid of it as fast I could. I would far rather pay off the past and then look to the future instead of paying to the past and present and never quite living in the here and now.

I did not follow this advice, but I do think it is wise to have an emergency fund first, regardless of what you decide.

**LivingAlmostLarge** · 11-16-2009, 06:49 AM

I actually am going to go against the grain and say leave the money invested.

Have you changed your spending habits? Have you been paying off the debt?

If you haven't then I wouldn't use an inheritance for the easy way out of paying off debt. You won't have changed your behavior and what will happen next time you run up debt?

Debt sucks. But it sucks even more to pay it off with an inheritance and then be in debt again in a few years down the road because nothing has changed except you have no inheritance.

If you have been paying off the debt then I'd use the inheritance. If not, then I'd leave it alone for a year and make changes to my lifestyle and budget.

**Kris10Leigh** · 11-16-2009, 07:14 AM

Originally posted by LivingAlmostLarge View Post

Debt sucks. But it sucks even more to pay it off with an inheritance and then be in debt again in a few years down the road because nothing has changed except you have no inheritance.

Ah, this is true. I've done that actually. Prior to really getting serious I threw a chunk of inheritance money at debt, but without changing any habits, we accrued it all back again. I guess it's a bit like weight loss. If you lose it too rapidly without making lifestyle changes, it'll all come back again plus some.

**Dokukaeru** · 11-16-2009, 11:05 AM

The money is going to change from its current low yield/low risk local bonds to something with higer yield/risk even if i dont use it to pay off cc debt. The habits have been changed. A good portion of that debt is from my undergrad. I have also had reduction in hours resulting in loss of pay from my current job of about 15% (10% hour reduction and loss of any overtime) When that happened, I reduced my IRA contribution from 8% down to 2%. I had some other hardships that I wont get into but as it stands now, I am currently only able to pay just over the minimum payment. I typically live within my means, i dont spend a great deal of money on frivelous stuff. I just hate paying that interest and thought that there may be a way to borrow that money and repay it to my dad (to the inheritance). Trying to move the debt to 0% cards(if i can find one) will cost me 3% balance transfer and seems less likely now that banks have tightened up on credit cards.

**Tamara Holmes** · 11-16-2009, 11:00 PM

Originally posted by Dokukaeru View Post

Hello and thanks in advance for any advice.

My father recently asked me for advice on what to do with a share of inheritance from my grandmother that is specifically meant for my sister and I. About 75% of the close to 70,000 currently sits in local bonds, the rest in money market. He is retired and currently living off his own retirement/pension.

Im 31, currently contributing to my own IRA thats around 15,000. I have about 12,000 in CC debt, average interest around 7.99% most of which is on a single card. I have 12,000 in school loans at 3%. I have a mortgage but no car payment. I plan on starting school for my MA in education next year using more loans to the tune of around 25,000. I will be able to get about half of my total school loan debt reduced due to government program.

Would it be a good idea to use some of the money to pay off my credit card debt? I was thinking of asking him for a loan where I would repay the money into some type of investment.
Any other advice would be appreciated.
Thanks,
Joe

Personally, I'd pay off the high interest rate debts first (like the credit cards). Then I'd look at how much I have left, what my interest rate on the card is, what my financial situation looks like and then decide about paying off for other things.

One thing to keep in mind is that after you pay off the credit card bills, your cash flow situation will likely improve a lot, and you won't find it difficult to pay your car payment. I'd probably also keep some amount of the 'found money' (10-15%) to have a bit of fun with as well, but not more than that %.

**LuxLiving** · 11-29-2009, 04:53 AM

Local bonds likely mean you aren't going to pay any state taxes on any gains. Maybe federal too, can't recall at the moment. I'd look carefully at the yields after tax and compare them to stock yields after tax before I cashed those puppies in. Granny might have known a thing or two!

Either way I'd vote to leave that inheritance money growing for retirement and get on with paying down your debts and borrowing as little as possible to further your education.

**jIM_Ohio** · 11-30-2009, 12:32 PM

You could pay off the debt now, then might find yourself in debt again within 6 months.

Here are my thoughts...
pay off half the debt now
and aggressively payoff the last half (like double your current payments to the debt)... create a habit (and hatred) for carrying consumer debt.

Then once all debt is paid off, start investing, in meantime, use the inheritance as an emergency fund and make sure to change the behavior which led to the debt in the first place.

**amarowsky** · 11-30-2009, 12:57 PM

Originally posted by jIM_Ohio View Post

You could pay off the debt now, then might find yourself in debt again within 6 months.

Here are my thoughts...
pay off half the debt now
and aggressively payoff the last half (like double your current payments to the debt)... create a habit (and hatred) for carrying consumer debt.

Then once all debt is paid off, start investing, in meantime, use the inheritance as an emergency fund and make sure to change the behavior which led to the debt in the first place.

Thats a unique way to approach it, pay of half first, then work on your behavior/habits.

Above he said he believes he has "changed" his ways, if you truly have, then pay off ALL the CC debt in full.

In regards to the bonds, before taking them out you should indeed see what your grandmother had them invested in, and what kind of return/taxes they have. But to be honest, Odds are pretty good that as long as they are already mature or VERY far from maturity, it will be more % saved by cashing them in to pay off the 8% on that card.

Oh and if she did have some bonds paying more than 8% that are still available, let me know! I'll throw a ton at them if they are backed by well founded source!!!

Investing versus paying off credit cards