What do I do with Settlement Proceeds?

[leahlvs2race]

My husband & I just received a settlement from a personal injury case in the amount of $40,000.
I need some advice as to the best way to spend the money.

We are both 27 years old. We have two car loans. One owing $14,900 at 13% for another 4 years. The second we owe $23,000 at 19% for another 5 years.
We have credit card debt equaling about $12,000.

Should we pay off the cars and use what we would normally per month for the car payments toward the credit card debt or should we do it the opposite way?

[sweeps]

19% on a car loan?!

What's the interest rate on the credit card(s)?

[jIM_Ohio]

I would do 3 things

1) Look at WHY the interest rates are so high (bad credit) and fix the habits which caused those problems
2) pay down the debt with the highest interest rates. Anything above 5% is robbery- so seeing 19% interest rates suggests someone other than your spouse is screwing you big time.
3) FIX your financial habits now or this problem will rear it's ugly head again, and you might not get another 40k windfall which will bail you out.

Many people here have more than 40k in debt and do not have the luxery of a windfall which could pay it off. Feel blessed that you have been given an easy way out and change your ways soon.

[scfr]

First things first: Before you spend the money, make sure you know whether or not there will be tax consequences for you.

http://www.irs.gov/pub/irs-pdf/p4345.pdf

If you are going to end up owing taxes because of the settlement, set that money aside (or make an estimated tax payment if necessary).

[MiikeB]

Agree on setting aside for taxes,

Other than that I would pay off the 12k in CC debt, and also pay off the 23k car note. Then set aside the 5k as an emergency fund to hopefully prevent future debt. (assuming you dont have to save some for taxes)

With the 1k or so you will probably have extra a month now after not paying cc bills + 23k car note I would put it all towards the other car.

And you really do need to change your habits.

[jIM_Ohio]

The OP has 10 months before taxes would be due... I would suggest using all money towards debt now, then setting aside the current debt payments to pay the taxes later.

[maat55]

My husband & I just received a settlement from a personal injury case in the amount of $40,000.
I need some advice as to the best way to spend the money.

We are both 27 years old. We have two car loans. One owing $14,900 at 13% for another 4 years. The second we owe $23,000 at 19% for another 5 years.
We have credit card debt equaling about $12,000.

Should we pay off the cars and use what we would normally per month for the car payments toward the credit card debt or should we do it the opposite way?

Here's what I would do, and I'n not kidding.

I would payoff the 14,900 car.
Payoff the Credit Card.
Sell the 23,000 car and use any left over to cover the loss and buy a cheaper paid for car.

[DebbieL]

I agree with Maat's advice completely. You have way too much vehicle debt. Sell and replace with good reliable vehicle that you will owe nothing on. I must also echo what others have said. You need to seriously change your habits or you will be right back in this mess in no time.

[disneysteve]

Here's what I would do, and I'n not kidding.

I would payoff the 14,900 car.
Payoff the Credit Card.
Sell the 23,000 car and use any left over to cover the loss and buy a cheaper paid for car.

Exactly what I thought you'd say, maat. You beat me to it. It sounds like you guys have been living way beyond your means, borrowing $38,000 to buy cars along with racking up $12,000 in CC debt. That's $50,000 all together. How much do you earn?

Sell the $23,000 car, even if you take a loss in the process. You've been given a one-time gift, a "get out of jail free card" if you will. Take advantage of it to clean up your act and reform your finances.

So $15,000 to pay off the one car.
Let's estimate $5,000 to cover the loss when you sell the $23,000 car.
That's $20,000.
Then $12,000 to pay off the CC.
Leaves you $8,000 plus the $18,000 from selling the car, or $26,000.
Take $10,000 and buy a 2nd car.
Take $16,000 and either boost your emergency fund if it isn't fully funded, make your Roth contributions if you haven't yet for 2008, or just add it to other savings.

Leaves you debt free with an extra $16,000 in savings.

[LivingAlmostLarge]

I like steve those numbrs but I'd probably set aside the $16k for taxes. Or at least maybe make a tax payment.

My one worry about you paying off debt, is that you will be back here again. I know the rates are high, but I'm very wary of you using this windfall to get out jail for free.

I know the %, but if you pay it off and don't change you'll be back here telling us what went wrong in 1 year.

I'm not sure if you should pay off the credit card. Maybe you should set it aside for at least 6 months and not touch it and work at chaning your behavior and paying off the credit card.

I'm all for debt free and fast, but this has the making get out of debt fast and get back in faster.

[maat55]

I'm not sure, but I don't think there will be any taxes on this settlement.

Like many others here are saying, OP, you need to examine your spending habits. I suggest you read a few books on personal finance, I suggest these:

The Total Money Makeover by Dave Ramsey.
Master your Money by Ron Blue.
Debtproof Living by Mary Hunt.
The Millionaire Next Door by Stanley/Danko.

You will learn life changing information from any and all of these books. Good luck.

[disneysteve]

I like steve those numbrs but I'd probably set aside the $16k for taxes.

The attorney who handled your case should be able to tell you if this settlement will be taxable. If this is what he does for a living, I'm sure the question comes up regularly.

[cptacek]

My husband & I just received a settlement from a personal injury case in the amount of $40,000.
I need some advice as to the best way to spend the money.

First things first...stop figuring out how to "spend" the money and instead start figuring out what is the best thing to do with the money. That slight shift in mentality will make all the difference down the road.

[Like2Plan]

My husband & I just received a settlement from a personal injury case in the amount of $40,000.
I need some advice as to the best way to spend the money.

Technical question for you: will there be any need for medical treatment in the future for which this settlement is meant to cover?

[hacik.istanbul@yahoo.ca]

My general advice is to pay down the highest cost debts first while keeping the remaining funds in savings for emergencies. You don't have to pay off everything in order to feel debt-free.
Hacik Istanbul