Tweet
Hello - I am having a little trouble on how to use a $24000 inheritance. I am 61 and my wife is 57. We have two mortgages a primary at $63,000 and 7.25 % and an equity at $23000 and 6%. We have a visa balance of $8500 and a personal loan of $1000. Part of me wants to invest the $24000 but the other part says to pay off the 2nd mortgage and go for a refinance of the primary. Or pay off the visa and psl. What do you think?
-
-
Yes, I would definitely recommend paying off the debt.
Think of it this way... You're approaching retirement age, so you want to do whatever will give you the most financial security. Paying off your credit cards, refinancing your mortgage to a lower rate, and paying off your equity loan will all give you much more security than you'll get from investing right now. Your investments would likely be more moderately conservative (given your age), so your best return will almost certainly come from paying off your debts.
What are the interest rates on your credit card and the personal loan? As long as the credit card rate isn't insanely high (above about 10% or so), I think I would actually recommend paying off the equity loan and the personal loan, then refinance your mortgage (remember to keep the term low, like maybe 8-10 years max, or whatever is left on your current mortgage) and attack the credit card debt in earnest. Doing so would give you plenty of home equity for the refinance, and secures the home you're living in.
My condolences to you for whomever you recently lost in your life, but I think the person would be happy to know that what they left you enabled you to get yourself set in a good position moving forward.
P.S. As an offshoot to your actual question... How is your overall financial picture looking? You and your wife are within about 10 years (or less) of retiring, so now would be a good time to sit down and evaluate your positions. Do you have suitable life, health, and long term care insurance? Are your retirement savings sufficient to begin supporting you within the next decade? Do you have enough in liquid cash holdings? These are the types of questions you should ask yourself going forward. -
I pretty much agree with everything Kork posted. ESPECIALLY the PS section.
My current thinking would be, pay down on your equity loans as much as neccessary to refi, then refi, transfer the CC balance to a 0% offer (hopefully 12 months at 0%), pay off the personal loan, and then get very serious about preparing for retirement.Comment
-
I'm going to say something a bit differently - pay off the CC and the personal loan first, then put
$1,500 into an emergency fund and put the $13k remainder on the house loan.
Reason for this? It brings you down to just debt on the house, much easier to handle and consolidated. Also, you need an emergency fund if you are running up cc debt. Finally, you can then attack the equity loan and hopefully within 6 months, refinance the house and roll the remainder of the equity loan into the new mortgage (you didn't say how much your house is worth or your credit, but paying the CC down to $0 will help increase your score in a 6 month time frame).
Also, start making a serious plan about when you want to retire, where you want to live, how you want to live, etc. You are less than 10 years away from the age where working will become very difficult, don't get yourself into more trouble but make a plan for how you want to finish your lives.Comment
-
I just want to echo what everyone else has said - pay debt rather than invest the money. If you pay debt, you guarantee yourself a rate of return - that is, the interest rater you're paying on the debt.Originally posted by acerapple View Post
Paying your home equity loan now guarantees you a 6% return, and opens the possibility of a refi on your house. You then should have enough extra cash flow from paying off the equity loan, and the refi on your house to attack the visa balance and the personal loan.
Unless you are at 16,17, 18% or more on your visa. Get that paid off, then throw a bunch at your home equity. It might delay the refi a few months, but if you have the chance to pay off a really high interest rate in one fell swoop, take it.
But, no matter what way you choose to attack the debt doesn't matter as much as the message that it would be better in your case to pay debt with the money rather than invest the money. And as others have said, take a look at your personal finances, and make adjustments to live within your monthly income so you don't accrue this debt again.Comment
-
Without knowing the interest rates on everything (PL, CC, ETC) I think I would pay off the personal loan and the equity loan.
Then I would look to refinance the primary mortgage down to a much better rate, and shorten the term of the loan to have the payment under what you were paying in the mortgage/equity line.
Then with the additional I would begin to attack the CC.
One concern with my plan is what % are you saving and building up and emergency fund so you won't need to use the CC again.Comment
Comment