What to do with a 50k settlement?

[publius]

Hey guys, so In the next few months I should be receiving a settlement for a case i've been working on the last year.
We're not sure what the exact numbers are at the exact moment, but it looks like it may be in the ballpark of around 40-60k that I will take home. Currently i'm unemployed and having a difficult time finding a job, so i've managed to cut my spending to almost nothing.

So I'm looking for advice of what to do with the money when I get it, what's the smartest thing to do? I did just get engaged, and my fiencee and I have decided not to have a huge wedding, so we shouldn't have to pay for anything, and I paid cash for the ring.
Our dream is to move onto some land in the mountains, and to build our own "small house".


Some info on my finances:

Owe $13,000 on my car, and it is currently not running, it needs $2500 in motor work.
Owe $1800 in CC bills
Owe $16,000 in student loans, but those are being paid by my grandpa at the end of the year

Her Finances

Owe $17,000 on her car
Owe $4,400 in CC bills
Owe $5,000 in Student Loans

Her employer has "paid" for some of her schooling $10,000 allegedly.. (they only paid like $6,000)

But if she leaves in the next 5 years, she has to pay them the full $10,000.


So if we move that 10K has to be paid I guess.

She makes about 40K a year

So what would be the best option for us, should we pay all we can off or should we pay just a few of the big one and start to save for a house? Any help is much appreciated!

[autoxer]

I would pay off the credit cards and shred them up, so you can't run it back up.

What are the interest rates on the debts?

What would the car be worth if you fixed the motor?

[publius]

The other ones are at a decent rate I believe around 3-3.5% for both vehicles, and my Card is interest free for another 17 months.
My car is definitely worth fixing, it was actually being fixed when I had a job, but then when we got laid off I ran out of money to fix it, so it's been setting ever since, but definitely worth it, to me anyway.

[autoxer]

I was wondering if it would be worth more than you owe, because then you could sell it and get rid of the debt. Life is easier without a ton of debt.

[snafu]

Is this settlement less deductions and legal fees meant to replace a year's income? Are you now eligible for Unemployment benefits? Will you and fiancee be living on her $ 40K earnings less deductions? It's more realistic to plan spending working from net pay figures. It would be helpful to know the interest rates on the two lists of sums owing as that influences how best to manage paying down balances. Sorry to sound bossy pants but I believe you can both best help yourselves by putting CCs in the fridge freezer, using cash only until things smooth out and tracking all spending via a free program like www.mint.com CCs make money problems worse. It's harder to hand over cash.

Fiancee really needs to know how much her employer paid towards her education and payback details. If she has to pay back $ 10K on a $ 6K stipend, that's really excessive. She needs a plan to payback CC, car, SLs and possibly employer. If she likes her job would she stick it out for 5 yrs for time to save for priorities?

If you are unemployed you will need the settlement to pay daily living costs as well as CC + added on interest. I suggest you use one of your 4 free credit reports to learn your status and credit score. If you have a high enough score, transfer your CC to a hopefully free or negotiated transfer fee, 0% CC. Work out how much you need to pay to clear the balance before the time runs out. This only works if you faithfully, religiously, pay that sum every single month. If you fail to do this the interest rate tacked on at the end will destroy you. Do not ever, ever go to any payday loans type outlet, they charge as much as 300% in fees, charges, interest etc.

In your shoes, I'd use $ 2K of the settlement money to start a no fee, electronic Savings Account you name 'Emergency Fund.' Do not touch this money unless you run out of money to buy Food. Until you get a job and 1st pay cheque, you need a plan for every dollar spent. I suggest using settlement money to get the car operational. Making payments on a car that waits repair is painful. Do anything you can to bring down the cost. Can you help at the garage? Get a job doing anything at all, that you're able to do?

Finally, while I appreciate your dream of rural living in the mountains, you need a serious plan. How will you both earn money to pay day-to-day living expenses, save for retirement when you are unable to work and still need to eat? This is really serious stuff.

[TBH]

I think Snafu's advice is good.

Here's what I'd do in your shoes:

1. Set aside a small emergency fund, as Snafu recommends
2. Pay for repairs on car
3. Sell car and buy something cheaper for cash. You have no business having a car loan when you have no job and are struggling not to go deeper into debt. Don't buy a car that costs more than $5000 or $6000, and pay cash. You may have to use a little of the settlement money to pay down the car loan so it's less than what the car is worth. If so, do that.
4. Set aside $10K just in case you have to move (for you to get a job, for example) to pay off fiancee's employer
5. Pay off both credit cards and cut them up.

There goes $25K or more very easily, but at least you will have a car that runs and no car payment, and no more credit card payments.

Then I'd probably sit on the rest of the money for a bit and decide what else to do. If your grandpa doesn't pay your school loans off as expected, you might want to pay them down with the rest of the money.