Help please! Some quick advice needed

[BrooklynFatPants]

So I recently inherited $100k from a relative that passed on.

I have $12k in credit card debt (one card at 8%, one card at 17%). I also have $17k in student loan debt. I have one auto loan for $18k and a second with $4k remaining on it. I own my own home but I intend to use most of the $100k to help me with a downpayment on a larger house (my wife and our three kids have outgrown our home).

My thinking is that I will use the money to wipe out the credit card debt and the student loan. I will not use the money to pay down the car loans. This will leave me around $71k to assist with a downpayment.

Anyone have any thoughts on this plan?

[terry1156]

I think you're getting ahead of yourself. The first question is, why do you have the credit card debt? If this is a one-time windfall and you are going into credit card debt with your current house, it will only get worse with a bigger one. You need to address your current budgeting before thinking about upgrading.

[doingitallwrong]

Why would you not pay off the cars?

You'll get better answers if you list the interest rates and minimum payments on your debts, as well as the balance, interest rate, and payment on your mortgage.

How much will a bigger house cost, and how will that affect your mortgage payment? How much of a downpayment does $71K (or $49K if you pay off the cars) represent?

[Fishindude77]

Pay off everything, put the balance in the bank, then just sit back for six months and enjoy the freedom and peace of mind that comes with having all of your stuff paid for. You might then think twice about jumping into a bigger more expensive house.

[scfr]

So I recently inherited $100k from a relative that passed on.

I have $12k in credit card debt (one card at 8%, one card at 17%). I also have $17k in student loan debt. I have one auto loan for $18k and a second with $4k remaining on it. I own my own home but I intend to use most of the $100k to help me with a downpayment on a larger house (my wife and our three kids have outgrown our home).

My thinking is that I will use the money to wipe out the credit card debt and the student loan. I will not use the money to pay down the car loans. This will leave me around $71k to assist with a downpayment.

Anyone have any thoughts on this plan?

If you have credit card & automobile debt, aren't you already living beyond your means? Is so, why are you considering upgrading to a more expensive home? Won't the lifestyle upgrade lead you to eventually be even further in the hole?

I agree with the advice to pay off the debt and then sit back and do nothing with the balance of the money except let it grow.

[autoxer]

So I recently inherited $100k from a relative that passed on.

I have $12k in credit card debt (one card at 8%, one card at 17%). I also have $17k in student loan debt. I have one auto loan for $18k and a second with $4k remaining on it. I own my own home but I intend to use most of the $100k to help me with a downpayment on a larger house (my wife and our three kids have outgrown our home).

My thinking is that I will use the money to wipe out the credit card debt and the student loan. I will not use the money to pay down the car loans. This will leave me around $71k to assist with a downpayment.

Anyone have any thoughts on this plan?

I think you have an incredible opportunity with this windfall to get yourself out of debt, yet you want to get into more debt with a bigger mortgage. A bigger house is going to require paying more tax, using more energy to heat and cool it and buying more stuff to fill it up. If you don't address your habits and the reason why you racked up all the debt in the first place, then I fear it will happen again.

My recommendation is to pay off all of the debt, cut up the credit cards and stay away from the car dealers. Think about how easy it would be to save up for the downpayment, if you didn't have all of those debt payments hovering around. Once you have eliminated the debt, then set up an automatic payment from your paycheck to a separate savings account for the amount that you were paying towards the debt and learn to live on whats left without debt.

[BrooklynFatPants]

Thanks everyone. To clarify a couple of items, the credit card debt preceded me buying our house. It has stayed the same, I haven't added to the debt since we bought the house. Once we pay them off, they are getting cut up.

And we would likely move to a similarly priced house, only one that is a tad bigger in a more affordable town. The intent is not to get into a bigger mortgage.

My primary question relates to if I had to sequence what I was paying off, which should I do first? I'm inclined to pay off the credit cards first, the student loan second, and then put the rest of the money in savings, while using the amount I'm saving in not paying the student loan and credit cards to attack the cars.

That's my plan.

[bjl584]

I'd be tempted to pay off everything.

Will there be tax implications to receiving the inheritance? Something to keep in mind.

[doingitallwrong]

I'm inclined to pay off the credit cards first, the student loan second, and then put the rest of the money in savings, while using the amount I'm saving in not paying the student loan and credit cards to attack the cars.

Unless you cars are on super-low rate loans, you're going to lose money this way. The best bank interest you can get these days is 1.05% (unless you get into a CD, which won't work if you think you might be buying your new home relatively soon; even then, it's only about 2-2.25%). Why have money sitting in savings making 1% when you're paying on debts that are costing you probably six times that much?

Instead, pay off everything, put the remainder in savings, and use the amount you're not paying on student loans, credit cards, and car loans to build your savings back up.

[BrooklynFatPants]

Thanks so much everyone! I really appreciate the advice.

My goal was "debt free by '93" but it didn't work that way.

[BrooklynFatPants]

Actually, one more question - should I cut up and cancel the credit cards? Or just cut them up and don't use them, keeping a zero balance? Obviously it is a temptation if I cut them up and don't close the account but assuming I can resist the temptation, is it better to close those accounts or keep them open?

[autoxer]

Actually, one more question - should I cut up and cancel the credit cards? Or just cut them up and don't use them, keeping a zero balance? Obviously it is a temptation if I cut them up and don't close the account but assuming I can resist the temptation, is it better to close those accounts or keep them open?

Closing them will reduce your utilization ratio, which could negatively affect your credit score. If you can resist the temptation, then just cut them up, pay the accounts down and leave the accounts open.

[SavingSteve]

To clarify a couple of items, the credit card debt preceded me buying our house. It has stayed the same, I haven't added to the debt since we bought the house. Once we pay them off, they are getting cut up.

If you truly have not abused the credit cards since you bought your house, maybe you don't need to cut them up. I keep my credit cards in a file cabinet. There is a file folder for each creditor and the card lives in there.
I only use my credit cards if:
a) I have the cash in the bank to pay for the purchase RIGHT NOW.
b) There is some benefit ie free money via cash back etc.

Then once the transactions clear I immediately pay them each week. Most transactions don't even make it to the statement date. They just have to clear to get the cash back.

It all comes down to your behavior. Be honest with yourself. If you do not have the self control to pay off your card each month, don't use them. If you cant keep yourself from abusing the cards THEN cut them up.

But dont close any accounts it can screw up your utilization and hurt your credit score. This would be really bad if you then go out to get a new mortgage.

Just pay off the cards and stop carrying a balance. Your credit score should go up for sure!

[tripods68]

Dave Ramsey INSIST that you PAY off your "ALL YOUR FREAKIN DEBT!!!OMG!!

[lisacad]

I would pay off EVERYTHING. Then invest the remaining balance in a Business, CD's, Real Estate, stocks. If you do choose to buy a bigger house (you said you "own" your current home) Is it paid off? You might want to consider renting out your current home. You could take in enough in rent to possibly pay 2 mortgages, or at least help considerably. Someone had mentioned "Taxes" You should be fine "most" inherences taxes do not start until your in the millions. However, any interest is taxable. Think about starting a home based "business" not as you Full-time job, but a part-time job, that will help on your taxes. You said you were married start the business as a "Partnership" that will also help on your income taxes. I inherited a LARGE sum of money myself, and these are some of the things my financial advisor told me. He also advised to get the "spending bug" out of your system. The best way to do it is take "X" amount of dollars i.e. 10,000 and SPEND IT! Dream Vacation, new furniture, maybe even a "HOME ADDITION" then that will solve your moving problem.

GOOD LUCK
SPEND IT WISELY