Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




I Won small lottery. Looking for input.

Reply to topic
Money Talk > Credit & Loans

Author Thread
bubba
New Member


Cash: $ 0.85

Posts: 4
Joined: 05 Mar 2016
Location: Delaware
I Won small lottery. Looking for input.  Reply with quote  

Ok, as the title says, I won a good amount in a recent lottery ($41,000) . I have some debts such as car loan, student loan, and credit card. I guess my question is would it be smart to pay off everything to help fund buying a house? I'll list my debts below..

Car loan- $18,435
Student loan- $3000
Credit card-'$1400

Historically I have been very bad with financial decisions and now I have a chance to really turn that around. Some solid input on this would be awesome. I am 30 years old living with my aunt. My annual income is just over $40k and my heart has been really set on a house. Thanks
Post Sat Mar 05, 2016 4:34 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 715.00

Posts: 3477
Joined: 21 May 2006
Location: arizona
 Reply with quote  

What are the interest rates on the 3 loans?
And how is your credit score? (Paying off consumer loans may or may not affect your house purchase).
Post Sat Mar 05, 2016 1:47 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 715.00

Posts: 3477
Joined: 21 May 2006
Location: arizona
 Reply with quote  

FYI - there have been studies on lottery winners, on average they are broke again in about 7 years. Usually, instead of keeping the lump sum intact and investing wisely, they pay off the car, pay off the house, pay off their mom's house, buy a 'more reliable' car and so on - and then invest the last $5000 "for their future."

The point is - if you keep your $41k and invest it at 11%/yr, it will be $330,000 when you are age 50, $939,000 when you are 60, about $1,600,000 at age 65. So - if you have the patience to leave your $41k untouched - your retirement is already in the bag.

$18, 435. Did you over-buy on the car? One thing to be aware of, Americans tend to think of cars as a status symbol rather than a transportation need. Modern cars provide over 200,000 miles of trouble-free service, yet people often trade them off before they get even halfway to 200,000. So- if you trade every 100k miles the cost is about $30k. But if you trade every 200,000 miles, you'll spend that $30,000 half as often. Then add every other $30k chunk to the $41,000 investment - the $1.6M will be much more.
Post Sat Mar 05, 2016 4:27 pm
 View user's profile Send private message
bubba
New Member


Cash: $ 0.85

Posts: 4
Joined: 05 Mar 2016
Location: Delaware
 Reply with quote  

quote:
Originally posted by oldguy
What are the interest rates on the 3 loans?
And how is your credit score? (Paying off consumer loans may or may not affect your house purchase).


Car-'5.5%
Student loans-6.6%
Credit card-11%

Right now my credit score is around 650 but was in the 720 range before I bought my car. It dropped bad after . My guess is because the amount of money im borrowing
Post Sat Mar 05, 2016 6:53 pm
 View user's profile Send private message
bubba
New Member


Cash: $ 0.85

Posts: 4
Joined: 05 Mar 2016
Location: Delaware
 Reply with quote  

quote:
Originally posted by oldguy
FYI - there have been studies on lottery winners, on average they are broke again in about 7 years. Usually, instead of keeping the lump sum intact and investing wisely, they pay off the car, pay off the house, pay off their mom's house, buy a 'more reliable' car and so on - and then invest the last $5000 "for their future."

The point is - if you keep your $41k and invest it at 11%/yr, it will be $330,000 when you are age 50, $939,000 when you are 60, about $1,600,000 at age 65. So - if you have the patience to leave your $41k untouched - your retirement is already in the bag.

$18, 435. Did you over-buy on the car? One thing to be aware of, Americans tend to think of cars as a status symbol rather than a transportation need. Modern cars provide over 200,000 miles of trouble-free service, yet people often trade them off before they get even halfway to 200,000. So- if you trade every 100k miles the cost is about $30k. But if you trade every 200,000 miles, you'll spend that $30,000 half as often. Then add every other $30k chunk to the $41,000 investment - the $1.6M will be much more.


The car was the result of a series of bad decisions. I co-signed on a loan for my girlfriend at the time. Our relationship went south , she lost her job, so I took the car and payments. I HATED everything about that car. Everyday I couldn't stand looking at the biggest mistake I ever made so I traded it with negative equity on it. I Am a Automotive tech so that helps a lot with repair cost but at least now I don't have to be depressed when I walk out to my car Smile
Post Sat Mar 05, 2016 6:59 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 715.00

Posts: 3477
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Here's a site that gives you the return on the SP500 Index for the last jillion years - pick a few 30-yr-blocks of time and see what the average return is - usually it will be about 11%/yr.

quote:
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.Vts7UeZ4s3h


Put you next paycheck on that 11% $1400 cc loan (you want to be GETTING 11%, not paying 11%/yr).
And then keep the other two loans full term - 5.5% & 6.6% aren't too bad - especially if you have that money earning 11% in an investment.

As for getting your credit score back up to 720, I think you're right, the upsidedown car. You would need to sell the car ($10K or $12k?), pay off the $18,400 loan (the lender will give you a loan on the shortfall), and then buy an affordable car (maybe a $5000 Toyota with about 100,000 miles).. Get a credit union loan on the Toyota.

Then your debt will be the $3000 student loan.
The $5000 Toyota loan.
A $6000 signature loan from current car.

That's quite a bit better than the $23,000 that you owe now. Plus it will fix your credit score. After you payoff the $6000 sig loan, you should be in pretty good shape to look at houses.
Post Sat Mar 05, 2016 8:21 pm
 View user's profile Send private message
bubba
New Member


Cash: $ 0.85

Posts: 4
Joined: 05 Mar 2016
Location: Delaware
 Reply with quote  

The car is worth about 14 to 15k . It's a 2010 mazdaspeed3. So the loss isn't horrible.

I really do appreciate your insight on this. Looks like I have some real research to do on investments. As for now it sits in the bank until I gather a real plan of attack. Thanks a lot
Post Sat Mar 05, 2016 11:51 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 715.00

Posts: 3477
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
The car is worth about 14 to 15k . It's a 2010 mazdaspeed3. So the loss isn't horrible.


That almost qualifies as an affordable used car, Japanese, that lasts forever. A 6 yr old Mazda is good for 200,000 miles. My oldest daughter had a Mazda SUV, she loved it.

You should probably keep the Mazda and keep the loans - except the 11% CC loan. You don't want to direct $22,000 to paying off low interest debt when you could be putting that $22,000 to work. $22k at 11%/yr is $506,000 in 30 yrs. Don't derail a $506,000 plan just to prepay $22,000 of loans.
Post Sun Mar 06, 2016 3:54 am
 View user's profile Send private message
614Engineer
Member


Cash: $ 2.35

Posts: 11
Joined: 17 Dec 2015
Location: USA
 Reply with quote  

Bubba, oldguy is worth listening to. I'd follow his advice.

Hell I didn't realize exactly how much I liked him till this post... I have a 4Runner I bought with 40k miles (basically new condition -45% cost) on a 2.99 Credit Union loan that now has 150k on it and a few light bulbs for things that have gone wrong. I've advised all my friends to do the same for years.. Who knew oldguy knew this formula too!
Post Sat Mar 26, 2016 3:02 am
 View user's profile Send private message
Troy Grant
First Time Poster


Cash: $ 0.20

Posts: 1
Joined: 05 May 2016
Location: Berlin
 Reply with quote  

My congrats! Winning the lottery can be really life-changing if dealt in the right way! You've been already given a good piece of advice. But actually I'm really curious about the lottery you were lucky to win. What game was that? I've been also playing and checking lottery results uk for a number of years already. Yet my max winning did not exceed 100 pounds.
Post Thu May 05, 2016 10:57 am
 View user's profile Send private message

Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016