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50K inheritance, loan pay off or home improvement? HELP!

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annabee
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50K inheritance, loan pay off or home improvement? HELP!  Reply with quote  

I have been given 60K in inheritance money, which is a huge blessing. But I'm not sure what to do with it.

My husband and I earn $100,000 a year.
We have $10,000 in credit card and student loan debt.
We're about to receive a $2,500 hospital bill this year with baby on the way.
We have loans for our cars: Car 1 for $5,637 at 5.69% and Car 2 for $13,736 at 2.95%

We have begun remortgaging our house (before we got this money.) We expect to get $69,000 out of it for home improvement and adding a room for baby.

I'm thinking of course use the money to pay of credit card debt first. But then do I pay off the cars, or leave the low interest car loan and pay off only Car 1?
Do I use any of this money on the house and lower the mortgage or should I put the rest away?
If I put it away, what type of account would you recommend?

In over my head.
------
While I'm here ... a second question. The 60K is coming from the UK. Any tips on getting this across!?
Post Wed Feb 01, 2017 10:33 pm
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oldguy
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One tip that I've read. The average lottery winner, law suit winner, etc, is broke, bankrupt in 7 years. (Most people are trained spend monthly bills, they don't know how to build wealth). The common mistake is that they do not keep the money in one lump, they scatter the money, they spend it on several things that seem 'good' to them - pay off their car, pay off their house, buy a new car, etc. And then, when almost all of the money is spent, they invest the last $10,000 "for their future".

In your case, the best thing is to put the entire $60k in a single investment fund, an index that has about a 10%/yr to 12%/yr long-term average. That would be about $1,400,000 in 30 yrs.

One thing that we've done thru our wealth-building years was to direct our income stream to "it's highest and best use". And spending it to prepay car loans, home loans, is NOT the highest and best use, growing it to over a million is better.. Altho I would prepay the revolving retail debt, that usually has toxic interest rates.

Congratulations on the baby!! And a tip about adding onto the house. We have rental houses - adding onto a house will cause a financial loss to you, if you spend $69,000 it will add only about $30,000 to the value of the house. Conversely, if you use your $69,000 to buy a newer bigger house, you will avoid that loss (ie, the $39,000). As a landlord, i can tell you that many house buyers will only look at "as-built" houses, never a house with a changed foot-print. (Of course there are exceptions, eg, if you live on a farm, it's hard to simply move to a new house, you have to remodel).
Post Thu Feb 02, 2017 2:47 am
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annabee
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Thank you, oldguy. I was reading your response to someone else about investment funds. It certainly sounds tempting and convincing my husband could be difficult—but I'm feeling like it's a great opportunity to become set for the future.

We own a house in an upcoming area. If it appraises for what we hope then it will have increased 100K in 4.5 years. In Atlanta there are less and less places to live close to town, so we have seen this with many neighborhoods. Yes, it will eventually plateaux and I don't imagine we'll get 100K in another 4.5 years. There is nothing we can afford even with 60K more that doesn't also need work, in a safe neighborhood—because of the housing demand. Thankfully we're just cutting a large room in half to make two rooms, but the rest of the money will go to improve our carriage house, and redo the crappy job the previous owners did on their extension roof. (Can you believe they didn't extend the air conditioning and the roof is too low to add it!!? These means raising the roof just to get a vent in the half of the room we divide.)
Post Thu Feb 02, 2017 9:38 pm
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oldguy
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Is the Carriage House a garage, guest house? other? They often have some unique features that makes them worth spending some money on.

Here's a site for the SP500 history.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.WJPFcX-yDSZ
The most recent 30 yrs returned an average of 10.01%/yr. You can check a few 30-year-blocks, usually they are in the 10% to 12% range.

IMO, a $60k lump sum at a young age is a valuable opportunity, that's where million dollar lump sums come from. I managed shortterm needs - cars, home repairs, etc - with loans - and left our longterm money undisturbed so that the compounding could work.
Post Thu Feb 02, 2017 11:56 pm
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PatrickM
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Nowadays to invest in the property is a great investment and also great way to earn long term profit. One can only invest in property if he or she has enough best essays reviews money for this but we can also invest in the new housing schemes which start from little the investments.
Post Tue Feb 14, 2017 9:13 am
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christcorp
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My opinion is usually different than most other people. I always give the benefit to the person that they are better with money than they think they are.

If it were me, this is what I'd do.

Take the $60,000 and pay off the student loan, credit cards, medical bill, and both cars. That would be about $30,000 in debt erased. That leaves you about $30,000.

Prioritize the home improvements, and see what you can do with the $30,000. Nothing says you have to do all the home improvements at one time. Maybe some of the improvements aren't even needed and simply wanted. Don't refinance the house at this time. Get as much improvements done as you can with the $30,000. I doubt very much you need to spend $60K+ to build a baby room.

Now; being 100% debt free and half/most of the renovations done, get practical. You have been use to living WITHOUT the money that you've been making car payments, credit card payments, student loan payments, etc. with. Whatever this amount is, if you have a 401K at work or an IRA or some sort of retirement fund, increase that allotment by the same amount as most of the monthly payments you no longer have. E.g. if you were making $1200 a month in those car, credit card, loan, etc. payments; increase the retirement monthly contribution by $1,000. I'm sure you can figure that number out.

The extra $200 (In my scenario) use per month in an emergency savings account if you already don't have one. This is so you don't wind up with future credit card bills that you're making monthly payments on EVER AGAIN. Use credit cards for CONVENIENCE. NEVER as a loan. The emergency savings account should be 3-6 month of your pay. This will handle a broken water heater, car repair, insurance bill, etc. This should be the first thing you establish. Keep saving till you get there. Then, you can use that additional money to give yourself a pay raise and standard of living increase.
SO:

1. Pay off ALL THE DEBT. Credit card, student loan, medical bill, both cars, etc. 1/2 of inheritance.
2. Use the other half of inheritance to do the NECESSARY remodel.
3. Take the monthly payments you had in #1 and put that into your monthly retirement investments. 401K, IRA, etc.
4. If you don't have a 3-6 of your pay emergency fund, hold back 20% of the #3 suggestion and start building the emergency money.

Once all this is completed; re-evaluate your home improvement needs. Home improvements are for 3 reasons. 1) Something worn or broke; 2) You WANT something improved (Like a new kitchen), or 3) Increase the value of the house. The 3rd reason however is a waste of money if you have no intention of selling any time soon.
Post Wed Feb 15, 2017 3:50 am
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nicholas_n
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Re: 50K inheritance, loan pay off or home improvement? HELP!  Reply with quote  

quote:
Originally posted by annabee
I have been given 60K in inheritance money, which is a huge blessing. But I'm not sure what to do with it.

My husband and I earn $100,000 a year.
We have $10,000 in credit card and student loan debt.
We're about to receive a $2,500 hospital bill this year with baby on the way.
We have loans for our cars: Car 1 for $5,637 at 5.69% and Car 2 for $13,736 at 2.95%

We have begun remortgaging our house (before we got this money.) We expect to get $69,000 out of it for home improvement and adding a room for baby.

I'm thinking of course use the money to pay of credit card debt first. But then do I pay off the cars, or leave the low interest car loan and pay off only Car 1?
Do I use any of this money on the house and lower the mortgage or should I put the rest away?
If I put it away, what type of account would you recommend?

In over my head.
------
While I'm here ... a second question. The 60K is coming from the UK. Any tips on getting this across!?

The way I look at it, the borrower is slave to the lender, and I personally do not like owing anything to anybody. Plus, you build up wealth very quickly (especially making $100k/year) when you don't have major payments such as cars, houses, and etc.

Were I in your shoes, I would pay off the debts mentioned. By my math, you have just under $32,000 in debt (not including your house), so you will have more than enough to pay those off, even with a poor exchange rate or something like that. I would then put the rest of the inheritance (hopefully at least $15,000 or so) in a savings account to serve as an emergency fund.

I am curious; will your income remain constant when you have your baby? Congratulations on that, by the way!

Edit - actually, just listen to @christcorp.
Post Fri Feb 17, 2017 4:58 pm
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CredoWealthManagement
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Congrats on the baby! My wife and I are expecting in August.

While there may be pros and cons of either extreme, you should do what is comfortable for both you and your husband while knowing the facts of each scenario.

Debt is inconvenient, but opportunity cost (lost investment opportunity) can be worse later. If nothing else, you could use a portion to tackle the debt and the rest to start investing and take advantage of compound interest.

Regarding savings, it would be prudent to ensure you are fighting inflation with a conservatively allocated Individual account that you can withdraw from as needed with low-cost funds.
Post Mon Mar 20, 2017 9:41 pm
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christcorp
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Actually; "Debt Reduction" IS investing. Most people just don't recognize it as such. For that 4-6% car loan debt; that 6-8% student loan debt; that 6-10% signature loan debt; and that 12-15% credit card debt; that is a guaranteed rate of return on your money for every year you reduce that loan.

For that college grad who has $50K in student loans at 8% interest rate, you'd be hard pressed to get a GUARANTEED INVESTMENT that will promise you better than an 8% gain on your money. Yes, over a 10+ year period, an S&P500 type fund will return 8-10% return on average. But what does that net you when you're paying 8% out?

Obviously, if you are working with low interest rate loan; UNDER 5%, then you can do both; make the payments you need to and invest in long term 10% S&P500 type investments. This is great when dealing with a <4-5% mortgage or similar. But low interest, inflationary beating investments, are a waste of money if you have any type of debt. You're better off eliminating the debt as fast as possible, then using all the money you were making payments on that debt (Which you've gotten use to not having); and putting that money into your investments. Even low interest inflationary beating investments.

Bottom line: If you can't invest in a guaranteed return investment that PAYS a HIGHER GUARANTEED rate than the rate on your debt..... then you PAY OFF THE DEBT FIRST. Credit cards, high end student loans, high signature loans, etc.

If you can invest where the AVERAGE return on the investment is at least 3-4% higher than your debt, then you split your resources to pay off the debt faster than normal and invest separately. Used Car loans, home equity loans, etc.

If you invest long term, where the average return will be 6% or greater than your debt, keep the debt on the normal payment plan you established when you got it, and invest long term in the investment that's paying 6% or greater return vs the debt. Traditional Mortgage, new car loan, etc..
Post Tue Mar 21, 2017 1:51 pm
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