| Pay Off All Credit Card Debt? |
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jess
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| Pay Off All Credit Card Debt? |
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I just received a $33, 000 inheritance and need help on what to do with it.
I'm married with two children. Our income is about $40,000 and we owe almost $15,000 in debt. I would like to pay off our credit cards and put the rest in savings and/or investments.
The thought of "losing" almost half of the inheritance is bothering me. We don't make that much money and it would take us a long time to make up the $15,000. Should we pay off some of the cards? If so, how much? I don't want to do anything rash and end up regretting it.
Any suggestions and thoughts would be appreciated!!
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Wed Sep 14, 2005 11:58 pm |
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efflandt
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That debt has to be paid off eventually. Maybe you are not aware how much interest will compound on those cards if not paid off now. How do you expect to "safely" make more than that (after taxes) on that money?
Of the remainder, unless you need it for a down payment on a home, I would gradually put the annual limit each year into a Roth IRA where it can grow tax free.
The only reason I am in no hurry to pay off my remaining credit card debt is because 1/3rd of it is 0% until Nov. 2006 and the rest is 2.99% until paid off (unlimited time). So instead of paying that off, I bought stock in my bank, which pays over 4% dividend and hopefully will grow some (9.5% average 5 yr growth & dividend total).
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Thu Sep 15, 2005 3:30 am |
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sam1000
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Absolutely pay off the credit cards, most of it is probably high interest debt and you're losing a lot of money every month by keeping that balance. Also, interest rates are rising and your cards may change terms costing you even more.
Put the money you were allocating towards the credit card payments into savings/investment and most important of all address the KEY problem that got you into $15k of debt in the first place otherwise you will repeat the debt cycle.
Good luck 
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Thu Sep 15, 2005 4:45 am |
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MattL
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Your not "losing" the money, your gaining peace of mind, as the others have said, pay off the debt, but be careful not to go racking up more debt.
Invest the rest of the money, but keep in mind that you might owe more this year in taxes, so don't tie it all up and get forced into financing your taxes this year.
$$$ Debt Elimination
Software | Computers | Electronics
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Thu Sep 15, 2005 6:40 pm |
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ushomeloans
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Where else can you put the 15K and make the 9.9% that you pay on your credit cards? Now if you have an amazing opportnuity, or a life dream that you can do with it, then do that and pay off the credit cards steadily. Good luck
Thanks,
Chris Kemp
US Home loans
chriskemp@us-homeloans.net
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Fri Sep 16, 2005 12:21 am |
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KathMorgan
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First off, I agree with everyone else, pay off that debt and don't run it up again.
Second thing, and good point Matti, what kind of account did this money come to you from? If it was an account that would have been taxable to the decedent it will be taxable to you. So if it was an IRA or some kind of 401K type account you will have to include this in income this year and pay taxes on it. Based on your 40K income and assuming no itemized deductions, this would add about $4800 to your tax liability this coming year.
All that said, pay off the credit cards, keep 5K for taxes (or an emergency fund if it's not taxable) and invest the rest. Just my 2 cents.
Kathy Morgan EA
H & R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN Louisiana Army National Guard
Shreveport, La currently serving in Baghdad, Iraq
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Fri Sep 16, 2005 10:33 am |
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InfamousG
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My suggestion:
Pay off the debt first and foremost.
If you keep making the minimum payments you'll eventually pay DOUBLE to TRIPLE the original purchase prices of the stuff you bought on credit.
Second, seek the advice of a professional Certified Financial Planner.
Find 2 or 3 that give a free consultation, visit each one. Take the 3 hours out of your life to better it in the future.
Tell them your goals, let them decide what is best for you, then determine if you agree. If you agree, go for it. If not, find someone else who you can agree with, but figure out why you don't agree before saying "no".
Don't expect to be a millionaire from seeking some advice. You need to seek help in stopping yourself from burying yourself into debt again.
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Fri Sep 16, 2005 7:50 pm |
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theloans_org
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If you have a chance to pay your debt now, do it. Credit card debt is one of the most expensive debts, so keeping it just because you regret to lose half of the sum you inherited is ridiculous. If you wait, soon you'll have to lose all of your inheritance on paying off your debt.
Anyway, it's strange how some people seem to "like" to have debt, I mean, if they don't have any debt, they seem to feel like their losing something. It's not a rational approach. Getting a loan is sometimes necessary, but if it's not necessary, you should not ask for it 
TheLoans.org - your Bad Credit Loan Resource
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Sat Sep 17, 2005 12:47 pm |
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Rolo
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quote:
Originally posted by efflandt
That debt has to be paid off eventually. Maybe you are not aware how much interest will compound on those cards if not paid off now. How do you expect to "safely" make more than that (after taxes) on that money?
BINGO. Google a finance calculator to see how much that $15K is costing you; in the end, you are 'losing' more than the whole inheritance.
quote:
Originally posted by efflandt
Of the remainder, unless you need it for a down payment on a home, I would gradually put the annual limit each year into a Roth IRA where it can grow tax free.
Good idea. Even if you do need it for a down payment on a home, you can still withdraw your Roth contributions at any time without penalty.
quote:
Originally posted by efflandt
The only reason I am in no hurry to pay off my remaining credit card debt is because 1/3rd of it is 0% until Nov. 2006 and the rest is 2.99% until paid off (unlimited time). So instead of paying that off, I bought stock in my bank, which pays over 4% dividend and hopefully will grow some (9.5% average 5 yr growth & dividend total).
Finally!...someone else who understands this. I am doing the 2.99% thing also. I plus-up my 401k contributions with the money I would have paid my credit card balance (payoff in 36 months instead of 4 months) to get the extra tax break as well as a very good return. OPM!
I take your approach (low-risk dividend that is greater than the borrowing rate) with my Scottrade margin account.
quote:
Originally posted by sam1000
Put the money you were allocating towards the credit card payments into savings/investment and most important of all address the KEY problem that got you into $15k of debt in the first place otherwise you will repeat the debt cycle.
Precisely!
Use Excel (or whatever works for you) to make a financial schedule. PM me your e-mail address if you want a copy of mine. (many of my friends started using it when they saw me using it)
quote:
Originally posted by MattL
Your not "losing" the money, your gaining peace of mind...
Never let emotion dictate your financial choices. If you don't have peace of mind, find out why and gain the proper perspective; there are a lot of misconceptions about how money works.
quote:
Originally posted by ushomeloans
Where else can you put the 15K and make the 9.9% that you pay on your credit cards?
That is exactly right: by paying off your credit cards now, you are effectively 'earning' whatever the credit card's interest rate is by earning (-9%) (for example) to 0% (cash, no debt).
This is the same premise efflandt and I use: (-2.99%) + 4% dividend + 5.5% appreciation = +6.51% > 0% (cash). This is why you don't necessarily 'need money to make money'.
"Expect me when you see me."
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Sun Sep 18, 2005 7:36 pm |
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stonegatherer
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quote:
Originally posted by ushomeloans
Where else can you put the 15K and make the 9.9% that you pay on your credit cards?
He is very lucky if he is only paying 9.9% on it.
Pay off the 15k. You will be suprised at how much extra money you
have left every month after you do .... then don't run them up again.
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Mon Sep 26, 2005 4:09 pm |
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Rolo
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quote:
Originally posted by stonegatherer
...extra money...
beehehehee...there is NO such THING!
(not even for Bill Gates...who uses his money to one day control the world...and Warren Buffett...who, eventually, will outright buy the world.)
"Expect me when you see me."
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Tue Sep 27, 2005 12:21 am |
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stonegatherer
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Location: Chicago
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There is "extra money" if you control your spending.
I am in the midst of wiping out CC debt and in a year
and a half I can't wait to see my payment to CC companies
going into my investment accounts (and maybe spend a little).
I swap balances and close CC accounts regularly. I want to pay
ZERO interest. Give it to me or wait two months and after I
apply for a new card your 9.9, 12.9, 15.9, etc percent will no
longer have a relationship with me.
I had a 10.9 card with some company and it ended up becoming
an HSBC card at 25.9% .... no defaults, no late payments, nothing.
How did that happen? I called. They couldn't tell me. They didn't
know because they couldn't see all the records.
Lesson learned:
STAY THE **** AWAY FROM HSBC.
Credit is a necessity. Learn to use wisely.
Kill the balances on your cards. Save up for
a vacation. Take the vacation on the CC, stay
within your limits, and then pay it off next month.
I wish I could do this now. But I will be able to.
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Tue Sep 27, 2005 3:20 am |
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Rolo
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quote:
Originally posted by stonegatherer
There is "extra money" if you control your spending.
It's still not extra....you said it yourself, you can't wait to start investing. THAT is why it is not extra.
PAY YOURSELF FIRST! As in, before you pay your mortgage, your bills, etc, put 20% of your pay into your investments. THEN pay your obligations, then whatever is left, you can splurge. Every dollar of mine has a purpose--whether it is working for me or strictly for entertainment; "extra" implies that it has no purpose.
Good job correcting your mistake (been there myself). My only advice is to not kill your CC accounts...short-lived accounts hinders your getting optimum credit scores.
"Expect me when you see me."
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Tue Sep 27, 2005 3:40 am |
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stonegatherer
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[quote="Rolo"] quote:
Originally posted by stonegatherer
My only advice is to not kill your CC accounts...short-lived accounts hinders your getting optimum credit scores.
Accounts might be be short lived until balances are wiped nearly out.
After that will hold best cards only (milage, rebates, points, etc )
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Tue Sep 27, 2005 4:11 am |
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Wetherstorms
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| Re: Pay Off All Credit Card Debt? |
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Personally, I would pay the debt off. Not knowing your personal situation, but reading what you wrote, this would be your best option.
quote:
Originally posted by jess
Our income is about $40,000 and we owe almost $15,000 in debt. I would like to pay off our credit cards and put the rest in savings and/or investments.
The thought of "losing" almost half of the inheritance is bothering me. We don't make that much money and it would take us a long time to make up the $15,000.
Of course, you could play the CC switching account ordeal and invest the money, but that takes know-how and the time. In that time, you are not accounting for risks of the investment and/or life (God forbid, a medical emergency or family crisis that causes more debt). If you feel that most of it will be wasted for debt, take Rolo's advice and pay yourself 20% first or roughly $7000, and enjoy it or invest it! The rest, pay of that annoying CC that loves to visit you monthly with a bill, and with the remaining 8-10K, save about 3 to 6 months of income for life emergency. Then, and because it sounds that you are not investing currently, invest what you would be paying in monthly CC bills into a Roth IRA or good mutual fund!
"Train up a fig tree in the way it should go and when you are old sit under the shade of it." - Charles Dickens
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Tue Sep 27, 2005 6:32 pm |
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