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New Member
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Registered: ‎01-13-2014
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Acquiring a large sum of money and would like to put it to best use

[ Edited ]

Hello,

 

I've struggled with credit cards for years. I racked up $25k out of college and entered a credit counseling service (CareOne). I used that for a few years and paid it down to around 14k and I cancelled it because I had difficulty getting loans for anything like trading my vehicle for one with a lower payment. I then had another child and my debt rose to 17k. I have a family of four with my girlfriend currently in school and us living on my salary (65k). We have a couple nice vehicles (as I've always felt I'd rather have a higher payment on a more reliable vehicle than a lower payment and spontaneous repair bills) and a high rent due to trying to live in a nicer area of town for my children. My credit score is currently a 637 TU with no delinquent accounts or collections activity. I however have very high inquries (22) due to having traded multiple vehicles (very frustrated with a dealership for running the loan through around 7-8 different banks who all his my CR), refinaced a mortgage (I own and rent a house), and moved twice in the last 2 years.

 

My father passed around Christmas and left me a life insurance benefit of $50k. I would like to use that in the best way possible and I'm assuming that immediately paying off all of my credit card debt and not using them for anything aside from emergencies will be the best first course of action. In addition I have a student loan of $4600 that the payment is $113/mo and a boat loan that has $1300 left. I am assuming a second course of action would be paying these off which should leave around $35k. After that we will have a mortgage payment for our rental, two auto loans, and rent. I'd like to take 20-25k and put down on a home in the next 4-6 months after my credit score has rebounded from paying off the credit cards.

 

Does any of that sound out of order or does anyone have ideas for better putting to use that money. With the circumstances, I want to put forth my best effort in using the money to free my life of financial stress and improve my credit while also trying to hang onto as much of the money for savings as well.

 

Thanks for any help!

Valued Contributor
Posts: 1,794
Registered: ‎07-01-2010
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Re: Acquiring a large sum of money and would like to put it to best use

[ Edited ]

Here are a few ideas.

 

1.  I'd certainly try to pay down your revolving debt, and your installment loans as well.  The exception might be accounts that have a very low APR or some angle like that.

 

2.  If you want the ease of use of paying with cards, without the temptation, there are (a) secured cards, and (b) prepaid cards.  SDFCU has a nice secured Visa.

 

3.  It might be a useful exercise to identify what your core living expenses are per month, and then put 6-12 months of such expenses in a short-term CD or other savings vehicle that takes a bit of work to get the money from.

 

4.  It's useful to set up mechanisms in advance for financial emergencies.  Beyond having several months of living expenses tucked away, other suggestions would include (a) setting up an LOC at a local bank or CU, and (b) lining up a credit card with a low APR / low balance transfer / low cash advance rate.

 

Valued Contributor
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Registered: ‎04-07-2009
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Re: Acquiring a large sum of money and would like to put it to best use

[ Edited ]

I would pay off the highest interest rate lonas first. Then using the money that would have gone for those debts apply that money to other debts. I would also keep part of them amount in a savings account for an unexpected event.

 

 

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Valued Contributor
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Registered: ‎03-24-2013
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Re: Acquiring a large sum of money and would like to put it to best use

Definitly pay off all the CC debt. That will skyrocket your Credit score and save you a lot of interest.

Pay off the student loan and boat loan because they are small...just get rid of them.

I don't know what your auto loans are but you will probably be able to pay off at least 1 auto loan and maybe even 2?

That should leave you with your rental and mortgage payment which doesn't seem to bad considering you used to have a lot more payments than just those 2.
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Valued Contributor
Posts: 3,679
Registered: ‎11-23-2013
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Re: Acquiring a large sum of money and would like to put it to best use

The advice here seems good. Maybe you could also talk to a financial planner about your options.

 

The inquiries you mentioned shouldn't be a problem as long as they're coded as auto inquiries. If they are, they should only count as 1 inquiry total for scoring / under writing purposes.

 

Paying off your revolving debt will be a huge help to your scores, and once those update to your credit reports, you could possibly even refinance your auto loans at a credit union or some other place for a much lower interest rate.

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Contributor
Posts: 91
Registered: ‎06-26-2013
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Re: Acquiring a large sum of money and would like to put it to best use

I'm in agreement with Luscher.  Pay off everything except perhaps the mortgage.  Being OUT OF DEBT is great.  It takes a huge load off your shoulders that you can't imagine.  

 

I recently came into about $50K myself and had $30K I owed the IRS from many years ago.  It hurt writing that check but it was necessary.  I also paid off all my credit cards and have enough left to pay my 2013 taxes (which are ginormous because of the money I received).

 

Bottom line after my windfall?  I have nothing but I am OUT OF DEBT.  Now I can set aside a good savings plan to put away for those 6 months of living expenses, which is exactly what I am doing.  

 

I realize my situation is different from yours but what I'm trying to get across is it's an amazing feeling to wake up in the morning and know I don't owe anybody a damn tihng!!


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New Member
Posts: 3
Registered: ‎01-13-2014
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Re: Acquiring a large sum of money and would like to put it to best use

Thanks for all the info as it helped a lot. I too feel like a great burden will be lifted off my shoulders and have my father to thank for it to have it in his heart to make arrangements to take care of his kids in his passing.

 

I also did think about the auto loans. I have one with about $12k on it and one with about $25K. The $25k loan is upside down as we bought a new family vehicle (trading in a problematic one). I didn't have the extra money to pay down at the time but we still got a loan through PNC at 4.4% which I don't consider awful but know i could do better on a 2013. I did use a credit union on my other vehicle loan and the rate is 5.75% as I fell in the "B" credit score range for it. That credit union has been great to work with though and I've used them for my boat and other auto loans. I would like to put money down towards the $25k car and refinance it with them at their "A" percentage which is 1.9% I believe but I will probably wait until I've bought a house as I don't want refinancing a vehicle to affect my ability to mortgage a home.

 

Related to that, I've had my other home mortgaged at $545/mo and make $800/mo in rent. I've had it leased for about 15 months now on a 12 months lease and the current tenants are happy with it. I aven't been able to build up a savings for it as we've been using the money to supplement our extremely high rent in our current home. Our family of four has been doing ok on around $1000/mo after paying all the required bills and utilities but some months have gotten tight. With the amounts I am about to pay off that should put us up close to $2k/mo in disposable income after auto loans, rent, and utlities so we should feel less stressed every month. I would like to try and put back $300/mo into savings on top of be able to keep my rental "income" in a savings account to make repairs to the home as they come up instead of having to use it to supplement us now.

 

My biggest question is, if I have a gross monthly income of $5250 with 2 children, unmarried, a mortgage for $68k (payment $545/mo) that has been rented for 15 months, a rent payment of $940/mo in our current home, and score up around 700. Does it seem reasonable that a bank would offer me a mortgage on a 155k home with 20k down? We have found one that we like and with tax, insurance, and PMI and the payment would be cheaper than what we pay in rent now and a much better home and location.

 

Curtis

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Registered: ‎01-13-2014
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Re: Acquiring a large sum of money and would like to put it to best use

Well I ended up paying off all of my credit card debts and my credit score shot up to a 704 with one card still not having updated which feels great. Not only that but I've cleared over $500/mo in payments. I also paid off a boat loan and bought an inexpensive truck with cash as I've needed a truck for a while. I have $20k left and am most likely going to pay off what's left of my student loan this month and clear off another $110/mo payment. I haven't felt so stress-free in years.

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Registered: ‎11-23-2013
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Re: Acquiring a large sum of money and would like to put it to best use


curt2199 wrote:

Well I ended up paying off all of my credit card debts and my credit score shot up to a 704 with one card still not having updated which feels great. Not only that but I've cleared over $500/mo in payments. I also paid off a boat loan and bought an inexpensive truck with cash as I've needed a truck for a while. I have $20k left and am most likely going to pay off what's left of my student loan this month and clear off another $110/mo payment. I haven't felt so stress-free in years.


Wow that has to be amazing! Congratulations to you. Spend a little bit of that money on something purely enjoyable. Even if it is just a really good bottle of scotch (or what ever you enjoy). Celebrate. You made excellent choices!

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