What's the best thing to do with $100k in you have $75k in debt?

Question

I might be getting some money from a relative's estate. I was considering paying off all my debt but a friend said to look at investing it somehow and using the earned money to pay down debt even though it takes longer, obviously. What does the wisdom of Yahoo Answers think?

Answer 1

If the interest rate on your debt is less than 10%, invest in stocks since the historical rate of return on stocks is about 10%. But if the interest rate on your debt is greater than 10%, pay as much of it down as you can right away.

Answer 2

From a strictly financial point of view, you should pay off the debt unless you can invest in something which generates a higher after tax profit than the amount of interest you are being charged on your debt. More often than not this calculation favors paying off the debt, since a lot of debt carries such high interest that it's not possible to get a higher after tax return on your investments without taking on an unacceptable amount of risk.

You also have to look at your own money management habits. Would you really invest the money? Maybe you would find it hard to resist the temptation to spend it on things you've always dreamed of having but could never afford. That could result in an absolute disaster, if you spend the entire inheritance and still have the $75k debt. You would have blown what may be your only chance to climb out of debt without devoting endless years to scrimping and saving.

All in all, I suggest you use $75k to pay off the debt and invest half of what's left. Then spend the remaining money on something you really want as a reward to yourself for handling your inheritance wisely.

Just make sure you don't spend yourself into debt again.

Answer 3

I would use it to pay off al your debt and then put 3-6 months worth of living expenses in an emergency fund (you never know when you may lose your job, be out for an illness, etc...) and then invest the rest.

When you are debt free and have no payments, all that money you have been paying to creditors can all of the sudden be used for investing or whatever! Why keep the debt when you can start saving all the money you've been paying out all this time?

Answer 4

Use $75k to pay off the debt. Save enough of the other $25k for 6 months living expenses, in case you lose your job. Invest the rest of the $25k.

Answer 5

Depends on what kind of debt you have. If some of it is high-interest like credit cards, then I'd pay it off. If it's a mortgage or student loans, I'd probably invest the inheritance and pay the loans on schedule.

Answer 6

Even with a windfall you need to be careful how you use it. I would actually pay off all the debt, and only then start thinking about investing it.

Answer 7

unless you pay no interest on yor debt you should pay it all off. the debt will just keep growing. start over and pay it all off and make better decision in the future so you won't get back into debt.

Answer 8

Unless your debt is in real estate, pay it off.

Answer 9

Put the money into a bank account.
Set up automated payments to your bills
That will keep your credit at high level.
Keep working your regular job and don't get tempted to take out the money for luxery things.
100k isn't very much money today and you could go broke fast and end up into bankruptcy

Answer 10

I would take some of it and invest it. My Real Estate Investment Advisor can help you with your investing questions. Send him an email and he can help you.

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