What should be done with our inheritance?

Question

My wife is receiving 70,000. We have to set aside 20,000 for taxes on the money, so her money is really 50,000.
We have approx. 26,000 in credit card and student loan debt. The student loan has been in forbearance for 2 years because we couldn't afford to pay. We owe 120,000 on our house and just scrape by every week. I think we should pay off the 26,000. My wifes sister said it would look better on our credit report if we made payments on the college loans vs paying the debt off. That sounds nutty to me.Also, what would be a smart financial move for us with this money so we don't scrape by anymore. Were scared we might blow this opportunity. If we pay off the 26,000 what should we do with the rest?
Thanks.

Answer 1

1. an inheritance is not income subject to income tax [at least in the US]. Estate taxes, if any, are paid the administrator before your wife receives anything ... she should ask the administrator for a estimate of the amount she'll actually receive.

2. you need a comprehensive financial plan for the rest of your lives. most of the questions do not have useful answers without such a plan.

3. paying off credit cards is useful, IF (and only if) you thereafter pay them off in FULL every month. NO MORE continuing balances -- they cause you to pay interest on every purchase you make with the card. That's bad -- it is also expensive.

set aside a small amount in savings, say 5k max, so that you can always pay off the credit cards in full. What you need to do is put enough in every month [the amounts you are paying now] and then take out only enough to pay this month's charges -- the account will go up and down, AND your goal is for it to even out (come back to 5k) once every year.

4. it would then be prudent and honest to get the student loans current. however, student loans are usually quite cheap [by comparison with other debts] and so I'd think about only bringing them to current status. and then made the usual payment every month thereafter.

5. Getting ahead is difficult [we've been there]. unfortunately, paying down your mortgage does not reduce the size of the payments in future periods -- it only reduces the number of future payments and only the last ones at that.

Thus, after you'll cut all interest payments to other debts [still thinking about paying off the student loan], you'll want to be looking to learn a bit about investing -- having your remaining money make money that can be used to make that payment for you.

6. keeping your expenditures down needs to continue. Lottery winners regularly become broke again within five years because they can't control their spending. You need to avoid that trap.


GL

Answer 2

Pay off the the $26,000. Your credit cards are probably costing you close to 20% in interest. Pay them off and you "make" 20% on your money! Whatever rate your student loan debt is, you're better off not having it. Now, take the money you were paying on those debts and put it into a savings account each month.

You now have $24,000 and are saving a bit each month. Put $20,000 in a CD or some other type of account you can't get at for at least 2 years. Collect the interest and SAVE that each month, too.

Use the $4,000 for whatever life happens to throw your way. But DO NOT, whatever you do, try to "invest" the money in something you've never done before... like real estate or crazy stocks. Just put it in a CD, and forget about it. You can always spend it later... but you can never "unspend" it.

Answer 3

If taxes are owed on this money then either you inherited a small part of a large estate or it is an IRA or Annuity. It might be possible to do a Stretch IRA or take payment over 5 years which will reduce the tax bill. I would guess that paying off the credit cards and paying down the house is your best bet. I assume with only $120,000 in mortgage debt that you are taking the standard deduction. It might be a good idea to refinance that mortgage if possible to lower your overall bills and help you scrape by.

Answer 4

Pay off the credit card debt. If the student loan debt is at a low interest rate, then don't pay it off, just bring it current and then pay it off as per the plan.

Take 1,000 or so and blow it on something fun for yourselves - but make that the only money that you spend. Put the rest in the bank and save it.

Don't use the money to make your day to day spending easier. You will be better off if you continue to scrape by with your current income, and keep the money in the bank. Something will come up down the road where you will be very happy that you kept the money available.

Good luck!

Paul

Answer 5

Pay off the Credit cards FIRST and stop using them for a while.

Use a little of the money to have a nice Christmas so you don't feel like you got nothing from the inheritance.

Next pay off or down on your student loans.

If you have any left you can put it in the bank for emergencies or make an extra principle payment on the house so it will be paid off sooner.

Answer 6

Pay off the credit card debt first.

Then start paying off whichever loan has a higher interest rate (home or student loan) to whatever extent you can.

Save a little for fun, a chunk for emergencies (which can be invested) and invest the rest (some in a roth IRA)

Answer 7

Any estate taxes should be paid by the estate before you receive the inheritance. Any inheritance you receive is NOT taxable income.
Definitely pay off that high interest debt. Invest whatever is left in mutual funds or whatever you are comfortable with. If you're not sure, park it in bank CDs for awhile until you decide.

Answer 8

properly in case your husband's aunt became the Trustee, that's who his Grandmother specified to divvy out the valuables. there is relatively not somewhat some criminal recourse to venture the way that she chooses to try this. undergo in strategies inheritance tax is regularly very, very severe. There would have been scientific expenditures, and there would have even been criminal expenditures and burial expenditures that weren't lined by utilising coverage. enable's say that left your Aunt with $500,000 or $3 hundred,000 after taxes. Divide that 4 techniques by utilising the 4 infants and that's $seventy 5,000 each. The ineffective son's $seventy 5,000 became in all likelihood split $20,000 to each of his sons and the relax $35,000 became in all likelihood dispensed to the quite a few grand infants who've between the three residing mothers and fathers who won $seventy 5,000. It would not sound that unreasonable to me. you're actually not agreeing to something or signing something by utilising depositing the examine, so as quickly as you do - ask your aunt for a replica of the prefer. Like Chris B reported, if she is definitely the Executor of the valuables - issues would desire to be completely distinctive and that's totally uncertain which you may get carry of a private examine. If she did deliver a private examine, and you're additionally entitled to an inheritance by utilising your husband being a named receipient interior the prefer, merely take care of the $20,000 as a modern and touch his grand mom's lawyer and request his proportion of the inheritance. despite the fact that, it appears like your Aunt became given finished fee of the valuables wherein case, any quantity that she selects to grant out is acceptable. in case you look a modern horse interior the mouth you're able to desire to truly destroy a dating.

Answer 9

I would pay off the debt.

Save the rest. In this type of case, many people will blow the money.

Answer 10

Why do you have to pay taxes on the inheritance? The estate should pay any taxes owed. You inherit the balance. You are not the estate.