Author Topic: What to do with small windfall?  (Read 1657 times)

rem1984

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What to do with small windfall?
« on: March 27, 2018, 08:47:43 AM »
I just found this website last month, and I'm super excited about starting my journey to financial freedom. Right now we are way in the hole! But, okay, here is our situation:

Family of three (10 month old son).
I'm going to Law School in the fall.
We just sold our house and made about $40k in the sale.

Current student loan debt: $50k
Credit Card Debt (0% interest until October): $5k
Law School tuition: $10k first year, no tuition afterwards.
Income over next three years: About $50k from wife's job.
Savings: $2k + another $2k in a college fund for the baby (we contribute every month).

What is the wisest thing to do with the money? My current thinking is:

Pay LS Tuition
Pay off Credit Card
$5k to savings/checking
$10k to highest interest student loans
$10k to Vangaurd Acct.

What do you folks think? I know that MMM might say to put all the money toward CC, LS, and Student loan debt. But I won't be employed for the next three years, is that still the right call?

rubybeth

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Re: What to do with small windfall?
« Reply #1 on: March 27, 2018, 08:58:10 AM »
You're going to need to share interest rates on these debts to get the best answer. Also, average expenses while you're in law school--in other words, how much can you put toward debt on just your wife's income?

rem1984

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Re: What to do with small windfall?
« Reply #2 on: March 27, 2018, 09:09:11 AM »
You're going to need to share interest rates on these debts to get the best answer. Also, average expenses while you're in law school--in other words, how much can you put toward debt on just your wife's income?

Half at at 7.9% and the other half at 6%. I am hoping to be able to save about 10 per year, but my SO is currently resistant to the MMM ethos and will take some convincing. Since it will be her income, not sure that I can guarantee significant savings. Minimum of $2k (auto payments into our son's fund).

I am planning to roll over the credit card debt to a good Frequent Flyer type credit card (to again get the 0% interest) and then pay it off. So, there should be no interest penalty there.

rubybeth

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Re: What to do with small windfall?
« Reply #3 on: March 27, 2018, 09:42:44 AM »
You're going to need to share interest rates on these debts to get the best answer. Also, average expenses while you're in law school--in other words, how much can you put toward debt on just your wife's income?

Half at at 7.9% and the other half at 6%. I am hoping to be able to save about 10 per year, but my SO is currently resistant to the MMM ethos and will take some convincing. Since it will be her income, not sure that I can guarantee significant savings. Minimum of $2k (auto payments into our son's fund).

I am planning to roll over the credit card debt to a good Frequent Flyer type credit card (to again get the 0% interest) and then pay it off. So, there should be no interest penalty there.

I'd definitely pay off the credit card and pay for law school first. So that's $15k. Keep some in cash for emergency savings, if you don't have that already--enough to cover deductibles on health insurance/auto insurance/homeowners' insurance is a nice cushion. Then I'd tackle the higher rate student loan debts. I'd work to pay those down aggressively. If you're planning to save $10k per year, I'd say at least half of that should be put toward debt, maybe even more depending on the interest rates, the other half can be IRAs, 401k, or whatever savings your wife has an employer option.

COEE

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Re: What to do with small windfall?
« Reply #4 on: March 27, 2018, 11:34:42 AM »
With the information given thusfar, I would pay off the following:

1) credit card $5k
2) save a total of 10k in yout checking/savings.  Another $8k.
3) put the rest towards student loans.  $27k
4) cash flow lawschool with wifes income. $10k
5) pick up a part time job and get school paid off ASAP. $22k in about 1.5 years or so.
6) take a well earned vacation when you graduate with a little cash in the bank.

Good luck.  This is not a terribly difficult hole to get out of.  Can you put off law school for a year to just knock this stuff out reall quick with a fulltime job?

Panfish

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Re: What to do with small windfall?
« Reply #5 on: March 27, 2018, 01:05:16 PM »
I would consider stopping your 529 contribution for your child.  General advise caters around taking care of your own financial future (debt, Retirement, Housing, Etc.) before you pay for your child's schooling.  Additionally, you will be able to cash flow college no problem on a lawyers salary if you don't plan on FIRE in the next 20 years.

rubybeth

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Re: What to do with small windfall?
« Reply #6 on: March 27, 2018, 01:11:41 PM »
I would consider stopping your 529 contribution for your child.  General advise caters around taking care of your own financial future (debt, Retirement, Housing, Etc.) before you pay for your child's schooling.  Additionally, you will be able to cash flow college no problem on a lawyers salary if you don't plan on FIRE in the next 20 years.

I would agree. Depends how much is going into that. If that could go toward student loan debt instead and trim some time off paying those off, I'd prefer that.

With the information given thusfar, I would pay off the following:

1) credit card $5k
2) save a total of 10k in yout checking/savings.  Another $8k.
3) put the rest towards student loans.  $27k
4) cash flow lawschool with wifes income. $10k
5) pick up a part time job and get school paid off ASAP. $22k in about 1.5 years or so.
6) take a well earned vacation when you graduate with a little cash in the bank.

Good luck.  This is not a terribly difficult hole to get out of.  Can you put off law school for a year to just knock this stuff out reall quick with a fulltime job?

Totally agree with all of these suggestions, too.

rem1984

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Re: What to do with small windfall?
« Reply #7 on: March 27, 2018, 01:20:14 PM »
I would consider stopping your 529 contribution for your child.  General advise caters around taking care of your own financial future (debt, Retirement, Housing, Etc.) before you pay for your child's schooling.  Additionally, you will be able to cash flow college no problem on a lawyers salary if you don't plan on FIRE in the next 20 years.

Because my SO is currently resistant to dramatic cut downs on spending, I think it would be wiser to keep going on this, since it's automatically withdrawn. A bird in the hand. I think in general you're right, but for now I don't want to upset the apple cart.

Panfish

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Re: What to do with small windfall?
« Reply #8 on: March 27, 2018, 02:52:30 PM »
I would consider stopping your 529 contribution for your child.  General advise caters around taking care of your own financial future (debt, Retirement, Housing, Etc.) before you pay for your child's schooling.  Additionally, you will be able to cash flow college no problem on a lawyers salary if you don't plan on FIRE in the next 20 years.

Because my SO is currently resistant to dramatic cut downs on spending, I think it would be wiser to keep going on this, since it's automatically withdrawn. A bird in the hand. I think in general you're right, but for now I don't want to upset the apple cart.

I know that game, my friend.  This journey with loved ones is all give and take and supporting your child's education is way better than almost every alternative you could do with that $.

Gone Fishing

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Re: What to do with small windfall?
« Reply #9 on: March 27, 2018, 02:53:49 PM »
With a baby and a single income, I'd probably keep 6 months worth of cash on hand until you finish school and find stable employment. 

If there is any left after that and law school, I'd pay off the credit card and then the highest rate student loan. 

Why and how was the credit card debt acquired?  Are you just going to run it back up?

rem1984

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Re: What to do with small windfall?
« Reply #10 on: March 27, 2018, 07:58:15 PM »
We acquired the card after our debits were accidentally frozen on a vacation last fall, and we thought it would be wise to get a card for emergencies. The spending on there is a combination of home improvements before sale of house and the bill for rebuilding our HVAC after it blew out this winter. Just goes to show you really do need to learn to fix things yourself!