Using a windfall to pay off debt
September 17th, 2006 | by mbhunter |A poster in the Saving Advice Money and Budgeting Forums came across a $92k windfall from a settlement. The poster asked the forum for advice on what to do with it.
The debts that the couple had were vehicles: $42k. More than enough to pay off the cars. One (his) would definitely get paid off, and the other (hers) would be paid off, sold, and another bought that is more gas-efficient.
I just really didn’t understand this: They were going to get a new car at a lower interest rate than they have now on her vehicle. Why would they take on debt when they don’t have to? Granted, most new vehicles have really attractive loan terms available, but it’s still a loan, and you’re usually paying close to full retail price to get those terms! They could get a slightly used car for cash really easily. (This is the very, very best money-saving tip I can give: consider buying used whenever you can.)
To be fair to the couple, they were also interested in setting up a college, investing in real estate, and funding retirement accounts, in addition to doing some investing. Any debt payoff would be at the expense of these other noble pursuits. I guess car debt isn’t as bad as some other kinds of debt, but again, why take it on when you don’t need to?
3 Responses to “Using a windfall to pay off debt”
By Matt on Sep 18, 2006 | Reply
if I had a cash windfall like that the first thing I would do is get rid of any and all debt that I was carrying. This would free up more of my regular income to set aside for investments. I’d rather earn interest on my money rather than pay someone else for the priveledge of borrowing theirs.
By John W on Oct 18, 2006 | Reply
To quote my dad, “the most expensive, recurring expense you’ll ever have is a car. Never buy a new one.”
He still doesn’t know how I can afford two (used) cars.
After paying off debt, I’d look at an investment property. Something to bring in some cash. Not another “dodad” expense, especially one that keeps causing increased recurring expenses.