Paying off Debts - Inheritance

**Fishindude77** · 08-03-2015, 09:51 AM

I'd pay off everything except the mortgage.
Definitely get rid of that debt to family members, those can get ugly.

**Goldy** · 08-03-2015, 04:04 PM

Sorry for your loss.

Are you receiving a total of 250k in life insurance payments or just 150? Is that 15k a month income gross or take home? Are you currently paying PMI on your mortgage? What have you saved for retirement thus far?

I think your plan is pretty good. If it were me I would pay off the fertility loan and repay the family in full. That leaves you with 86k plus your EF of 52. I assume you want a 6mo EF so let's say you need 50k for that plus 35k for that other thing so you have 53k to play with.

If you are behind on retirement I would allocate a lot of this towards that. If not but you are paying PMI then I would pay down the mortgage so I didn't need to pay that any longer. If no PMI then I'd be tempted to pay off the car loans to increase cash flow and invest the rest.

**Olivia1** · 08-03-2015, 06:23 PM

Thank you for support and input.

No PMI on the mortgage. No points. 329k at 4%. 30 year fixed.

15k is take home (gross is 25k).

150k with LI.

So far in terms of retirement, about $130k saved (mostly 401k from previous job where they matched to the max). We are getting a huge boost from the inheritance (350k retirement IRA - will have to take 15k distributions next year I believe. Also a shade over 500k from a non qualified investment. (Father in law was a university professor for 20-25 years). Pretty much ignoring those in terms of day to day stuff, straight into retirement situations and hopefully the magic of compound interest will work in our favor (We are both around 35, me a little over and wife and little under).

I'm more comfortable with an EF of 12 months as my line of work can take me 6-9 months to find a new position and get started.

I'm thinking the most we could pay bay back on family loan by gifting will leave us $5k shot of paying it off this year. But still a significant amount. Could look to pay off there credit card or something for the remaining $5k.

Family debt has been civil, *most of time* (I had to drop the payment down a little when i switched jobs and other expenses incurred) . Before I agreed to it (I held out at first), I had a very frank discussion with my in-laws about it. Unfortunately it can get ugly as it has in my own family. Been trying to pay them back as quickly as we could without sacrificing our own financial health.

**Goldy** · 08-03-2015, 07:39 PM

Well if all you had was the 130k saved for retirement t I would have recommended that you focus there but with the extra 850k coming in I think it's safe to say you are doing fine. Can you convert that Ira to a Roth ira and get around the rmd's?

I didn't think paying back a family loan fell under the gifting guidelines but even still the limit is 14k which you and your wife can give to the pair of lenders for a total gift value of 56k a year. Assuming there are two recipients.

Now that I see the bigger picture I agree with your desire to have a 12mo EF which you can still do with the LI payment and pay off both loans with 38k left over to allocate how you see fit. Paying off the car loan has the added benefit of reducing your needed EF.

**Goldy** · 08-03-2015, 07:46 PM

what do you do with the 6-7k a month that doesn't get spent? Assuming you are satisfied with having a 12mo EF what are you going to do with all that extra money? Tossing 6k more each month to the house would pay it off in 4 years and would save over 200k in interest over the life of the loan.

**Olivia1** · 08-04-2015, 06:58 PM

I guess I misspoke on budget, but we spend about $3k on debt repayment. So about 3-4k savings. Things are still in flux as we've had 2 really bad months in terms of expenses (house, funeral, etc).

Plus still involved with fertility stuff, so put away towards that as well.

**avil_saver36** · 08-05-2015, 04:58 AM

Having a simplified life is a very important thing for me. Less clutter, less headache, a clearer picture of the finances.

With that goal in mind, I would use the $100K to wipe out the following 4 loans:

- debt to in-laws
- fertility loan
- car loan 1
- car loan 2

You are still left with approximately $7k. I would put that in the mortgage and call it a day.

The remaining $50K can be put in s savings account if you don't have an emergency fund built in.

With this approach, the only loan you will have left is the primary mortgage. This frees up $3K in debt payment. However in your mind, think of that $3k as if the debts still exist. When the paychecks get deposited in your bank, set up an automatic transfer to the savings account - aka, pay yourself. Now, your savings must increase at a minimum by $3k a month regardless of any "flux situation". This is mandatory saving that can only be disturbed in a life-and-death situation.

Once you start seeing your savings increase rapidly, you will be motivated to cut expenses elsewhere and save even more. I am assuming $9k in expenses includes your primary mortgage. It's on a higher side definitely (our expenses including our mortgage can average close to $5k over an year and we have one child), and there could be some ways you can cut back. The motivation will come once you start seeing money accumulate (happened with us), but for that, you need to be debt free first.

**bjl584** · 08-05-2015, 05:17 AM

You have a very nice income. I'm wondering where all the money is going and why you are servicing as much debt as you are. You could have all of it paid off in fairly short order without the inheritance if you cut expenses and put everything toward the debts.

Do you have a budget?

**Olivia1** · 08-05-2015, 12:46 PM

Budget, yes. But one of us doesn't always buy into it... Although she's come along way from where she was. Its still a work in progress. As much as I'd like to do things my way, I've tried to meet her half on things so as to not create fights all the time about this expense or that purchase, etc. If we were sinking into debt, it would be a different story. We're ok, but not as good as we should/could be.

A lot of our cash flow has gone towards fertility issues, basically gestational surrogacy. We've had one child this way, working towards a second. I'm close to throwing in the towel (financial and emotionally), wife is ever determined to make the family bigger. (Another issue not for this forum). Without that, our financial situation would be much improved (I imagine).

All that being said, we've talking about canceling out our debts and trying to maintain our lifestyle. She and her sister weren't taught very well about managing money. Its a struggle at times, but always moving in the right direction.

**autoxer** · 08-06-2015, 07:22 AM

Originally posted by Olivia1 View Post

All that being said, we've talking about canceling out our debts and trying to maintain our lifestyle.

I think you need to change your attitude towards debt. If you use this lump sum to pay off debt and you don't change your attitude towards debt, then you will likely just rack up more debt in it's place. If you become uncomfortable with the thought of taking on more debt, then it is easier to curtail spending. You say you aren't sinking in debt, yet you owe $421,800. The monthly payments may not be sinking you, but that is a ton of debt. Imagine the free cash flow you would have to use towards your future, if you weren't servicing debts for your past decisions.

You have a very good income and you don't need to supplement your spending with debt in order to live a happy life.

Why is the loan payback to the inlaws considered a gift?

**Olivia1** · 08-06-2015, 12:15 PM

I would disagree. I think some debts are healthy and expected. But my outlook towards as always been about not having any.

1. Educational loans (I know this is a hotly debated issue in terms of jobs after college, etc).

2. Mortgage - Would I have loved to save up for a cash purchase of a house over the next 5-10 years, sure. But I don't think its reasonable for most people. Its a bulk of our debt and its brand new debt.

3. I stretched with the car loans, yes. In the future hope to purchase with them with cash and without financing. Hoping our cars last us another 8-10 years at least.

The family/fertility loans are just a tragic reality we've had to deal with since my wife cannot carry a child. Not something I need to justify and not something very many people can relate too.

In-laws never really gave us the money. They paid for portions of the surrogacy process, i.e. the $40,000 payment to the fertility clinic. They paid for the laboratory testing, the medicines, etc. About 80% of what they paid for were medical expenses. Rest were legal fees.

**jeromanomic** · 08-09-2015, 07:34 PM

pay off the most expensive debts first (those with highest interest rates). Just make sure there are no penalties for early payment. Some loans have an exit fee if you pay them out within the first few years....

You'll find that your month to month cash flows will feel a lot better once some of the debts are gone

**Olivia1** · 08-10-2015, 04:46 PM

We've paid off the IVF loan already. No early pay off fee (made sure of that before taking it).

Next one is my in-laws. They want to check with accountant first. Had no qualms about that.

Will start paying more each month to the car loans. Pay them off over the next 12-15 months. Maybe pay off the jetta since its less than 10k anyways.

Up in the air about the mortgage. May start paying extra each month.

Paying off Debts - Inheritance