What’s the Best Way to Use My Inheritance?

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Q. I have an inheritance of $19,000. I have some credit card debt (almost $20,000) on a card whose introductory 0% interest. I do not have an emergency fund for some repairs that are currently needed and would probably have to go back into debt to make the repairs. Should I start making payments on the current credit card debt and use the inheritance for repairs?

A. It seems like you have a few things going on simultaneously and I commend you for seeking advice to make the most of your inheritance money. Since I don’t have all the details about your situation, I will make some assumptions and give you general recommendations to help you figure out the best option to minimize your financial risks.

Typically, when you have high-interest credit card debt, it’s a good idea to pay it off to reduce the time and amount of money you will accumulate in interest over time. In your specific situation, if we assume that you will have an 18% interest rate after the introductory rate expires, and that your minimum monthly payment will be 2% of your nearly $20,000 balance, you can expect to have a monthly minimum payment of $400 for over 30 years. This is an unrealistic and expensive repayment plan because over the years you would have paid more than three times your original debt, just in the accrued interest.

Take Care of This Debt Regardless of Your Inheritance

With that in mind, my first recommendation is to take care of this debt, even if you don’t use your inheritance money for this. I highly suggest you start making payments as soon as possible and that you talk to an NFCC certified credit counselor who can help you create a realistic repayment strategy. For instance, if you have more credit card debt, maybe you can opt for Debt Management Plan, or if it is just that one credit card, maybe you can work out a more affordable repayment plan directly with the creditor. Your best option depends on your overall financial situation, your credit score and your repayment capability.

If your main goal is to reduce your overall debt, you have to estimate how much you will spend on your repairs and how much it will really cost you to repay your credit card debt. You have a rough estimate of what it will cost you to repay your card, so think about your repairs. How much will they cost? Are they absolutely necessary now? Can you get a new loan with a lower interest rate than your credit card? Will the inheritance money cover all the repairs? When you answer these questions, make the decision that will save you the most in the long run. If you are unsure, you don’t have to make this decision on your own. Talk to a NFCC certified credit counselor to find ways to pay your debt, fund your repairs and to start an emergency fund in the near future.