How do I make the most of the profit from my house sale?
I'm 37 years old and recently sold my condo and immediately paid off all credit cards. I still have a car payment and a $16,000 student loan, and have approximately $40,000 left from the sale. Does it make sense to pay off the car and/or the student loan? What are my best wealth-building options?
Congratulations on the sale of your condo. Paying off student loans is a big milestone and would recommend using some of the money to pay this down. Additionally you may want to look at taking a portion of the money and contributing to an IRA or Roth IRA. The combination of paying down debt and saving for retirement in a tax sheltered way will be a big benefit for you down the road.
This is a difficult question to answer without knowing more detail about your financial situation. But that being said, the general rule of thumb when deciding whether or not to pay off debt is to compare the interest rate of your debt to the return you might expect to otherwise earn with that money.
For example, in a scenario where debt is carrying an interest rate of 5% but other investments are expected to generate a 10% return with reasonable confidence, it makes sense to allocate excess captial to the investments instead of the debt. By doing so, the long-term impact on one's net worth should be enhanced. The opposite of this scenario would also hold true (when interest rates on debt are higher than the expected return on investments, it then makes more sense to allocate capital to the debt).
Of course, this rule of thumb doesn't take into actual human behavior. If you are the type of person who is prone to misbehaving with debt, sometimes it's simply better to rid yourself of debt completely (and stay away). Be honest with yourself. Will you be more encouraged and motivated to make healthy monetary moves going forward if 1) that debt is out of the way, or 2) you are able to grow that money in an investment that excites you?
All the best to you! I hope this helps provide some perspective around your options.
I’m glad you posted this question on the platform. If you have heard Dave Ramsey at all, you know his philosophy—build wealth after paying off all your debts. One exception: you could own a mortgage while saving for retirement.
I encourage you to read his book first, “Total Money Makeover.” Until you read the book and share the feelings and stories presented by the real people like you and me, you may not readily take the suggestion I’m about to provide—pay off the student loan and car payment from the remainder of the proceeds. If there’s any money left, build your emergency fund prior to saving for your future.
I have learned a hard lesson from coaching clients over the years—if the client is not on board without fully comprehensive of why, they will not succeed in this endeavor. The process of being debt free and accumulating wealth is a serious business. It demands discipline and sacrifice. They will use the same excuses that get them into the financial trouble in the first place from trying or being fully committed to the goal. Thus, if you decide to be on this journey, I suggest you partner up with one of Dave’s ELPs, who can help you focused on the path. Best!