What should I do with the money in my savings account?
I am single, 50 years old, and I have a pension and 401(k). I have $10,600 in credit card debt (one credit card's balance is at $4,300 with no interest and another balance of $6,300 with 15 percent interest) and two personal loans totaling $27,000 (one loan's balance is at $7,000 with 11 percent interest and the other is $20,000 with 11 percent interest).
I recently sold my car for $18,000 and placed the money in a savings account. What should I do with this money?
Assuming you are working and don't immediately need the money for basic living expenses you should put most of it towards your debt. Keep 1 month of expenses that you can't pay with a credit card in the bank. Put the rest toward the 15% credit card. I then likely pay off the smaller personal loan.
The rest- depends on how long you wil have 0 interest on the other credit card. If you think you can pay it off before it goes to market rates put rest of savings towards the other personal loan. If you can't payoff the 0 interest card before market rates- keep money in savings - and pay towards it until the interest rates goes up.
Make sure to make some budget changes so you don't end up in the much debt again.
First, make sure you keep cash reserves (in the bank) of 3 - 6 months worth of living expenses (net of taxes and savings). Second, pay-down/off any debt that is costing you five percent or more, starting with the highest interest rate loan(s). Finally, if there is still money left over, or when money become available in the future, that you don't need for cash reserves and don't need for the next 5 years (and hopefully longer), invest and stay invested no matter what happens in the markets.
Pay off your loan and credit card balance (with priority towards higher interest rates) as much as possible. If your regular income allows it, pay off the rest of the loan/credit card. Or, rather than maximizing your contribution to your 401(k), take some of that income and pay off the remaining loan/credit card debts. Once done, start contributing to your 401(k) to some extent. You are not revealing your savings. But get a meaningful financial planning done with a credible financial advisor to make sure you are systematically saving and properly investing for your future financial security.
Does any of the $18,000 need to be used for another car? If not, then you should look at keeping enough of it in cash to cover 3-6 months of expenses and emergencies. After that, analyze what got you in debt in the first place. If cash flow is a continual issue, keep all in cash until you fix that. Otherwise paying down the debt will only lead to the same issue in the future. If the debt was due to immediate and unexpected NEEDS (such as health events), then the cash reserves should help reduce the future impact of such events and you can feel comfortable using the surplus to pay off the debts starting with the $6300, then the $7000. Caveat: if the $4300 0% interest is promotional and temporary (for xx months from a purchase of (usually) a retail item,) you should pay that off first since in those tpyes of lending the fine print usually states that failure to pay off by the term deadline results in the new interest rate being retroactively applied to the entire balance you originally had. It's often overlooked and the "trickery" often burns many who use these types of financing, often to financially disastrous results, so get it taken care of.
First, pay off the high balance credit card. You'll sleep better.
Second, pay off the smaller of the two personal loans. Now you'll sleep so well that you'll have a hard time getting up in the morning.
Third, take the combined amounts of what you were paying on these two paid off loans and put 50% in savings (for emergencies) and the other 50% will be added to your payment on the $4300 credit card balance because even though you are not paying interest now, you will be if you don't get this paid off!
Fourth, take the combined amounts (including for your newly paid off "non-interest" credit card) and put 50% in savings and the remainder to your outstanding personal loan.
Or instead, do what one of the other advisors recommend. Because no matter which direction you choose to go, the most important step is to create and follow a plan with both determination and discipline.