Pay off credit cards all at once, or gradually?

Question

I just inherited about $30K. I've got $21K in credit card debt that I really want to pay off (since it's costing about $500 a month in minimum payments that aren't reducing what I owe). Should I just pay off the credit cards all at once and then start to build up my savings again...or should I keep all of the inheritance and pay off the cards gradually over a longer period of time? My wife and I are both paid commission so I can't tell you exactly how long it will take to pay them off, but we could pay them off in about a year or 18 months with our income...(approximately). The credit cards are killing me, but I want to do the right thing with the inheritance...

Answer 1

The debt ratio is probably killing your credit score.  You could invest the money and pay them off gradually, but the interest owed on the cards will likely be more than what you would earn if you saved it.

I'd pay them off and invest the rest into a mix of accounts such as a savings, CD, and maybe even an interest checking.

Answer 2

Pay them all off now. And don't use them anymore.

Answer 3

Pay them off now, and cut them up now.

Answer 4

The inheritance is a godsend.  Pay off all that big credit card debt right away and don't go into debt again.  I'm sure the interest you are being charged would far outweigh any possible gains from savings or investment.  Have you seen the stock market lately?  It's tanking big time.

I would pay off that debt and put whatever is left into a 3% money market account.  Then I would start contributing regularly to that money market account to build up your savings.

Answer 5

I had this same problem and talked to a CPA

and a few friends that still have money ;-)

They recommend paying off the card now.  Then take the rest of the money and put it in something with a high yield interest, right now Paypal actually has higher interest than any bank around.

Also check with www.irs.gov when you make that much money you might have to pay extra taxes on the quarterly.. you kick out this form 1040-ES and the instructions and do the math. We didn't have to pay we got to this one part and it said stop you do not have to pay quarterly taxes but you should check with a CPA if your not sure about it.

Answer 6

If you can pay it all off and not be financially hampered, then I would suggest paying it all off, it would be like a huge burden of your shoulders, and then you would be able to focus solely on saving money instead of worrying about debt

Answer 7

Pay off your debt. If you invest the inheritance, the amount you are likely to earn is going to be far less than the interest rate you're paying on the credit card. Better to keep the money you'd be paying in interest for yourself, right?

That's a serious level of debt. Once you're clear of it, maybe it's time to pledge together to make a realistic budget and stick to it. Allow for entertainment and impulse purchases, but only up to a certain point, so you can pay off the card in full every month except January (using two months to pay off holiday expenses, if you need to).

Answer 8

It's simple if you do the math.

Option #1

Keep the $30K for 5 yrs. at 2%int. = $33K

Pay credit cards gradually- $500 per mo. for five yrs.= $30K in payments and still owing approx. $20K

Result in 5 yrs. -  $33K - $20K= $13K gain.

Option #2

Pay off all your credit cards - $30K - $21K leaving you a bal. of $9K.

Invest $9K for 5 yrs. @ 2% int. = $9900.00

Instead of making payments, put $500 in the bank every month for 5yrs.

$500 x 12 x5 =  $30K plus approx. $600 in int.

This way you would have -  $9900+$30600= $40500.

The choice is yours.

Answer 9

I would pay the credit cards. I know that's getting rid of all the money, but it would feel great to be stress free with the debt. Then you can save the $9k and put it toward a house or savings, etc. Good luck.