I recently received an inheritance of several hundred thousand dollars. We have got a small mortgage ($150K) and outstanding debt of 90K (car, credit cards etc). Both my husband and I are mid 40’s and work and bring in about $110k per year together. Should we use the money to pay off debt and mortgage or should we invest it? Are there any better options?
Tracey in Gosford, NSW
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Let’s talk about interest rates. Interest rates are currently really low, just ask any retiree who is trying to live off the interest payments from their term deposits, they are not earning much over 1%.
But interest rates on credit cards are high with rates between 13 - 20%. Personal loan interest rates may not be as painful, but they still hurt.
It can be extremely hard to get ahead with large amounts of personal debt so I would see this as a great opportunity to pay it off and move forward. The bonus here is you will have more cash ongoing as you are not paying all that interest.
This is going to be the foundation to really improve your finances over the long term.
As for paying off your home mortgage, the answer is maybe. It can feel great not to owe the bank anything, but financially investing may give you a better long-term outcome.
This is where consulting a financial planner and devising a financial plan together will be beneficial.
It’s not just a maths decision, consideration for lifestyle goals and where you see yourselves in 5, 10 and 20 years will make a difference to the recommended strategy.
Questions such as do you plan to stay in your existing home long term? What does work and your income look like over the coming years? What family financial commitments are coming up? Retirement may seem like a while off but a strategy that considers your superannuation earlier rather than later will really pay off.
A financial planner will work with you to map out a plan to achieve your financial and lifestyle goals. I’d encourage you to seek advice from a financial planner to assist you with your decisions.
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