Need advice

**trinaren** · 05-21-2009, 12:27 PM

I've recently been told that I'm going to be getting $10,000 as an "inheritance". I'm using quotes because it's actually a gift from my grandmother before she passes away. I'm hoping that means no taxes (anyone in Canada know?).

I'm looking for advice on what to do with it. DH and I have about $12k in student loans at an interest rate of prime+1 and an EF that could use another $2-3000. We're also hoping to buy a house in a year or two, so how can I decide where to put the money?

I know this probably isn't enough information for you, but if you could give me some advice of things to consider that would be very helpful!

**Greebo** · 05-21-2009, 12:32 PM

Is the Student Loan your only debt?

Are your income streams stable? (Any chance of layoff, etc?)

If Yes and No, then my advice would be:
1) Fund a Baby EF to $1k.
2) Put the rest to paying off your student loans.

Paying off your loans as early as possible will allow you to put those loan payments towards your house downpayment. If you held onto the 10k in some pathetic 0.01% interest rate savings account, you'ld end up losing more in interest on the loans than you would gain from the return on savings.

**monkeywrangler71** · 05-21-2009, 01:28 PM

No, there is no gift or inheritance tax in Canada. Real property or investment gifts would result in capital gains tax, but a gift of cash will not be taxed.

If your student loan debt an actual student loan, or was it a bank loan taken out for the purpose of going to school. Interest on your Canada Student Loan is tax deductible, interest on a student line of credit at the bank is not.

What's prime now? Around 2%? Check your last statement see what the current rate is. How much is the monthly payment? Is it several smaller loans or just one? Do you have other debt and/or other savings? Do you have stable income?

**itlw8** · 05-21-2009, 01:38 PM

paying off the student loans would be wise but then there is something to be said about putting it aside for the downpayment on your home. You will know Grandma helped buy your home when you are ready.

**trinaren** · 05-21-2009, 02:10 PM

Originally Posted by monkeywrangler71

If your student loan debt an actual student loan, or was it a bank loan taken out for the purpose of going to school. Interest on your Canada Student Loan is tax deductible, interest on a student line of credit at the bank is not.

That's a very good point, thanks for that!

Originally Posted by monkeywrangler71

What's prime now? Around 2%? Check your last statement see what the current rate is. How much is the monthly payment? Is it several smaller loans or just one? Do you have other debt and/or other savings? Do you have stable income?

I'll have to check what the interest rate is, but it's just one goverment student loan. Our current income is semi-stable. DH is a teacher with a one-year contract that expires at the end of the school year. He's very likely going to get something for September, but they haven't posted what jobs will be available yet. My two jobs are fairly stable, but don't bring in as much money as his.

**Greebo** · 05-21-2009, 02:21 PM

Originally Posted by itlw8

paying off the student loans would be wise but then there is something to be said about putting it aside for the downpayment on your home. You will know Grandma helped buy your home when you are ready.

But either way, Grandma helped. But if they can buy a house and have no debt whatsoever BUT the house, vs. buying a house and also having other debt, Grandma will have helped them not only buy a house (in the long view) but to do so with as little stress as possible.

One should never ever ever underestimate the impact of financial stress on marital stability.

**Thevail** · 05-21-2009, 02:32 PM

This is just my suggestion.. all standard disclaimers apply..

$10,000
- one months full expenses in an EF if you don't have that already. (just makes you sleep better honestly)

- $1000 towards baby home fund

Then put the balance on the student loans.

That should bring any payments on the student loans way down. (i'm not sure how that works out in Canada though) Use the "extra" you used to pay on the student loans 50/50 to save on the EF and the baby home fund.

Once the EF is fully funded, put 100% of that "extra" towards the baby home fund.

When the student loan is finally paid off, then all of that payment can go towards the no-longer-baby home fund!

Snowball forward!

**ml2620** · 05-21-2009, 03:50 PM

I'm more inclined to agree with itlw8, with an inheritance (particularly coming from a living grandmother), I would put the money into buying the house, or something very concrete that you can look at and say "grandmother gave me this" - you can't do that with debt, Just my personal opinion.

My great aunt gave me savings bonds all of my childhood. She died several years ago and my mother gave me the bonds when I got married. I could have used them to pay off debt, but I am so glad they went directly into buying my home. It's what she would have wanted, and it makes me feel she's still part of my life.

**Nishu** · 05-21-2009, 05:31 PM

We have a lot of student loans. One is on deferment for active duty service and the other 2 (mine) are paid off by min payments each month.

I am almost positive that I will never pay more than the minimum payments for two reasons.

1) All of our interest is tax deductible. It's an interest free loan essentially.

and 2) Upon our death or permanent disability- our loans are written off. As morbid as it is- planning for unexpected death is part of financially planning and the way I see it... If we pay down all of our debt except -say-10k in student loans and we were given 10k as a gift I could do two things with it. a) I could pay off my husband's student loan. If I pay it off on Dec 21 and he passes away unexpectedly on Dec 22... His student loan is gone either way BUT we're without the 10k that we could have put in savings.

On the other hand I could b) continue to pay off minimum payments on his student loan and put the 10k into savings or pay off the mortgage instead. In this case- if I put it into savings and pay down the mortgage and I've still made almost no progress toward his student loans- I now have that 10k in the bank or 10k less on the mortgage and the student loan gets written off due to his death.

Obviously it works both ways. If I pass I'd prefer to leave him with 6k in the bank rather than a paid off student loan. Even putting 10k in the bank and letting it sit while you deduct the monthly student loan payments would be better than using it to pay off student loans in my opinion.

Check with the terms of your loan before you make a decision.

**Greebo** · 05-22-2009, 08:22 AM

Originally Posted by Nishu

1) All of our interest is tax deductible. It's an interest free loan essentially.

I know it's different in Canada - do you mean that if your taxes due would be $100 and you pay $10 in interest, you only pay $90 in taxes?

Cause in the USA if you owe $100 and pay $10 in tax deductible interest, you only save your tax rate * the interest, so if you pay 25% taxes, owe $100 and paid $10 in interest, you save $2.50 and only pay $97.50 on your taxes.

So in the USA - It's tax deductible as justification for keeping debt is a great way to declare that you're really bad at math

**miss_thrifty** · 05-22-2009, 08:35 AM

as far as the economy i wouldnt put too much in funds and stocks . never cared fort he goverment and trying to save with them. pay off your loan and do what u think grammy would want u to do and think of future problens rising. a little nest egg inacse.

**ml2620** · 05-22-2009, 08:38 AM

Though his phrasing is a little harsh, Greebo speaks the truth, regardless of tax deductible. It is in no way, shape or form, a loan - it is a debt (as all loans are).

**Nishu** · 05-22-2009, 09:11 AM

Originally Posted by Greebo

I know it's different in Canada - do you mean that if your taxes due would be $100 and you pay $10 in interest, you only pay $90 in taxes?

Cause in the USA if you owe $100 and pay $10 in tax deductible interest, you only save your tax rate * the interest, so if you pay 25% taxes, owe $100 and paid $10 in interest, you save $2.50 and only pay $97.50 on your taxes.

So in the USA - It's tax deductible as justification for keeping debt is a great way to declare that you're really bad at math

No Greebo- I mean that if I pay 100 in student loan interest throughout the year then at the end of the year I reduce my tax bill by 100 dollars.

This is not the same as if I-say- put 1000 into a tax deferred retirement account which only reduces your taxable income.

**Nishu** · 05-22-2009, 09:24 AM

You know- this actually ticks me off quite a bit. If you're going to bounce in here with your attitude and tell me that I'm bad at math, at least get your facts straight. I know what I'm talking about. The interest on student loans here in the states is a dollar-for-dollar credit that reduces what you pay in taxes. It does not reduce your taxable income which is the tax deduction you're thinking of.

Trinaren- you should talk to a financial adviser before you get your money. Do not trust a bunch of random people on a message board with ten thousand dollars- not even me.

**trinaren** · 05-22-2009, 09:59 AM

Thanks everyone for their advice. Talking with my DH I think that we are going to put it into a high interest savings account until we are ready for to get a house. It would be what my grandmother would like and it will certainly help us have a nice downpayment, so less interest on a morgage.

Everyone gave me lots to think about and it was really helpful! Thanks again!