Deciding What To Do W/ Settlement Money- Pay off Mortgage or Pay off Debt/Have LG EF

**Mamaof2rugrats** · 04-21-2010, 12:31 PM

My husband has owned our home for 2 years and still owes roughly 100k. We have 5 acres out in the country, mostly open and cleared. A separate ( detached) 3 car garage/shop and several small out buildings ( a shed, a chicken coop) and a 3 bdrm,2 full bath new manufactured home with two porches.It's in the country but the property does start right on the hwy basically. Lots of additions like stone walk ways, stone squares all around the house. It's a beautiful house and we really like it however it doesn't have a basement and we are really wanting more acrage. We've talked about getting more land but we really would like to live on any additional land we buy and not just have additional hunting/farming land. We are talking about having another baby in the next year or two and are considering putting our home up for sale now.
My question is since I haven't followed it as well as I should have, Is the real estate market any better? It seems like around where we live nothing is selling and there's alot for sale. If we can't get what we owe for it then there's no point in selling it right? Would it make more sense to stay put for a few more years and continue just paying it off? The twist is I recently received some unexpected settlement money from my son's wrongful death suit as he passed away several years ago of his disabilities unltimately due to medical negligence. It was roughly 100k, enough to pay off the house but not have any left. Should I pay it off and use whatever we make from selling it to buy another? Pay it off and stay put? Continue paying for it? Keep it in the bank? Pay off other debts??? Thanks so much! I would really appreciate any opinions.

**Russ** · 04-21-2010, 12:38 PM

I moved this to the money forum.

speaking just about the real estate market...

I would call a local realtor and see how the market is in your area if you decide to go in that direction. Here in Michigan, it does not seem like it is picking up.

**Greebo** · 04-21-2010, 12:46 PM

My advice would be to follow the Dave Ramsey baby steps.

1) Put $1,000 aside for emergencies. You've got $4,500 already so you skip this.
2) Pay off all non house debt - or as much as you can until the money is gone.

4 Wheeler- 3,000/10k originally
School loans both DH and mine- $35000.00
06 Dodge Ram Truck loan: $9,000.00 ( originally 34k)

That looks like $47,000 to me if I'm reading right, leaving you $53,000.

3) Build up your fully funded emergency fund with 3-6 months worth of expenses. You've got $4,500 now - I don't know your expenses - so say that's another $12,000. Now you're up to $65,000.

4) Invest 15% of your income. This is income, so $15,000 goes towards retirement. Now you're at $80,000

5) Fund education for kids. You've got a 4 year old girl - she's gonna need schooling - so why not set up an ESA for her now at $2,000 to start and fund that much each year until she's 18? Now you're at $82,000.

That leaves $18,000 for step 6, pay off the house.

Now, where will that leave you if you follow that approach?

NO DEBT but the house.
RETIREMENT FUTURE vastly improved.
KIDS COLLEGE vastly improved.
BIG OLD HONKING EMERGENCY FUND.

Looks like that would be a really good place to be!

**Mamaof2rugrats** · 04-21-2010, 12:51 PM

Opps put one too many zeros in that schooling total in my signature. We have paid off all our student debt ( tech schools for both of us) all except for 3,500. Also, the actual settlement total was 110,000. I have already set aside the extra 10k for college. I'm not a big believer in paying for college ourselves but I did set that aside.
I agree about possibly adding to our EF and investing. Those are both options we've been looking into.

**Greebo** · 04-21-2010, 12:54 PM

If you follow the Dave Ramsey baby steps, what that plan does is first eliminate the most detrimental aspects of your finances first - consumer debt.

Bluntly speaking, there's very little point investing for retirement at 6-10% when you're paying out on debt at the same rate or higher. So we deal with consumer debt first - then EF - cause in an emergency you need money NOW.

Investing doesn't come in until you're 1) not drowning in bad debt interest and 2) prepared for an emergency. That's why it's step 4.

Education is after investing because, lets be honest, your girl is gonna leave one day. When she does, YOU need money to live on - so investing for YOUR future comes before investing for HERS.

And investing for the future also is before house because having a paid for house and no money? SUCKS.

Of all the debts you have, the mortgage debt is the least evil. That $100,000 debt is being slowly replaced by equity. The interest is tax deductible, which while not a reason to KEEP a mortgage, IS a mitigating factor.

**Mamaof2rugrats** · 04-21-2010, 01:02 PM

Well thanks!! Lots of think about. Possibly should take that same 10k I was going to put toward college and we could pay off alot of our non-mortgage debt first.

**Greebo** · 04-21-2010, 01:04 PM

Just wondering, have you heard of Dave Ramsey and The Total Money Makeover?

**Mamaof2rugrats** · 04-21-2010, 01:39 PM

Yep I've read his books and never really applied any of it. Should probably go get them from the libabry again and go over them.

**Preston** · 04-22-2010, 01:22 AM

Originally Posted by Mamaof2rugrats

Opps put one too many zeros in that schooling total in my signature. We have paid off all our student debt ( tech schools for both of us) all except for 3,500. Also, the actual settlement total was 110,000. I have already set aside the extra 10k for college. I'm not a big believer in paying for college ourselves but I did set that aside.
I agree about possibly adding to our EF and investing. Those are both options we've been looking into.

You could possibly save for your daughters education and then NOT tell her when she is going to apply. Let her work her way through it, and then as a graduation gift... A big load of money to pay off everything ( or maybe something along this line). THAT WOULD BE AWESOME.

**Preston** · 04-22-2010, 01:24 AM

Originally Posted by Mamaof2rugrats

Yep I've read his books and never really applied any of it. Should probably go get them from the libabry again and go over them.

May I also suggest Elizabeth Warren's "All Your Worth" which has very similar advice, but gives a little more insight.

It looks like you're going to be able to get right through the consumer debt... which is a good thing.

**Preston** · 04-22-2010, 01:28 AM

I'd stay put for the time being. You'll be better off. Or maybe waiting a few months go make your decision, but, to me, that house sounds like it could work for you.

**Mamaof2rugrats** · 04-26-2010, 11:16 AM

The house isn't ideal for us because we are really wanting a basement. The ground just isn't as much as we were wanting so this is just a "for now" home. It's a nice place but I think we would spend more paying it off AND making it how we want it as opposed to just finding something that is what we want.
And we did pay off the consumer debt. All of it. Consumer debt free now! Just the mortgage now.

**jas** · 04-26-2010, 12:03 PM

Originally Posted by Mamaof2rugrats

The house isn't ideal for us because we are really wanting a basement. The ground just isn't as much as we were wanting so this is just a "for now" home. It's a nice place but I think we would spend more paying it off AND making it how we want it as opposed to just finding something that is what we want.
And we did pay off the consumer debt. All of it. Consumer debt free now! Just the mortgage now.

Way to go! I bet that feels really good to know that it is all paid off.

**Greebo** · 04-26-2010, 12:10 PM

Originally Posted by Mamaof2rugrats

The house isn't ideal for us because we are really wanting a basement. The ground just isn't as much as we were wanting so this is just a "for now" home.

Ok, but really not relevant when determining what to do with the money.

It's a nice place but I think we would spend more paying it off AND making it how we want it as opposed to just finding something that is what we want.

No comment on the making changes to the house, but as far as paying down the mortgage, ANY Money you pay extra NOW on the mortgage will save you MULTIPLES later. ONE dollar paid early on the first payment of a 30 year mortgage at 5.5% will save $5.19 over the long haul.

And we did pay off the consumer debt. All of it. Consumer debt free now! Just the mortgage now.

EXCELLENT!!!

**my4littlebuffaloes** · 04-27-2010, 04:01 PM

I would pay off all debt except for the mortgage and then save the rest. Talk to a realtor and get a realistic idea of the housing market. Also, let the realtor know exactly what you are looking for in land and home. Then just sit on the money. When the right property comes along you will be ready to jump on it. If push comes to shove at that point you could even sell your current place after you put an offer on a new place with so much money in the bank. Sorry about the circumstances regarding the money, but at least you are thinking though how to save and spend it.

Jennifer
Getting Ahead
Our Suburban Homestead