Written by Quentin Fottrell
“A lot has happened and I have a lot of regrets, but I can’t go back and change anything.”
Dear Quentin
Please don’t judge me by my past. A lot has happened and I have a lot of regrets, but I can’t go back and change anything. I am 54 years old, married and have 5 children. (Four adults and one minor are still at home.) We are a single-income family.
I have finally reached a place where my brain is free and I am physically and mentally healthy enough to handle this situation. I won’t go into details, but we have $140,000 in mortgage debt, $20,000 in other debts for him, and $20,000 in mutual funds.
However, I recently inherited $10,000. It seems like it’s time to start panicking about retirement. How would you recommend investing $10,000?
Sorry, I ate some
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Dear Sorry,
Please take a deep breath. Panic and decision making is not easy.
This is a judgment free zone. We all do the best we can at the time. If we are wise, financial mistakes and other mistakes allow us to look back and learn from them. We don’t know what we don’t know until we know it. What we can do is apply what we have learned.
If you want to use the $10,000 to pay off debt and don’t have an emergency fund, it’s a good idea to set aside some extra cash for that purpose. If you take on this debt, you will end up losing money. The average interest rate on a personal loan is 12%, but his APR on a credit card is closer to 23%.
With inflation at 3.2%, you need to tackle this debt as soon as possible, and you have the talent to do it. There are two main ways he does this. It can be a snowball (pay off your lowest debt first) or an avalanche (pay off your debt with the highest interest rate first).
The former is usually a way to incentivize people to get out of the red, but paying the highest rate first makes the most sense to me. For example, if his $10,000 of that debt is due to credit cards, he would put all of that money toward forgiving that debt.
You deserve a lot of credit for getting this far. You bought your own home and started a growing mutual fund. If you have a working spouse, make the most of your 401(k) plan, especially if your company offers something to match.
You are not alone
You are not alone either. Not counting mortgages, the average American had $21,800 in personal debt last year, lower than $29,800 in 2019, according to Northwestern Mutual. You are not that different from millions of Americans, so please keep that in mind if you can.
Those with debt say they are spending 30% of their income on repayments and have a goal of paying it off within five years. Most of these people have credit card debt (28%), car loans (12%), and medical debt (12%).
Additionally, about 36% of U.S. households say they have more credit card debt each month than they have in their emergency fund, according to another survey by personal finance site Bankrate, the highest percentage since the poll began in 2011. It is of the highest standard.
Why am I saying this? So that you can recognize that you are in the same position as many Americans and look back on all the good financial decisions you have made. You’ve raised five children through the Great Recession, COVID-19, and a prolonged period of rising prices.
You have at least 15 years until you retire and your five children have to see the fruits of your hard work. Don’t be discouraged. Think positive. You still have many years to go before you can get back into the black, pay off your mortgage, and avoid making financial mistakes that keep you from enjoying life.
Focus on your accomplishments and give them due recognition.
Monetarists regret that they cannot answer questions individually.
Previous columns by Quentin Fottrell:
“I feel guilty”: The waitress’ behavior was so bad that I wrote, “No tip!” on the check. Was I wrong?
My elderly parents are hoarders. I see them once a year. They say that cleaning up their “junk” will be my challenge after they die. what can i do?
‘I think this is evil’: Stepfather worth $14 million institutionalizes mother, then both die. He did not respect their premarital sex. what can i do?
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-Quentin Fottrell
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04/03/24 1007ET
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