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‘Please don’t judge me’: I’m 54, and married with 5 kids. I have $20,000 in debt and $20,000 in mutual funds. I just inherited $10,000. How do I invest it?

In Business
April 04, 2024
“I am finally at a place with physical and emotional health where I have the brain space and can tackle this situation.”

“I am finally at a place with physical and emotional health where I have the brain space and can tackle this situation.” – Getty Images

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Dear Quentin,

Please don’t judge me on what is in the past. There was a lot going on and I have lots of regrets, but I can’t go back and change anything. I am 54 and married with five kids. (Four adults and one minor who is still at home.) We have been a single-income family.

I am finally at a place with physical and emotional health where I have the brain space and can tackle this situation. Without going into all of the details, we owe $140,000 on our mortgage, have $20,000 in other debt, and $20,000 in mutual funds.

But I recently inherited $10,000. It feels like it’s time to panic about my retirement. How do you recommend I invest the $10,000?

Regrets, I’ve Had a Few

Related:

“You have raised five children through the Great Recession, COVID-19, and a prolonged era of rising prices.”

“You have raised five children through the Great Recession, COVID-19, and a prolonged era of rising prices.” – MarketWatch illustration

Dear Regrets,

Take a deep breath: Panic and decision-making are not easy bedfellows.

This is a judgment-free zone. We all do the best we can at the time. Our mistakes, financial and otherwise, if we’re smart, allow us to reflect and learn from the past. We don’t know what we don’t know — until we know it. What we can do is apply what we have learned.

I recommend you use your $10,000 to pay off your debt and, if you don’t have an emergency fund, put some extra cash aside for that. You are losing money by carrying this debt: the average interest rate for a personal loan is 12%, and a credit-card APR is closer to 23%.

With inflation running at 3.2%, you need to tackle this debt as soon as possible, and you have been given a gift to do just that. There are two main methods of doing this: the snowball method (pay the lowest debt first) or the avalanche method (pay debt with the highest interest rate first).

The former is usually a way to motivate people to get out of the red, but paying down the highest rate first makes the most sense to me. For example, if $10,000 of that debt is credit card, I’d be putting the entire amount to get rid of that debt.

Ken Couser, director of financial planning at Janney Montgomery Scott LLC, agrees. “By focusing on debt and setting aside an emergency fund prior to investing will stop you from investing those funds and needing to take them out when the markets are not in your favor,” he says.

You deserve a lot of kudos for getting this far. You have bought your own home, and you have set up mutual funds that will continue to grow. If you are the spouse who is working, maximize your 401(k) plan, especially if your company gives a match.

You’re not alone

If you did not have that $20,000 debt? For future reference: Timothy Speiss, tax partner in EisnerAmper’s Private Client Services Group, says you could consider bonds: “If you invest these funds in state municipal bonds, the interest income could be exempt from income tax.”

For you, however, investing that $10,000 is probably better for another, debt-free day. “I would avoid investing the $10,000 in stocks without professional advice, including a review of your overall financial facts, total monthly spending needs, and your investment risk profile,” he adds.

Nor are you alone. Not accounting for mortgages, Americans carried an average personal debt of $21,800 last year, lower than the $29,800 in 2019, according to a survey from Northwestern Mutual. You’re not so different from millions of Americans, so take heart in that, if you can.

Those people who are carrying debt say that they’re spending 30% of their income to pay it off, and have a goal to pay it off within five years, Northwestern Mutual said. Most of those people have credit-card debt (28%), auto loans (12%) and medical debt (12%).

What’s more, some 36% of U.S. households say they are shoulderning more credit-card debt month to month than they have in emergency funds, the highest level since polling began in 2011, according to a separate survey by the personal-finance site Bankrate.

Why am I telling you this? To help you realize that you’re in the same boat as many Americans, and to look at all of the good financial decisions you have made. You have raised five children through the Great Recession, COVID-19, and a prolonged era of rising prices.

You have at least 15 years before retirement, and five children to show for all of your hard work. Don’t feel despondent. Look forward: You have a lot of years ahead to get back into the black, pay off your mortgage and not allow your financial mistakes from enjoying your life.

Focus on your achievements and give yourself due credit for them.

Previous columns by Quentin Fottrell:

‘I’m guilt-ridden’: Our waitress’s behavior was so egregious that I wrote ‘NO TIP!’ on the check. Was I wrong?

My elderly parents are hoarders. I see them once a year. They say cleaning up their ‘junk’ will be my problem after they die. What can I do?

‘I find this evil’: My stepfather, who was worth $14 million, put my mother in a facility — then they both died. He did not honor their prenup. What can I do?

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