Large chunk of money coming in...what would you do?

[Charmie981]

We have around $1000 "extra" coming in May because of extra work DH has done and then $5500 to $6000 coming to us sometime in June in the form of the first half of a reinlistment bonus for his enlistment in the USAF reserves. I'm trying to decide what to do with these sums. We have a long history of making bad decisions and mismanaging money and credit, so I'd like to not add to the history of bad decisions. I'm going to really open myself up and post some personal information. I'm in a hard place with money right now, so if you can't be gentle, don't reply.

So, here it is:
1. We have a consumer credit account that's 2800 no payments no interest until August. Has to be paid by August or we'll have huge back interest charges.
2. We have consumer debt divided into the following balances: about $3000 (pmt $86, int. 10%), about $2400 (pmt $62, int 10%), about $500 (pmt $30, int. too high to post), about $200 (pmt $10, int. too high to post).
3. We will have two children in private school next school year. Their tuition is $2800 per child, divided into 10 payments. We've already paid deposits of $400 each and their fees will be added into the balance. I think the payments will end up being about $250 for each child. This year we had one child in the school and the payments were $226/month. It has been difficult to incorporate that into our budget, but we've finally gotten it down. I'm not sure I can even imagine paying $500/month, though.
4. Our home is owner financed and while we have another 1.5 years before the balance is due in the form of a balloon payment, we would like to refinance at a lower interest rate long before that payment comes due, and the owner has made it known that he'd like to be done with the owner financing sooner rather than later. In order to refi, we'll need to pay $400 for an appraisal.
5. We have nothing in savings. What we did have was exhausted when DH had a period of unemployment over the holidays. There's a very good chance DH can work another round of extra work and fund our $1000 mini-emergency fund with that.

And here's how I was thinking of doing this:
1. With the $1000, pay the remainder of DS1's tuition for the 09-10 school year: $500. Then pay off the $500 cc balance and close it.
2. With the $6000, pay the $2800 cc to avoid back interest charges, pay the $400 appraisal fee, then pay as much as possible on the school tuition balance. (While I'd rather be out of some of the debt, I'm worried that we won't be able to afford the payments on the tuition if we don't decrease the balance as much as possible and I don't want to stress out over a $500/month payment every month. Plus if I'm late on their tuition, I have to look the school employees in the eye every day)

[TwinMomPlus]

I think your plan sounds good.

[xmysticprincessx]

I like the plan too. I'd modify it a bit though- pay off that $200 cc with the ridiculously high interest rate with part of the $6000 before paying school tuition. Its $10 more a month that can go towards other debt, plus its one less bill to worry about. (And you'll be saving $ from the high interest.)

[Selesai]

I think you need to put something in savings, even $1000. What would you do if something broke, if you needed to repair your car, if someone got sick?

I don't know your reasons for considering private school, but I would think seriously about that cost, particularly since you don't have any savings and you have consumer debt.

I would make sure that I was not continuing the behavior that led to the student debt in the first place.

If you are looking to refinance your house, sometimes that fee can be rolled into the loan. I would double check that.

[TwinMomPlus]

Originally Posted by Selesai

I don't know your reasons for considering private school, but I would think seriously about that cost, particularly since you don't have any savings and you have consumer debt.

I was thinking the same thing but figured you had pretty darn good reasons to justify that cost.

[Charmie981]

I guess I should have said that eliminating private school isn't an option. I spent 5 years trying to find a way to not pay this school. We did public school and homeschooled and won't do either again, unless my aim is to raise hooligans or to get locked up in a mental facility.

So maybe, if DH can get the extra hours for to make a second $1000, then we'll put the first $1000 in savings (because you're right...if we don't have savings and something breaks, we'll be forced to use consumer debt to fix it and I don't want that) and use the second $1000 and $6000 as planned.

If he can't get the extra hours for that, then we'll put the $1000 in savings, pay the remaining tuition with the $6000 (or try to eek it out of our budget in May-June), pay the $2800 and as much of next year's tuition as we can with what's left.

[Thystle]

Saying gently that it does not appear you can pay for private school for two kids. When the money is gone how will you pay next year?


I would "Dave Ramsey" it and get a $1000 emergency fund (do NOT count on a maybe of overtime for that). Then pay the small bills off and roll onto the bigger ones.

Revaluate the private school (maybe consider homeschooling).

And get going on the home loan refi ASAP. 1.5 years can go by in a FLASH! DO NOT take out more money from home to buy anything... it's always offered and sorely tempting. And the cause of ALOT of problems for alot of people.




And I would get brutal with all other bills and trim them down as far as possible. And I would make sure to stop using the credit cards asap if I have not already.




Good luck!

[Charmie981]

Originally Posted by Thystle

Saying gently that it does not appear you can pay for private school for two kids. When the money is gone how will you pay next year?

Given that I didn't post my budget, didn't ask for help with cutting expenses, and didn't tell you how much we make, this seems a pretty harsh assumption. We can afford private school, but it's a big change for us and our budget and I'd like to make the integration of a large montly payment as easy as possible.

I would "Dave Ramsey" it and get a $1000 emergency fund (do NOT count on a maybe of overtime for that).

So, you would do what my modified plan is and put the first $1000 in savings and try to get the extra hours for the second $1000. It's actually not overtime at all, but work from a whole separate job that goes straight into our savings account and requires intention to withdraw and spend. Before the unemployment, we had quite a chunk building up in this fund and WERE "Dave Ramseying" it.

Revaluate the private school (maybe consider homeschooling).

BTDT. Again, not an option.

And get going on the home loan refi ASAP. 1.5 years can go by in a FLASH! DO NOT take out more money from home to buy anything... it's always offered and sorely tempting. And the cause of ALOT of problems for alot of people.

Also BTDT and not planning to repeat it.


Again, I didn't ask whether I should get extra money in the refi, or how I can reduce my family's expenditures specifically because I didn't want to have suggestions like "homeschool your kids" or "you can't afford private school." I see that a lot in this forum and hoped to avoid it by asking only what your opinion is on how I should consider spending the extra income coming to my family in the next couple of months given a specific set of circumstances. I guess I wasn't clear enough. I apologize.

[sunflower.mama]

I am with you right up until you pay down next year's tuition with the remaining $2500 or so. I'd save that as an EF and then if DH gets the extra hours you mentioned, throw that at the tuition. You can always draw against the 2500 in a lean month for the tuition but I'd want to have the padding. IF you're terrible with $ in savings (no offense at all!) I can see why you'd want to get it right into tuition. But as someone who just found out she needs new brakes - $600-700 - I am reminded of the importance of saving for the unknown.

[karkli]

Have you looked into what other fees might be involved in the re-fi? Specifically, points and closing costs.

What is the interest on the consumer credit account, and do you know what the monthly payments on it would be if you were not to pay it off by August?

I would definitely sock $1000 away for a rainy day. Then, I would prioritize the re-fi and the high interest, low balance debts, and then continue paying off/on the other debts until the money is gone. Since the school tuition will be an ongoing thing, presumably for years to come, I think you'd be better served by making sure your monthly budget can comfortably handle the tuition payments than by pre-paying it with a one-time windfall. Getting rid of the debts and their monthly installments will definitely help with that!

Also, looked at what your monthly payments will be like once you re-finance? Since you said you'd be hopefully re-financing at a lower interest rate, your payments should be lower which would also help with your monthly budget and your ability to fit the kids' tuition into it.

Good luck!

[Logan's Mom]

Just so I have it straight in my own mind - you will have approx 6500 (could be $7k - but using the lowest scenario) coming to you.

2800 - CC due in august
3000 - 10% int
2400 - 10% int
500 - high int
200 - high int
400 - appraisal
4800 - tuition

I like your plan for the most part. I didn't see you mention paying the $200 high int CC, so I'd do that.
$700 - high int CCs and close accounts
$400 - appraisal
$2800 - CC due in aug
= $2600 remaining

I do understand the need to reduce stress, so I would recommend in your situation to put the remainder all towards tuition. Also, I'm not sure if there are any finance fees on tuition.

You did state you can manage $226 per month now. If you could pay off the 2400+500+200 CCs then you would eliminate $102 in payments. That would bring you to being able to allocate $328 towards tuition using your current budget. I would probably lean towards this secenario to avoid paying 10% interest rates. I have a strong adversion to pay interest, especially if its not tax deductible. Then I'd work on paying off the $3000 CC.

I know a ton of people are all about an emergency savings first. As I said, I don't like paying interest.

[ChristyMarie]

I think that before you do anything maybe you should talk to a refinance person to see how your debt to income ratio looks. You may end up needing to either pay down some debt or have that $7K in the bank as savings in order to qualify. Since you only have 18 months to refinance and this is a large lump sum, this would be my first priority. Plus interest is cheap right now but standards for qualifying have been much more strict.

The school tuition won't show up on your credit report and it sounds like it will be an ongoing payment without interest attached so I would work that into my budget instead of paying it off. I would attack credit cards instead as it looks like you are paying about $190 a month in payments + whatever would come from the $2800 if it isn't paid off. That could be the additional tuition right there.

Good luck.

[mnnice]

Originally Posted by karkli

Since the school tuition will be an ongoing thing, presumably for years to come, I think you'd be better served by making sure your monthly budget can comfortably handle the tuition payments than by pre-paying it with a one-time windfall. Getting rid of the debts and their monthly installments will definitely help with that!

Also, looked at what your monthly payments will be like once you re-finance? Since you said you'd be hopefully re-financing at a lower interest rate, your payments should be lower which would also help with your monthly budget and your ability to fit the kids' tuition into it.

Good luck!

I agree with both those points. Unless you have big monthly swings in income an ongoing expense be in private school or your property taxes should be something you should be able to pay for out of current income. You might need to save monthly to pay a bill that only comes due once or twice a year, but if you can afford it you should be a budget item just like any other expense.

I also think there are often things that on paper people should be able to swing, but in reality most people due better with a budget less committed to fixed expenses and more allowed for the unexpected be it the unfun (i.e. car repairs) or fun.

[Thystle]

Originally Posted by Charmie981

While I'd rather be out of some of the debt, I'm worried that we won't be able to afford the payments on the tuition if we don't decrease the balance as much as possible and I don't want to stress out over a $500/month payment every month.

Your follow up post had not posted when I did mine, so I did not see it.

I was not attacking or mean in ANY way, YOU asked for advice on the Finances and Frugality board and said you had issues with money in the past and as above a possible problem paying tuition. As did others.

Hence my post.

I put down what I would do... just like every other poster put down their take. I never accused you of doing things... but I gave suggestions based on you saying:

Originally Posted by Charmie981

We have a long history of making bad decisions and mismanaging money and credit, so I'd like to not add to the history of bad decisions.

.


That's all.





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[dancebaraka]

Thank you for posting... I know it takes a lot of courage to disclose this stuff & ask for help when it's been a problem in the past.

I would do what Logan's Mom suggested, attack the HI CCs first & close them, but then instead of putting the rest into the tuition, I'd pull aside a thousand in cash to stash away (I know, I'm a freak ) & use the rest to get ahead a bit with the upcoming tuition expenses...

Then, after building my confidence with these smart choices, I'd sit down with my partner & figure out how else we can cut some expenses, etc.. and make a plan. It's amazing how you can trim the family budget with some ingenuity & creativity... it can actually start to feel fun, like a game Folks on this board can really help out with ideas for creative frugality.

Good Luck & Enjoy your smart choices- you've earned it!

[Free Thinker]

THe very first thing I would do is call around and get the home loan taken care of. Right now int. rates are low, but banks are much pickier on who gets loans. IMO this is your most important thing on your list. When the home loan is secure and all fees paid or budgeted for, then pay off the other things. THe high int. CCs should probably be paid off first, followed by the one that has to be paid by August. If it were ME, I'd pay off at least one other CC, and then save the rest in an emergency fund. I know you are worried and want to put a chunk toward the tuition, but for me, just having the $$ in the bank would be more peace of mind. If you are short a month, you can tap the EF.

[nola79]

I would put aside 1k for an EF, no matter what. We recently did built up an EF, and the peace of mind is so worth it. (even with only 1k)