Financial WWYD

[Jean in Newcastle]

Let's just say that the doorbell rang unexpectedly and a person you knew said "Happy April!" and handed you a check for $20,000. Totally out of the blue. Once you picked your jaw up off the floor and got done thanking him profusely, what would you do?

 

Use the money for a kitchen remodel - desperately needed - over half the cabinet doors have fallen off, the oven broiler doesn't work and you have to carefully avoid the elements that are hanging dangerously down over the racks, the stove only has two working burners, the ceiling is too low and the 15 year old just took out one more light fixture just by reaching his arms up too high, plus it is hopelessly outdated. But . . . you can cook in there so I wouldn't call it an emergency.

 

Use the money for college. The aforementioned 15 year old is in 10th grade and you only have about $4000 in the bank for college right now.

 

Pay off a low adjustable interest HELOC that the local banker warned you might have rising interest rates soon.

 

Pay down a portion on the mortgage.

 

Pay off a car.

[justamouse]

Kill the thing with the interest rate and then spend the rest on the kitchen.

[TexasRachel]

I'd do what I could to the kitchen for $10,000. Then either the car or the heloc. Depending upon the potential interest/future costs.

[sbgrace]

I think I'd pay off the HELOC, given it's adjustable. Will you have some left after that? Fund emergency savings holes if you have some. I think the wisest thing, after paying off the HELOC and making sure you have emergency funds, would be to pay off the car. Apply the money that was going for the car payments to save for the college fund, kitchen, etc.

[Mnemosyne]

I would pay off debt.

 

But, then again, I'm ruthless about being debt free. If the kitchen condition is really decreasing your quality of life, I'd put some of it away towards the kitchen (but I would personally go minimalist and fix only what is really needed until the other debt is paid off).

[abacus2]

Pay off the heloc, but replace the stove and light fixtures. Put maybe $1000 to the kitchen.

[bolt.]

1. Do necessary things in the kitchen: do them well, but not extravagantly. A dream kitchen is not worth it. A functional, durable kitchen is.

2. Create an 'emergency fund' -- maybe 3000 to 5000 dollars (if you are American -- less if you live somewhere with 'safety net' social programs and very little possibility of catastrophic medical bills).

 

- a -

3. Pay off or drastically reduce the HELOC

4. Use the amount that you were formerly paying "to" the HELOC as a monthly payment towards college funding (or partially towards that and partially towards other things as listed)

 

- b -

3. Pay off a car loan

4. Use the amount that you were formerly paying "to" the car loan as a monthly payment towards college funding (or partially towards that and partially towards other things as listed)

 

- c -

3. Figure out how much remains on your mortgage and imagine, "Is there any amount I could pay now that would end up (supposing regular payments from now forward) leaving me completely mortgage-free *before* the beginning of my years of parenting college students?" If yes, do that.

4. Once the mortgage is paid off, use the amount that you would be no longer sending to the mortgage as the substance for your contribution to your children's college expenses.

[Tap]

Other....Would you qualify for a refi?

 

I would find out if I could refi the house to a fixed interest and take out enough to:

Pay off heloc

remodel kitchen.

 

Home refi's can be pretty cheap right now and it will get rid of the variable interest on the heloc. I would talk to several banks and credit unions in your area, to get a good idea of points,fees and costs. You can put the money toward the home (a home safety issue IMHO) that you need and still get rid of the variable interest loan. If you need to use the $$ toward the loan, then do. If not invest what you can in a college savings plan now, and then put the rest toward the loan. If you payments get lowered in the process, then continue to put the difference in payment money in a college savings plan.

[ktgrok]

I'd buy a new stove, as that one sounds dangerous. Then pay off the loan.

[Annie G]

I'd pay off the HELOC or the car, whichever has the highest monthly payment. Then take that monthly payment and buy a stove. That HAS to be replaced. After buying the stove, split the payment snowball into two groups- half towards a more complete kitchen upgrade, and the other half towards paying off the remaining loan (whether it's the car or the HELOC, paying that off more quickly will free up more money for college).

College is important but until you're out of debt, it's not more important than paying off those loans.

 

And how cool to have that unexpected money given to you!!!!

[OrganicAnn]

Do what you need to with the kitchen, especially the things that need fixed the most.

 

If you pay off the HELOC will you close it out or could you reborrow? Depending on the amount left, I might pay down half of what you have left on the HELOC and keep the other half as an emergency fund.

[Forget-Me-Not]

1/3 to 1/2 toward the kitchen. Put the rest toward the HELOC (home equity line of credit in case anyone else was wondering--I had to google it :D)

[RoughCollie]

I'd spend half on the kitchen, half on debt, none on college.

 

I'd get busy researching how to remodel a kitchen for $10K. I do that first. You want to maximize your use of space and spend your dollars wisely. It takes a lot of time to do the research, but figure you'll be using a wonderful kitchen for much, much longer than that.

 

After the kitchen is done, spend the rest on whichever secured debt you like, taking into account your equity and the tax effects..

[vonfirmath]

Pay off the HELOC. Then prioritize in the kitchen

[Koerarmoca]

Take care of debts, and atleast buy a new stove.

[Truscifi]

Get rid of the HELOC. Then replace the stove, and anything else you can afford in the kitchen.

[justasque]

--For safety reasons, get a new, low-end oven/stove, in the $300-400 range. If you can get something at the Sears outlet, etc., even better.

--Take the doors off the rest of the cabinets and arrange the items decoratively. Maybe do that thing where you cut paper in scallops to hang over the edges of the shelves - see here and here.

--Fix the light.

--Then put the rest towards debt. Probably HELOC, then car, then mortgage, but DO THE MATH to figure out where to get the biggest bang for your buck. Take what you had been paying towards that which you pay off, and apply it to the rest each month, upping the payment accordingly, to eliminate your debt quicker.

[Parrothead]

1. Do necessary things in the kitchen: do them well, but not extravagantly. A dream kitchen is not worth it. A functional, durable kitchen is.

2. Create an 'emergency fund' -- maybe 3000 to 5000 dollars (if you are American -- less if you live somewhere with 'safety net' social programs and very little possibility of catastrophic medical bills).

 

- a -

3. Pay off or drastically reduce the HELOC

4. Use the amount that you were formerly paying "to" the HELOC as a monthly payment towards college funding (or partially towards that and partially towards other things as listed)

 

- b -

3. Pay off a car loan

4. Use the amount that you were formerly paying "to" the car loan as a monthly payment towards college funding (or partially towards that and partially towards other things as listed)

 

- c -

3. Figure out how much remains on your mortgage and imagine, "Is there any amount I could pay now that would end up (supposing regular payments from now forward) leaving me completely mortgage-free *before* the beginning of my years of parenting college students?" If yes, do that.

4. Once the mortgage is paid off, use the amount that you would be no longer sending to the mortgage as the substance for your contribution to your children's college expenses.

 

What she said.

[Jean in Newcastle]

You guys are good! Thank you. We have a lot to think about and discuss.

[StaceyinLA]

Well, having no idea of the amounts of the debts, I can't say for sure, but I would do my best to:

 

Pay off the HELOC and close it. Variable interest is never a good thing. You can apply what you've been paying on that to the car pmt and eliminate it ASAP as well.

 

Mortgage last, as far as debt goes.

 

However, I think before I'd tackle the HELOC, I'd buy a safe oven/stove, and be sure I had $1000 eFund. The other kitchen items can be done little by little with some handiwork and small amounts of cash as time allows.

[StaceyinLA]

I honestly think if I had those debts, I'd take the $4000 I had aside for my child's college and pay off a debt with it then apply the money I was spending on the debt to a new college fund. That would save interest money, and, if more college money is needed, I'd rather take it out in a low interest student loan at the time of college, once you knew if he'd be eligible for grants, scholarships and the like.

[justasque]

You guys are good! Thank you. We have a lot to think about and discuss.

 

I would add that it would be wise to do the research NOW as to what you can expect, cost-wise, for college, so you can budget accordingly. You will want to understand the difference between merit aid and need-based aid, and what's realistic to expect from each. Research a few college possibilities to get a sense of their costs (tuition + expenses), your child's chance of getting in, as well as what your aid package may look like. For example, will they expect your student and/or you to take out loans? What is your expected family contribution? How much of need are they likely to meet? Do they have needs-blind admissions? Etc.

 

Then look at how your financial decisions will affect aid. *Where* you put your money, and *which* debts you pay off, may affect your aid package, how much you can pay out of pocket, and how much debt (if any) you and your child may need to take on to get through the college years.

 

Work out a "business plan" for how you expect to get through the next ten years. Only by DOING THE MATH can you plan accordingly. You've been given a major opportunity to put yourself in the best financial position for the college years. Use it wisely.

 

It will be much easier to look at your door-less cabinets over the next few years if you know they mean you have done your best to give your child a good start on their adult years, education-wise.

[zoobie]

That stove does sound like an emergency! Yikes!

 

Figure out if you'll be taxed on $6,000 of the $20,000 ($14k annual gift max in US).

 

Would renovating the kitchen enable you to refi mortgage and get rid of HELOC? What's the interest rate on the car loan?

 

Does the gift giver have an opinion? It's a good problem to have, but kinda stressful. Much easier if they'd just written the check to the kitchen contractor. ;)

[Catwoman]

Without knowing your loan balances, it's tough to give you advice, although if your kitchen cabinets are falling down around you and your range is in bad shape, I think you should replace the oven and see about replacing the cabinets -- Ikea cabinets are quite inexpensive, and they are attractive and durable. Best of all, if your dh is at all handy, he will be able to assemble them and hang them by himself. Good quality laminate or butcher block countertops are reasonably priced at Ikea, Home Depot, or Lowes, as are basic sinks and fixtures, if you need them. If your kitchen isn't huge, you can make it look great for very little money. Check out Ikea.com for pricing and ideas. (It will be cheaper to buy your new range elsewhere, though.) If your floors are shot, you can get some very nice self-stick vinyl square tiles that look like slate for around $1.00 each.

 

I know it may seem frivolous to you to spend the money on the kitchen, but I'll bet you could replace the cabinets, countertop, and range for less than $5,000, and even less than that if you choose the least expensive cabinets. You probably use your kitchen more than you use any other room in your home, so having a nice one is a HUGE morale booster, and it really doesn't have to cost a lot. If there's an Ikea near you, you'll be able to see a bunch of complete kitchen displays, as well as all of the cabinet, fixture, and countertop options. You will be amazed at how much less it will cost to re-do your kitchen than you're probably imagining! Ikea even sells very cool stainless steel-type backsplashes that come in big sheets that you cut to the size you need, and they are not pricey at all. (If your dh isn't handy, Ikea offers an installation service, and a friend of mine used it and said the installation was way cheaper than anywhere else she checked, and she was very happy with the service.)

 

Obviously, if your debt is absolutely huge, you won't want to overhaul the whole kitchen, but if there's any way you can manage it, I think you really deserve to do something special for yourself, Jean. You give so much of yourself to everyone else, and I really think a new kitchen would be so great for you.

[gardenmom5]

dh's background is banking, and even though he's out of it, he still watches rates like a hawk. He expects them to go up. (and rates are past the bottom already, although they are still pretty low)

so - how much is on the adjustable heloc?

what is the interest rate on the mortgage? (is it fixed? or arm?)

what is the interest rate on the car?

what is the interest rate you can get by investing it for college? (and what is your income for what kind of financial aid he'd qualify for?)

those are all questions that would enter into your equation.

 

I would take some to make the kitchen functional, because you do have to live with it - but I wouldn't use more than half of it. (and less if I could)

[Jean in Newcastle]

I can see what is going to be on my "tackle" list tomorrow. . . Ugh. I hate looking up financial information and running the numbers. Even if I did used to work for a bank. (Miserable job.) But having said that, I guess I'm pretty fortunate to have this "problem".

[Crimson Wife]

Replace stove as it sounds like it might be a safety hazard, then pay off HELOC. If there's anything left over, put it towards the car. Take what you were paying on the HELOC and put that towards the car. When you get the car paid off, I'd start saving for other things like kids' college and the kitchen renovation.

[Chris in VA]

I have very little financial experience, but I do know we use our home equity line of credit to pay for my son's college. It was cheaper interest than a student loan, and he didn't qualify for any other scholarship help (well, a tiny one, but not counting that). He had very little savings from his summer job, and we had about the same as you saved for college. If your interest rate on the Heloc is cheaper than a student loan, and you, too, plan on using it to pay for college, then I'd probably pay that down now so you have more $ for college.

I don't know what your expected contribution would be, either, or what financial aid you'd qualify for.

 

I'd definitely fix the light and the stove, tho.

 

How nice of that person!

[Mergath]

I'd fix the parts of the kitchen that could be dangerous before I'd do anything else. Then I'd probably pay of the HELOC. If there's money left after that, I'd finish the kitchen. Debt sucks, but so does having a kitchen falling apart around you that you have to cook three meals a day in.

[Punks in Ontario]

I'm another one for buying a new (or new to you) stove that's safe and will work consistently and doing something with the lights, then paying off debts. In the long run this will pay off with more $$$ freed up for other things such as the kitchen cupboards, newer vehicle and the ever present college fund.

 

I know it's not as fun as new cupboards, but hang in there. Historically, we still live so much better than just about any group in history - and in heaven hopefully we won't have kitchens. :hurray:

[SailorMom]

I voted for the kitchen - but with this caveat:

Fix what needs fixed - but that shouldn't cost $20,000.

A new range, new light, and resurface the front of the cabinets with new doors.

Then - pay off the HELOC :)

[Jean in Newcastle]

I like Wendy's vacation idea! But it wouldn't be responsible. Sigh. It's no fun at all being responsible! :D

[Shelly in IL]

I completely redid our kitchen - and it is a huge kitchen with eat in and large island - for $6,000. Now I did it from Craigslist, but it is seriously gorgeous! I got granite for $2,000 - included the sink - new, just off CL and it was cut to size, etc., Got all stainless steel appliances - a 48" SubZero fridge/freezer for $600 (about $10K new) - 10 years old, but they run forever, trash compactor, GE Cafe high end stove and microwave for $1300, Bosch Dishwasher - new from CL scratch and dent - no dents. Now we were able to repaint our cabinets, which sounds like not an option for you, but look at Ikea - they have really pretty inexpensive cabinets. Oh, also marble back splashes and a new pantry. Just to let you know what a little creativity can do. I frequently see kitchens that look like this to vote for on FB, the big, bright white one!

[Liz CA]

I voted for "Pay off HELOC", then save the money you used to pay monthly for that loan and start replacing items in the kitchen.

[jenn-]

I'd buy a new stove, as that one sounds dangerous. Then pay off the loan.

 

:iagree:

[LucyStoner]

There are ways to do a kitchen for a pretty low price by getting appliances used from Craigslist (many people round these parts buy a house with a new kitchen but then gut it and redo it to their tastes so their new or almost new appliances are on Craigslist), going to IKEA for cabinets etc. I would do what NEEDS doing in the kitchen and then focus on the HELOC. Normally I would wait on the kitchen but yours sounds like it needs some TLC.

[oceanseve]

You can pick up a stove for 400-500, pretty or fancy? No, but at least it works properly. Fix the doors on the cabinet with some new hardware or some new doors. together less than 1K gone. The rest goes to debt.

[walkermamaof4]

Do you have an active Craigslist in your area? We have an expensive, nice home, and have purchased all of our appliances off Craigslist at fabulous deals. I'd get the oven there and even see if you can get a deal on some used cabinets. We had red oak cabinets that we really didn't love. For a few thousand dollars, we had them washed an espresso color and now are very happy with them. A new kitchen would have cost at least 10x the amount we spend replacing appliances and doing the cabinets. Our glass stove top just broke and we got a new one, currently sold at Sears for $1250 installed, for $475 on craigslist. Hubby installed it in an hour.

 

So my vote is a small amount of money to improve the kitchen and the bulk to pay off the loan.

[walkermamaof4]

I agree too that if the college savings is in something you could use without penalty, I'd put that towards the loan too.

[JudoMom]

I'd pay of the HELOC and car if possible. Then save the money that had been going to payments and buy a stove ASAP, and then light fixtures (and a straight jacket to keep ds from raising his arms in the kitchen ;)). Then save for the remodel if you'd like.

[Jean in Newcastle]

The HELOC is bigger than the gift. I'm paying off as much as I can on the HELOC today. We can get one of those no interest deals on a new stove and pay it off in a year with no problem if we buy it from Sears. We will look on Craig's List etc. too. I just haven't gotten that far.