4

I am 57, will retire in 10 yrs. I have about $7000 from a matured CD. My 'portfolio' consists of a 401b with my job, no matching funds, worth about 25,000.

My house will be paid off in 8 yrs. I have a home equity line of credit at $18,000 right now. Both have interest rates below 5%. I have credit card debt of about $5000. No problems paying the bills, keeping CC debt low is imperative.

There are some home repairs necessary this year, what we can do ourselves is limited, so the equity line of credit may need to be accessed.

I am not savvy with investing in stocks on my own. I was hoping to invest the 7 grand. Would this be the best use of the money and what is the best way and/or place to do this?

Chris W. Rea
  • 31,999
  • 17
  • 103
  • 191
Marlene Contro Living
  • 41
  • 1

3 Answers3

12

"I have credit card debt of about $5000"

That's the answer right there. You told us the 401(b) has no match. The next highest priority would be credit card debt that's costing you interest. You didn't mention the rate on the card, I'm assuming it's 8% or more.

As far as your balance sheet (the 'bottom line') is concerned, pay off a 10% debt is the same as earning 10% on your money. If anyone promises you a higher return with a different investment, I'd run the other way. We hope the market, i.e. the US stock market, as measured by a broad index, say the S&P 500, will return 8-10%/yr over the long term, but this isn't guaranteed. Paying off that credit card will save you the interest every year, and free up the payments to invest elsewhere.

In response to Marlene's comment - Crazy? No. Human nature and emotion is what it is. I honestly don't know how to address some of it. Years ago, I was in a similar situation with a reader who had a $5000 'emergency' account, yet had $5000 in credit card debt. I had a tough time getting my head around why it wasn't obvious this made no sense. In your case, I might suggest you pay the card down to below $1000 and have the credit line reduced. Paying high interest on $5K makes no sense at any point in one's life. At least a 20-something can dig his way out and learn a lesson. A pre-retiree shouldn't be throwing this money away.

JoeTaxpayer
  • 172,694
  • 34
  • 299
  • 561
3

Pay off the credit card, tear it up and never get another one. The rest of the money I would add to your emergency fund/save for the anticipated home repairs.

Kevin
  • 2,602
  • 18
  • 21
2

Investing the money is only wise if the return on the investment outpaces your highest interest debt. Otherwise, you are making less than is going out. Given that you are in your late 50's, High risk investments are probably a poor idea.

If you're truly worried about having enough to retire, I would take 15% of that money and put it toward your emergency fund. Then the rest I would use to pay down your highest interest credit line.

You are short on funds right now so I would avoid using the HELOC. Your HELOC is available now, but if times get tight, the bank can decide to freeze your credit line. Instead, if you need a line of credit, look into a personal line of credit. The interest rate wont be as good as your HELOC but it's more stable.

If you haven't already, I would pickup "The Richest Man in Babylon". Read the lessons in it and see if you can use the tools it provides to tighten your situation up. The lessons mostly apply to people in the first half of life, but they are fundamentals regardless. Good Luck!

(Information on the HELOC was stolen from Jasper's answer here... HELOC with no first mortgage (for liquidity--no plans to spend it) )

Community
  • 1
DotNetRussell
  • 2,964
  • 21
  • 35