An inheritance and plenty of uncertainty

Question: I will receive $25,000 in the next couple weeks from the sale of my mom's house. She died suddenly of a brain aneurysm last spring, at age 58. I am asking for advice on how to invest this small windfall. (I also received another $10,000 from her life insurance last year and used that to pay down a personal bank loan of $6k and credit card debt.) 

Here are my stats: I'm 36 and went back to college in 2010 to finish my first degree (I had worked in insurance and kept hitting income/advancement ceilings due to not having a degree.) As of May, I will graduate with $45,000 of loans. I have $7,000 in credit card debt and own a house with a $130,000 left on the mortgage. I do have $10,000 in a 401k at a previous employer and I also inherited her 2009 car, so I have no car payment. 

I realize paying down debt is the fastest return on the money, but I feel like I don't want to just sink this money entirely into student loans, which have a low interest rate. My plan is to pay off the credit card debt and create a small emergency fund. This will leave around $15,000. Would it work to place some of it in longer term investments or just completely add the money to my debt? 

To add complication to the situation. I am studying graphic design and the firms I am in touch with all say they have increased hiring and the future looks good for this career. However, there is the option that I may want to free-lance or split off on my own in two to four years and could use a cushion to help as a startup. Thank you for any advice or information. Jamie, Eden Prairie, MN 

Answer: I'm sorry to hear about your Mom. My reaction to your money question is you have a lot going on and there's a lot of uncertainty about what you'll be doing over the next few years. For now I would anchor your home finances and all your uncertainty by parking the money in a safe place for savings, such as an FDIC-insured online savings accounts, a federally insured credit union account, and the like. 

I agree with you that should eliminate the credit card debt--with a critical caveat. Before you tap your new savings to pay it off in full you want to be sure you won’t run up debt again. What you want to avoid is the credit card debt rollercoaster. It's when tap savings to get rid of the debt only to allow the balance to grow again after enjoying a few months of financial relief. I've seen it happen over and over again. So, look at why you have as much credit card debt as you do and figure out concretely how you plan to avoid it in coming years before eliminating it. 

You're getting your degree soon. I'm assuming it will open up better earnings and career opportunities for you in the graphic design field. It's good to hear the messge from employers is that hiring is up, but I would stay cautious until your have a paycheck coming your way. The savings is a nice cushion while you settle into a new job and career and, at that point, you can get aggressive about the student loan debt. Until then, the savings offers you both a safety net and financial flexibility over the next several years.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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