Ask Money

Okay to pay off debts

Chris Farrell Feb 24, 2011

Question: I just love the wisdom I hear in your show. I am 62 and recently been blessed with an inheritance from my mother. Altogether I am about 122,000 in debt. This would cover credit, mortgage, car and home equity loan. All could be paid off with about 30,000 to spare. I will work another 4 years and have access to a state deferred comp plan which I am currently in.

I have almost no savings as I was working on a 5 year plan to pay off debt. I planned on living on a pension and social security after my retirement. I would love to hear if my plan to pay off all debt, invest the money I would have used paying credit, mortgage etc into my deferred comp plan is sound or should I be thinking in other directions. The 30 grand would be emergency fund. Thanks so much, hope this question will catch your eye and take pity on a not financially savvy, looking forward to retirement nurse. Thanks Mary, Syracuse, NY

Answer: I’m glad you enjoy the show. It’s always wonderful to hear. Now, there’s nothing wrong with your thinking. (You’re plenty savvy.) I’m a big believer that most people should be debt free in retirement. Without debt you’ll enjoy the security of a steady income and a measure of financial freedom with payments from your pension and Social Security. I just want to raise one additional thought. See what you think.

Do you think that $30,000 is enough of a financial cushion? What you don’t want to happen is to take the inheritance and become debt free only to end up borrowing in a few years. If you’re concerned about this possibility you could eliminate your debt in two stages.

First, get rid of the credit card debt, the home equity loan and the auto loan. But keep the mortgage on the home and, therefore, a larger emergency fund. See how things go. Get comfortable with your new money circumstances. If everything seems okay you can then eliminate the mortgage.

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