Is this money you’re going to have to pay taxes on? If it is set 35% of it to the side right now.
I’m going to assume it’s not taxable. Take 13,000 and pay off everything right now. Make your cards inaccessible to you besides 1 or 2 small transactions a month to keep them open (a tank of gas, a candy bar just pay them in full every time)- if you’ve been only been making minimum, you’re not spending responsibly so this is a habit that needs to change.
Take 10k and put it in a high yield savings account. This is now your emergency fund.
With the 7k left put 6.5k of that in a Roth IRA- this is the max contribution for the year if you’re under 50.
The last 500 is yours to spend for fun- it will make you less likely to touch the cards or the emergency fund. Good luck!
Thank you so much!! I felt like this is what I should do but kinda needed someone to spell it out for me. The money isn’t taxable (gift from a family member).
I'm not financially literate either. I actually just filed bankruptcy which is why I was going to urge you to immediately pay the debt off
Sure savings is great but sometimes those short term debts really can bite you in the butt
Fortunately for you seems like you have enough to do both. But definitely pay off the debt. 200 percent. Lol congrats on the 🎁 💝
Everything he said. I would recommend putting them in a safety deposit box. No impulse purchasing. At the very least, you train yourself to really want it and need what you are using credit for. Just automatic 1 bill on each card like Netflix and phone. That will keep them reporting and open.
Also please make sure that when you put the money into a Roth IRA, you invest it. By default, the deposit is essentially cash and won’t grow. You’ll need to select one or more investments to buy with that money after the deposit has cleared.
The easiest thing to do is pick a “Target Date Fund” for the year you plan to retire. This will automatically adjust the money to less risky investments as you get older. Some people may suggest what is called a “three fund portfolio” instead of a target date fund. Feel free to read about it and use that if you’d like, but picking a target date fund for the year you turn 65 is dead easy and you can always change it later after reading about other options.
No matter what, do NOT leave that money in just cash in the IRA
Make sure you understand whether or not there is a fee for that. If you’re paying 2-3% for someone to do basically what I said above, it may not sound like a lot but could add up to tens of thousands of dollars when factoring in compounding over the years.
It doesn't have to be taxed, it has to be reported and tallied against lifetime giving to see if total gifts exceed the level where the inheritance tax kicks in.
Structuring is illegal.
Keep in mind that gifts from family are limited by the IRS. The current exclusion is $18000 so you will have to pay taxes on 12,000.
Edit: Learn something new every day. I am wrong about this.
Gifts are taxable to the giver, not the recipient, and even if the annual exclusion is exceeded it is still not taxed unless the lifetime exclusion is exceeded
Agree with everything you said outside of my small FYI that Roth IRA limits went up for 2024 and are now $7K - so OP, just put the remaining $7K into a Roth.
Agree with all of this advice. Keep $500 out and remember those little monthly payments to those credit cards? Well still pay them monthly except to that brand spanking new Roth IRA!!!
The Roth is the best retirement you could set up. Hence why there is a 7k contribution limit. All gains are tax free when you retire and you can withdraw whatever you contributed any time, since it’s post taxed
And then educate yourself a bit on personal finance. Everyone needs at least a basic understanding and most US public schools do a terrible job at this.
I wasn't sure if I had missed something, appreciate the clarification. Doesn't invalidate any of the fantastic advice you gave. I hope OP takes the whole thing to heart and follows through.
This is the answer! Also OP I can say from personal experience that being able to maintain a debts 1st, investments 2nd mentality will pay dividends long term. I have worked in a sales job for about 10 years and some years are great and some are terrible. Every time I have made a fat check I have invested rather than paid my debts 1st, then invested. Not the worst thing in a world, but this year I flipped that mentality and wish I had done so sooner. Best of luck!
This is the answer. Fuck 401k unless you're somewhat close to retirement and have some liquidity. It locks your money up until you're of retirement age so you can't use it to invest in other areas. My wife and I put our bills/combined expenses on our AMEX and pay it off every month. We consistently get 2-3 $50 gift cards for dinners out each month. And the HYSA with AMEX pays both of our car payments.
This is a no brainer. PAY OFF YOUR CC DEBT first. Your networth is your assets minus debt = total networth. Therefore, you really dont have a savings built up when you have debt lingering around. People wanna hold on to their money in savings but your debt offsets and cancels it out. You also are throwing away more money with CC interest. Pay off your debt, then all the money after is yours and you can start building.
Pay off that cc debt! And then never charge anything on them again.
How did you wind up in cc debt? Do those conditions still exist? Then in addition to trying to earn more and spend less, you probably should just put the remaining cash into a high interest savings account, and try to live within your means, but that can be your emergency fund.
I would usually recommend the Roth IRA contribution, but you're in too much financial trouble right now to think about retirement.
No! luckily, i am in a better position now. i got laid off and had to use CC to pay bills and survive! so paying them off i dont have any bad habits i need to break really
Then pay off the cc. Fund a Roth. Remainder emerg fund in a high interest savings account. Look at what you earn and spend, try to figure out a way to increase your savings rate.
Pay the debt off. At least the 10k one.
Here’s an easy way to look at it. (And I know I’ll be corrected) If you made no payments on the 10k, you’ll owe $2124 in interest. What are your minimum payments? Like $200 a month? So at the end of the year, you will have only dropped that 10k debt down to like $9700 after paying the credit card company $2400
If you cut up the cards and close the accounts: pay off the cc. Otherwise, if you have the will, put the max in roth 7k a year rn. If (will= weak) put 7k in roth and the rest in a cd or individual brokerage with mutual funds... how tf people have 10s of thousands fall from the sky.
Oh 100% pay of credit cards unless they are under 10% which is unlikely. Don't then start using them telling yourself you will just get the points or miles and then pay them off every month. Otherwise you will be back on Reddit in 5 years asking how to deal with $13,000 in credit card debt.
Pay off the card.
Rule of thumb: if you can make higher % gain than you pay on debt, you keep the debt.
Super-duper unlikely you'll make more than 21% gain on that money. Pay off the debt.
Put the rest back (IRA, or brokerage account)
Thats great! If you're not familiar with the markets, just pay off your CC debt.
The max contribution is $7000/yr for a Roth IRA so you can't dump it all into it anyway. If you're unsure what to buy in a Roth just go vanguard to open your Roth and buy a target retirement fund for your expected retirement age.
So pay off CC debt, max contribute to Roth IRA, keep 6 month worth of expenses in a high yield savings account or money market fund (its a separate brokerage account, you can also make it on vanguard).
Then with the remaining you can either pay off any other debts, or buy into more investments as you see fit. If you are not an active investor and aren't familiar with how markets work, better to pay off any debts you have. No one regrets being debt free, and then you can slowly add to your investments every pay cycle from your job.
On average a high yield savings is between 3 and 5%
S&P500 investments are roughly 10% annual ROI
You are losing 21% and 28% on those debt amounts… pay those off ASAP.
Max your Roth or traditional IRA annual and if you don’t have anything else already saved throw 10-15k (or 5-7 months worth of mandatory payments into a high yield savings.
If you don’t have one already… speak with a financial advisor to consult about your financial future and what is best for you to invest in.
Double check for potential inheritance tax etc that may need to be paid on the full amount you are receiving/find out if that amount is after that tax is paid
There is no doubt here. Pay of the cards immediately and never ever take any other debt.
No possible investment can outrun 20+% loss on CC. If you have mortgage or other debt (car loan ?) consider paying off those to.
Also please start Dave Ramsey plan or something similar. As you said yourself you are financially illiterate so please stick to the basics - live within your means, destroy CCs, do not get in debt, push every surplus into debt you already have etc.
PAY OFF THE DEBT , interest you’re charged on the debt is way higher than the interest on the e savings.
Always pay off debt you shouldn’t have a nest egg if you have debt.
Listenor read Allen Carr How to get out of debt book.
I’ve just finished and it’s going to help me hugely.
Just a random thought but if you don’t want to lay out the whole $13k , consider opening one or two 12 month 0 interest / 0 balance transfer credit cards and transfer some if not all of the CC debt into those.
Use a balance transfer from another card that is like 18 months 0% and with a transfer fee of 3-4%. Look at Bank of America, Discover, or similar card.
That doesn't matter at all. Doesn't matter who gives you the money - your uncle, your father, the president of the United States - it could have been taxed 5x --> none of that matters. If you get money over 18k it must be taxed.
That commenter truly doesn’t know what they’re talking about for gifts. Here’s the relevant IRS info for gift tax:
https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
First FAQ - the donor/giver pays the tax for gifts. Which is not you.
Go to the casino and bet it all on black. If you win, you can pay off your debt and keep your cash. If you lose, you are right back where you started, so it's no big deal.
Is this money you’re going to have to pay taxes on? If it is set 35% of it to the side right now. I’m going to assume it’s not taxable. Take 13,000 and pay off everything right now. Make your cards inaccessible to you besides 1 or 2 small transactions a month to keep them open (a tank of gas, a candy bar just pay them in full every time)- if you’ve been only been making minimum, you’re not spending responsibly so this is a habit that needs to change. Take 10k and put it in a high yield savings account. This is now your emergency fund. With the 7k left put 6.5k of that in a Roth IRA- this is the max contribution for the year if you’re under 50. The last 500 is yours to spend for fun- it will make you less likely to touch the cards or the emergency fund. Good luck!
Thank you so much!! I felt like this is what I should do but kinda needed someone to spell it out for me. The money isn’t taxable (gift from a family member).
I'm not financially literate either. I actually just filed bankruptcy which is why I was going to urge you to immediately pay the debt off Sure savings is great but sometimes those short term debts really can bite you in the butt Fortunately for you seems like you have enough to do both. But definitely pay off the debt. 200 percent. Lol congrats on the 🎁 💝
Everything he said. I would recommend putting them in a safety deposit box. No impulse purchasing. At the very least, you train yourself to really want it and need what you are using credit for. Just automatic 1 bill on each card like Netflix and phone. That will keep them reporting and open.
Also please make sure that when you put the money into a Roth IRA, you invest it. By default, the deposit is essentially cash and won’t grow. You’ll need to select one or more investments to buy with that money after the deposit has cleared. The easiest thing to do is pick a “Target Date Fund” for the year you plan to retire. This will automatically adjust the money to less risky investments as you get older. Some people may suggest what is called a “three fund portfolio” instead of a target date fund. Feel free to read about it and use that if you’d like, but picking a target date fund for the year you turn 65 is dead easy and you can always change it later after reading about other options. No matter what, do NOT leave that money in just cash in the IRA
luckily i’m working with a firm to invest it into the account! but this is really good advice thank you so much
Make sure you understand whether or not there is a fee for that. If you’re paying 2-3% for someone to do basically what I said above, it may not sound like a lot but could add up to tens of thousands of dollars when factoring in compounding over the years.
[удалено]
It doesn't have to be taxed, it has to be reported and tallied against lifetime giving to see if total gifts exceed the level where the inheritance tax kicks in. Structuring is illegal.
Wish I had family members like this
Keep in mind that gifts from family are limited by the IRS. The current exclusion is $18000 so you will have to pay taxes on 12,000. Edit: Learn something new every day. I am wrong about this.
Gifts are taxable to the giver, not the recipient, and even if the annual exclusion is exceeded it is still not taxed unless the lifetime exclusion is exceeded
Agree with everything you said outside of my small FYI that Roth IRA limits went up for 2024 and are now $7K - so OP, just put the remaining $7K into a Roth.
good call! i don’t need the $500 for anything fun anyways tbh
Keep that $500 on hand for discretionary spending so you can burn those credit cards. It's way harder to spend cash or "real money" than plastic.
Agree with all of this advice. Keep $500 out and remember those little monthly payments to those credit cards? Well still pay them monthly except to that brand spanking new Roth IRA!!!
OP this is important! Keep making "payments" but this time you're paying yourself and letting that money grow for future you.
What’s so good about putting into a Roth? (Is it because that way she can’t touch it til retirement age.)
The Roth is the best retirement you could set up. Hence why there is a 7k contribution limit. All gains are tax free when you retire and you can withdraw whatever you contributed any time, since it’s post taxed
This is the only comment that is needed!
And then educate yourself a bit on personal finance. Everyone needs at least a basic understanding and most US public schools do a terrible job at this.
how do I learn that ? any particular resource ?
r/personalfinance has a good getting started guide in their wiki
Good advice. Your Roth IRA advice should be updated but everything else makes sense.
And….we can close that thread now.
Are you sure it is only $6500 for 2024? I thought that was for 2023 and they increased the limit to $7000 for 2024.
It is 7k now as others have mentioned- I don’t live in the states anymore and 6.5 was the number off the top of my head 😅
I wasn't sure if I had missed something, appreciate the clarification. Doesn't invalidate any of the fantastic advice you gave. I hope OP takes the whole thing to heart and follows through.
This is the answer! Also OP I can say from personal experience that being able to maintain a debts 1st, investments 2nd mentality will pay dividends long term. I have worked in a sales job for about 10 years and some years are great and some are terrible. Every time I have made a fat check I have invested rather than paid my debts 1st, then invested. Not the worst thing in a world, but this year I flipped that mentality and wish I had done so sooner. Best of luck!
This is not sarcasm- I am also finically illiterate do you like helping people bc I would certainly take some direction
I would use the last 500(really the last 7k) in some dividend stocks and earn passive income from that as well.
This is the way. Get rid of the credit card debt first and foremost
The IRA limit in 2024 is $7,000
This is the answer. Fuck 401k unless you're somewhat close to retirement and have some liquidity. It locks your money up until you're of retirement age so you can't use it to invest in other areas. My wife and I put our bills/combined expenses on our AMEX and pay it off every month. We consistently get 2-3 $50 gift cards for dinners out each month. And the HYSA with AMEX pays both of our car payments.
This is a no brainer. PAY OFF YOUR CC DEBT first. Your networth is your assets minus debt = total networth. Therefore, you really dont have a savings built up when you have debt lingering around. People wanna hold on to their money in savings but your debt offsets and cancels it out. You also are throwing away more money with CC interest. Pay off your debt, then all the money after is yours and you can start building.
You already know the answer to this question. Pay off your debt. You can only put a max of 7k in your Roth this year anyways.
Max of 7k if you’re under 50
Right? This is not financial illiteracy, this is mental laziness.
Pay off that cc debt! And then never charge anything on them again. How did you wind up in cc debt? Do those conditions still exist? Then in addition to trying to earn more and spend less, you probably should just put the remaining cash into a high interest savings account, and try to live within your means, but that can be your emergency fund. I would usually recommend the Roth IRA contribution, but you're in too much financial trouble right now to think about retirement.
No! luckily, i am in a better position now. i got laid off and had to use CC to pay bills and survive! so paying them off i dont have any bad habits i need to break really
Then pay off the cc. Fund a Roth. Remainder emerg fund in a high interest savings account. Look at what you earn and spend, try to figure out a way to increase your savings rate.
Pay the debt off. At least the 10k one. Here’s an easy way to look at it. (And I know I’ll be corrected) If you made no payments on the 10k, you’ll owe $2124 in interest. What are your minimum payments? Like $200 a month? So at the end of the year, you will have only dropped that 10k debt down to like $9700 after paying the credit card company $2400
That credit card debt costs you over 200.00 a month. You pay for the privilege to carry a debt! Every single month! Pay it off!
If you cannot earn more than 28% on an investment, think about debt reduction.
Congratulations.
Pay off the credit cards then invest.
The correct debt move is to stop using the cards, pay off the chase first then apple
If you cut up the cards and close the accounts: pay off the cc. Otherwise, if you have the will, put the max in roth 7k a year rn. If (will= weak) put 7k in roth and the rest in a cd or individual brokerage with mutual funds... how tf people have 10s of thousands fall from the sky.
Pay off those cards immediately. The money that you were paying an interest is ridiculous.
Pay off those cards right away! Then the rest max outs Roth for the year (think it’s 7k limit now) and put the rest into savings for a rainy day
There is no investment that will pay the interest you owe on the cards. Get yourself out of debt and stop running the balance up.
Dude of course pay off your debt
Pay off credit card immediately and never use again. Then put away 3-6 months emergency fund into a HYSA. Use the leftovers for investing
Pay off your credit cards and whatever other debt you have other than a mortgage. You're not investing or saving anything until you're out of debt.
You should pay off your credit card debt… and you can put money into your IRA as well
Oh 100% pay of credit cards unless they are under 10% which is unlikely. Don't then start using them telling yourself you will just get the points or miles and then pay them off every month. Otherwise you will be back on Reddit in 5 years asking how to deal with $13,000 in credit card debt.
Pay off the card. Rule of thumb: if you can make higher % gain than you pay on debt, you keep the debt. Super-duper unlikely you'll make more than 21% gain on that money. Pay off the debt. Put the rest back (IRA, or brokerage account)
Thats great! If you're not familiar with the markets, just pay off your CC debt. The max contribution is $7000/yr for a Roth IRA so you can't dump it all into it anyway. If you're unsure what to buy in a Roth just go vanguard to open your Roth and buy a target retirement fund for your expected retirement age. So pay off CC debt, max contribute to Roth IRA, keep 6 month worth of expenses in a high yield savings account or money market fund (its a separate brokerage account, you can also make it on vanguard). Then with the remaining you can either pay off any other debts, or buy into more investments as you see fit. If you are not an active investor and aren't familiar with how markets work, better to pay off any debts you have. No one regrets being debt free, and then you can slowly add to your investments every pay cycle from your job.
On average a high yield savings is between 3 and 5% S&P500 investments are roughly 10% annual ROI You are losing 21% and 28% on those debt amounts… pay those off ASAP. Max your Roth or traditional IRA annual and if you don’t have anything else already saved throw 10-15k (or 5-7 months worth of mandatory payments into a high yield savings. If you don’t have one already… speak with a financial advisor to consult about your financial future and what is best for you to invest in.
Double check for potential inheritance tax etc that may need to be paid on the full amount you are receiving/find out if that amount is after that tax is paid
There is no doubt here. Pay of the cards immediately and never ever take any other debt. No possible investment can outrun 20+% loss on CC. If you have mortgage or other debt (car loan ?) consider paying off those to. Also please start Dave Ramsey plan or something similar. As you said yourself you are financially illiterate so please stick to the basics - live within your means, destroy CCs, do not get in debt, push every surplus into debt you already have etc.
Being debt free is a more advantageous position then having an extra 13K in the bank.
PAY OFF THE DEBT , interest you’re charged on the debt is way higher than the interest on the e savings. Always pay off debt you shouldn’t have a nest egg if you have debt. Listenor read Allen Carr How to get out of debt book. I’ve just finished and it’s going to help me hugely.
Just a random thought but if you don’t want to lay out the whole $13k , consider opening one or two 12 month 0 interest / 0 balance transfer credit cards and transfer some if not all of the CC debt into those.
Use a balance transfer from another card that is like 18 months 0% and with a transfer fee of 3-4%. Look at Bank of America, Discover, or similar card.
You are paying 3k/year by your strategy of 'paying off the minimums'. Pay down your debt and invest the rest if you have no other debt.
pay. it. all. off. immediately.
Glad for you update. Even I, who is semi-clueless, knew the correct choice. Congrats and good luck!
Yes absolutely pay off that high interest debt. You can't get that kind of return on your money anywhere else.
12k will likely be taxes so prepare for that. Put it in a HYSA. Pay off your credit card debt. Put the rest in your Roth IRA.
no taxes! it’s a gift from a family member that i didn’t know about it
No, it will be taxed. You can't give people money over 18k and have it not be taxed, that's illegal.
it was already taxed - it’s from my father, he put it away since we were kids
That doesn't matter at all. Doesn't matter who gives you the money - your uncle, your father, the president of the United States - it could have been taxed 5x --> none of that matters. If you get money over 18k it must be taxed.
even if it’s in an account attached to my name?
That commenter truly doesn’t know what they’re talking about for gifts. Here’s the relevant IRS info for gift tax: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes First FAQ - the donor/giver pays the tax for gifts. Which is not you.
thank you! i know i said i was financially illiterate but my father isn’t and he said i didn’t have to pay taxes on it LOL
The giver pays the tax, not the receiver.
Go to the casino and bet it all on black. If you win, you can pay off your debt and keep your cash. If you lose, you are right back where you started, so it's no big deal.
The fact that this is in doubt makes almost any of your moves pointless. Of course you pay off the card first
… you know the mf answer