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Ask Dave

Be Tightfisted Until the Crisis Is Over

Kristen is receiving a $38,000 inheritance. She has $25,000 in debt left to pay off. Should she pay off the debt with the inheritance or hold on to the money in case her husband needs back surgery?

QUESTION: Kristen in Minnesota is calling because her husband recently had to quit his job due to an old back injury. Kristen is receiving a $38,000 inheritance. They have $25,000 in debt left to pay off. Should they pay off the debt with the inheritance or hold on to the money in case her husband needs back surgery?

ANSWER: You keep it piled high. You’re in the middle of an emergency. While you’re in the middle of an emergency, you push pause on your Total Money Makeover, which means you would not pay extra on your debts. You may need the money. The surgery is a possibility. There are other things you’re facing.

The day he goes back to work and life is stabilized, you push play again and what money is left in that account is used to pay off debt that day, and you’re debt-free. Today, we don’t want to be debt-free only to turn around and go back into debt if he doesn’t get a job for two years or something. Obviously, that can’t be an option because this is not enough money to carry you two years.

Let me warn you about something in the middle of all of this—not as a corrective thing but just as having observed this kind of thing over the years. Thirty-eight thousand is a wonderful gift, and if somebody hands it to me, I’ll cash the check. Don’t misunderstand. But it’s not $3.8 million. It won’t last very long. If you’ve never gotten a lump-sum check that size before, you could get a false sense of security from it, and it’s not enough money to get much security from it. It’s maybe enough to keep the wolf away from the door for a little while as you transition in this situation.

If I were his big brother, I’d put my arm around him and say, “Let’s get this back thing fixed so we can get you back to work, because $38,000 isn’t squat.” You see what I’m saying? I don’t mean that to be a putdown in any way. I’m not saying he’s not willing to work or wanting to work or anything like that. I just don’t want this little nest egg here to give him permission to not deal with what he’s got to deal with here in his career transition.

I think you’re right to spend it on education and to hold it for an emergency—as opposed to paying it down on the debt—until we get life stabilized again. By that, I mean career track.