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What to do with large lump sum?

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  • Avatar stingrey 
    Participant
    Status: Physician
    Posts: 3
    Joined: 01/24/2018

    Hi all, looking for some advice.

    Just received a lump sum of roughly $175,000 (after tax) and was trying to figure out what to do with it.

    Some background info:
    -$100k in student loan debt @ 4.5% interest
    -$20k in car loan @ 2.5% interest
    -maxed out 401k, 457b, backdoor Roth IRA
    -make about $400k/year
    -fully funded emergency fund

    I was looking into buying a place of about $500k in the next few months, but am planning on using a physician’s loan so shouldn’t need a large (if any) downpayment.

    Should I pay off the student loan immediately or use a large portion for a downpayment? Also, not sure if keeping the money on hand until I get the mortgage will help with interest rates. Or maybe having no debt would get me a better interest rate?

    Any advice would be much appreciated. Thanks!

     

    #239425 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2860
    Joined: 01/03/2017

    Pay off your student loans and car loans. After that, I would probably put the rest in taxable but you can always put it towards a home if you’re risk/debt averse. You should be getting a pretty good rate on a mortgage.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #239426 Reply
    Liked by wonka31, Peds
    xraygoggles xraygoggles 
    Participant
    Status: Physician
    Posts: 93
    Joined: 10/26/2018

    Not sure I would pay off the car loan. Student loan I would for sure at that rate.

    Save the remaining in munis until you decide what to do with it.

    “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

    #239428 Reply
    Liked by Peds
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 707
    Joined: 06/18/2018
    Earnest refinancing bonus

    Pay off your loans.

    Use the rest for a downpayment…’physician’ loans usually have a higher rate, that and buying a house with no downpayment generally isn’t the best idea.

    #239431 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4452
    Joined: 01/08/2016

    175 cash with 120 debt……..

    #239433 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2509
    Joined: 05/01/2017

    i’ll get you my standard answer:

    spend $120,200 today.

    that’s all of your debt plus the $200 bottle of champagne you should drink to celebrate such an awesome milestone.

    paying off relatively low interest debt rarely wins on the spreadsheets but it’s the right thing to do in your situation. if you get sick of being debt free you can always go get another car loan.

    #239434 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 617
    Joined: 08/30/2018

    Paying off the student debt at 4.5% is a given. I would probably also pay off the car loan just to be done with it, but don’t forget to make a plan so that you can pay for all your future cars in cash (set up some sort of dedicated savings, expect that is how you will spend bonuses, etc.) As for the remaining $50k or so, you will have closing costs as well as expenses to set up house, so don’t pour it all into the down payment.

    #239438 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6197
    Joined: 01/12/2016

    Pay off your loans.

    Use the rest for a downpayment…’physician’ loans usually have a higher rate, that and buying a house with no downpayment generally isn’t the best idea.

    Click to expand…

    Physician loans dont seem to be higher rate as a rule anymore. They are just marketed for our crowd now, which is smart. I’ve been getting amazing rates with all the perks (no pmi), etc…

    Agree no down payment isnt smart. At least 5-10% as a low end bottom, otherwise something happens and you leave in the next 3-5 years and you’re likely to have to pay at closing.

    #239440 Reply
    Avatar stingrey 
    Participant
    Status: Physician
    Posts: 3
    Joined: 01/24/2018

    awesome! Thanks for the advice everyone. Seems like there’s a consensus to at least pay off the student loans. I’ll take a look and see if the physician’s loan has a higher rate. Good point about the closing costs and such, it didn’t even cross my mind.

    Thanks again!

    #239527 Reply
    ACN ACN 
    Moderator
    Status: Physician
    Posts: 637
    Joined: 01/08/2016

    Our DR loan was 0% down, 0 PMI and the best rate available 3.6%.  There was no “better” interest rate with $$ down.

    I would pay off all the debt.  Put the rest in taxable.  Cash flow your mortgage and extra payments.  $50k won’t change your monthly payments substantially.

    If you're ever having a bad day, just remember in 1976 Ronald Wayne sold his 10% stake in Apple for $2,300.

    #239567 Reply

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