help me feel better about money
May 1, 2022 10:53 AM   Subscribe

I live in a low COL area and make the same salary as I was making when I lived in high COL NYC Metro and was working in Manhattan. But I have credit card debt from college. I recently inherited a chunk of money. I'm feeling weird about things. Help me understand why and maybe reassure me I am doing the right thing with these factors.

My mortgage is less than half of what it was when we lived in NYC Metro.

I had $23K in credit card debt - because in college I was a dumbass, got a credit card, didn't understand how it worked, thought WOOOO FREE MONEY! and then dug myself into a hole - that plus some emergency situations (car being totaled, high medical expenses) over the last 15 years meant I was never able to pay it down, even with paying significantly above the minimum amount each month and hardly using the card.

My aunt died of COVID-19 last year and I inherited around $70K that she left for me. I also have about $17K in savings. We are looking to redo our kitchen and upstairs bathroom.

My boyfriend just gently pointed out that I was a dumbass for not paying off the credit card with the inheritance. Around $200 in interest every month. I see his point. So I did it.

My credit score will benefit greatly. Yay.

But something in me crumpled when I saw the savings account where I've stashed the inheritance dwindle by that much. What if we run into huge problems with the home renovation? What if one of us gets very sick? What if one of us loses our job?

What if what if what if.

Rationally I know this was likely the right thing to do. That credit card debt was looming over me when we bought our house, when I financed a replacement car last fall. $200 a month in interest is dumb. I've been carrying that debt since college because college me was dumb. I'm pushing 40. I don't have student loans to pay down, my dad paid my way 100%. There is no reason to carry such debt. None.

But that inheritance bank balance shrinking literally makes me want to crawl into a hole and I don't know why I am having such a strong emotional reaction to this.

I was very financially secure as a child. I found a job in fall of 2020 so I was only COVID-unemployed from April-October 2020. I spent some money to promote my record release in January to compensate my publicist, album art creator, and my band, but in total it was nothing to write home about. I don't buy random shit on Amazon. We avoid takeout. And the combination of the low COL where we are now and my salary puts me in a good place. Boyfriend just got a raise at his job too.

What with all of this I have no idea why my instinct is to hoard money, especially when carrying $23K in unnecessary credit card debt directly contradicts that philosophy. Why does having liquid cash mean more to me than erasing my debt? Now that I've paid down the credit card my only debt is my cheap mortgage and my car payment. This is good. Why is my brain freaking out?
posted by nayantara to Work & Money (24 answers total) 8 users marked this as a favorite
Best answer: Can you start saving to build back up your savings balance?

Some people need to deal with larger feelings around money, some people need to look at the facts. Does it help to calculate how much money you would be wasting on interest long term?

I have a spreadsheet where I calculate my current net worth for exactly this reason. Paying off debts with savings means my net worth stays the same. If you are projecting your earnings into the future at all, they will actually increase because you’re not wasting money on interest (unless you’re dumping high interest savings/returns for low interest debts, which does not sound like it is the case here). Helps me psychologically to do the right thing.
posted by stoneandstar at 11:07 AM on May 1 [8 favorites]

My situation is fairly similar. What's made me feel better is starting (around 40) to save money in retirement vehicles, 401k first, then IRA. I don't feel 100% but I am in a much better situation now than I was when I was 40 and that makes me feel somewhat better. And I feel like I have some measure of control over future finances, instead of no savings. That helps. One piece of advice that I wish I had taken at your age is, don't refinance the house. We refinanced a bunch of times and guess what... you're always 25-30 years away from paying it off if you do that. So my advice is, do keep some savings, if it's already committed, then focus on building up 3-6 months of living expenses, and then start saving for retirement. Pay down that mortgage, even if your property value skyrockets. Good luck!
posted by happy_cat at 11:12 AM on May 1

Best answer: I guess this advice boils down to: you are repeatedly staring at the only number (savings balance) that makes this look negative. Start looking at numbers (pretty much all the meaningful ones) that make it look positive.
posted by stoneandstar at 11:13 AM on May 1 [18 favorites]

Best answer: I had about $15K in credit card debt that I was finally able to pay off a few years ago. My salary jumped significantly last year and I’m starting to build up my savings.

I feel bad about not having more in savings but my experience has been that with the money that I make now, I may need to put an emergency expense on a credit card, but now I can pay it off almost immediately. Before, it would take me months or years to pay off those kinds of expenses.

I don’t know if this was or has been your experience, but it’s helped me personally feel better about things.
posted by anotheraccount at 11:13 AM on May 1 [1 favorite]

Best answer: Ugh, I have had these feelings and they are the worst because they are so irrational. The math that made me feel better was focusing on putting that monthly interest payment and credit card payment right into my savings, instead of literally setting fire to it every month.
posted by merriment at 11:17 AM on May 1 [3 favorites]

Best answer: At the very least put that $200. a month you were paying on the credit card into some sort of savings or retirement account. I think it will feel like a symbolic and potentially freeing gesture to you.
posted by mareli at 11:19 AM on May 1 [17 favorites]

Best answer: I understand how seeing a chunk of money suddenly get smaller feels bad. But for what it’s worth I would have paid off the debt immediately too.

What if something else goes wrong? If it does, you’ll get a line of credit so you can solve the next problem with less interest!
posted by nouvelle-personne at 11:22 AM on May 1 [7 favorites]

Credit card debt is the worst.

Pay those off. Pay off your credit card payment fully every month.

Put what you can in safe investments. No-Load index funds are solid. Doesn’t matter how much monthly. Appreciation will be your friend.
posted by Windopaene at 11:38 AM on May 1

Best answer: My similar experience (paying off stupidly acquired debt with money I’d much, much rather have used for any other purpose) effectively made me allergic to new consumer debt. After feeling that way, I resolved to never have to do that again, which has been an enormous net positive in my life.

More importantly, not having debt to service has allowed me to save money and establish a relatively firm financial footing. Debt just absolutely murders your ability to build financial stability.

Also - if something does go wrong, you know what will help a bunch? Not having a chunk of debt hanging over you!
posted by Happy Dave at 11:56 AM on May 1 [14 favorites]

Whoever invented credit cards was both extremely genius and extremely evil. Your response to paying off your credit card and no longer having credit card debt reminds me of Stockholm syndrome. (The emotional response that happens to some abuse and hostage victims when they have positive feelings toward an abuser or captor.)

What if we run into huge problems with the home renovation? What if one of us gets very sick? What if one of us loses our job? Then just use the dang credit card to pay for things! Worst that can happen is it puts you right back where you started: $23,000 in debt ... ta-da! (Besides, you still have $47,000 left even after paying off the credit card. That's significant.) In the meantime, for sure invest the newly available $200 per month into a savings method that is easily accessible and earns interest in a way that is not too risky.

p.s. We were all young once. Your aunt understands that you made some questionable choices that put you into credit card debt when you were in college. She's okay with you using her gift to help amend this.
posted by SageTrail at 12:02 PM on May 1 [4 favorites]

Something that might help is to plug in how much interest you would pay over the next 5 or ten years if you didn’t just pay it off like you did.

You can also take the amount you were paying into the CC debt every month and transfer it into a special savings account. It won’t take long for that account to grow into real money- money that would otherwise just be gone.
posted by rockindata at 12:03 PM on May 1 [1 favorite]

Best answer: You are looking at the wrong number. You were paying $200 a month in interest, or $2400 per year. For approx 18 years. So you paid $43,200 in interest for whatever it was you bought in college. (That is assuming the interest was never more than $200 per month, even though in the beginning it was probably higher.) That $43,200 is gone. You will never get it back. At least, however, you are not adding $200 a month to that pile of lost money.
posted by KayQuestions at 12:08 PM on May 1 [8 favorites]

Best answer: Sign up for mint and connect all your accounts. This way you can have a single net worth number that reflects both assets and liabilities, instead of looking at numbers one at a time and being tricked into thinking you actually had the full 70,000.
posted by hermanubis at 12:40 PM on May 1 [6 favorites]

You own your own home. If you ever need to access a big pile of money, you can take out a home-equity loan at a much lower interest rate than your credit card was at and (I'm guessing) at a lower interest rate than if you were still carrying that credit-card debt. Admittedly this will take longer than just swiping a credit card, but it is an option.

If you want to feel smart and (more importantly) be smart, set up an index-fund retirement account and start sweeping that $200/mo into it automatically. You were getting by without that money anyhow. Or make it more—you can put up to $7000/yr in a Roth IRA. Just pretend it doesn't exist until you retire.
posted by adamrice at 12:51 PM on May 1 [2 favorites]

Best answer: Plenty of answers have mentioned retirement savings as advice, but I guess I want to spin this more as a theory - are you stressed out about retirement? I know I, also approaching my 40s, find the prospect of retirement pretty stressful (and likely beyond my reach).

If this is the case, I'd suggest meeting with a financial planner to go over your current spending and long-term goals - they can tell you whether you're on track, and if not, advise you how to get on track.
posted by coffeecat at 12:57 PM on May 1 [2 favorites]

I can relate to odd feelings about account balances. It feels strange to look at a much lower savings account balance because I transferred money into my investment account and invested it. So it’s still there, still mine, but the balance is in another app … I am seriously considering transferring the investment account to my bank to avoid that. Mint is not an option where I live….

Nthing everybody who recommended you take whatever your monthly payment was and save it. That’ll maximise your benefits from setting the cc debt. Not only have you stopped paying interest on stuff you bought 20 years ago. You are also not increasing your spending in response to more liquidity.

In addition, what are you doing with the money you’re no longer spending due to the lower COL? If the previous COL left you with no funds for simple pleasures in life clearly keep some now. One of the nice things about middle age and being a bit more established and secure is that you are allowed some treats. But do try to save some of the COL difference. The same for pay rises.

Structure your savings so that some is earning you long term returns for retirement and some is very liquid and accessible for those emergencies.
posted by koahiatamadl at 1:16 PM on May 1

Best answer: You did the right thing! I think just about any financial planner would tell you to make sure you have some emergency money in cash and then to get rid of high interest debt. And you did it, even though it felt wrong and terrible. Good job!

What if we run into huge problems with the home renovation? What if one of us gets very sick? What if one of us loses our job?

You'll use a credit card and then pay it off, but starting from a zero balance.

When you were looking at your bank balance, you were only looking at once thing: positive savings. When you paid off your credit card, you didn't get the little joy buzz of seeing the negative balance going away. Try writing out the positive and negative numbers, maybe even in color, so you can see it all at once.

Also, let's talk about this:
in college I was a dumbass
$200 a month in interest is dumb
college me was dumb

Why is my brain freaking out?
You're now 40. Have you been beating yourself up for almost two decades about some financial choices you made in college? It sounds like you got a credit card without really understanding how it worked and then spent a bit too much. Is that because you were dumb? Or is that because credit card companies prey on naïve young adults and try to trap you into this exact situation by extending you way more credit than a young person without much income should have? I remember hearing in college that you should get a credit card before you graduate because it's much easier to get your first credit card as a student. That's because credit card companies want you to spend too much!

Also, you had some truly urgent situations around medical needs and other things. Is that because you were dumb or because our country has sucky health care and dangerous car infrastructure that can leave us broke and injured without a lot of options?

Hear me out, here. I think maybe your brain is freaking out because you are so accustomed to beating yourself up about that debt that it's become your penance. Each month you paid your mostly-interest-payment and thought terrible things about yourself as a form of self-flagellation. I think maybe your brain is freaking out because thinking bad things about yourself has become a habit and has become way too comfortable. Maybe I'm totally off, but you said bad things about yourself so many times in your question when lots of us make poor financial choices with credit cards when we are young.

So maybe it's time to forgive yourself for what happened in college and do the work to begin to think about yourself a bit more positively. If your question reflects your self-talk, then I think it's time to work to change your self-talk. Even if you don't believe it, start to say to yourself, "with good financial decisions, a move to a lower cost of living area, and a small inheritance from my aunt, I was able to pay off some old debt and gain some more financial security. I made good choices." Or something like that.

I do think it would be good to talk to a financial planner. And maybe also a therapist! Good luck, and congratulations on your new path ahead.
posted by bluedaisy at 1:23 PM on May 1 [6 favorites]

Response by poster: I am very much worried about retirement, coffeecat. From 2015-2020 I was under employed (and during those early months of COVID completely unemployed). In prior jobs I'd been contributing to a 401K at work but I wasn't able to do that for that 5 year gap. Oh so, from 2012-2013 I was unemployed due to the recession so nothing there either. Only just started re- contributing last year. It sounds like we're in that same older millennial bracket - you know, the one where the joke about us (among many) is that we'll never be able to retire? Couple this with my dad officially retiring this year (at 72 years old) and him having worked in finance continuously for the last 36 years and being very, very comfortable such that after consulting with a financial advisor he learned he can maintain more or less his current pre-retirement standard of living UNTIL HE IS 90. AND he lives in probably the highest COL area in the country.

So yeah - I think maybe there was a part of me hoping that after we finished the home reno stuff I could put the remaining inheritance balance in my IRA where I've rolled over all of my previous 401K money from past employers. Not that it would have made a negligible difference - I don't have a whole lot in there to begin with.
posted by nayantara at 1:26 PM on May 1 [1 favorite]

Why is my brain freaking out?


It will pass.
posted by Lyn Never at 4:21 PM on May 1

Hi Nayantara!

I know you have a lot of anxiety around this, and I always do too. You had $70K, and now it's gone. I have some advice for you.

Look at this post on the blue: It links to a long spreadsheet that tells you, "if you gain an unexpected windfall, where should it go?"

The great news is, that the first thing you're supposed to do after paying bills (and 401k match, but, ah well) is pay down high interest debt (10% or higher). You just did that! In fact, most credit cards have like, 15% interest rates, so I'm sure you did even better.

So, you did a good first step. But... the next step is to GET RID OF THE REST OF THAT MONEY. The worst thing you could do with your remaining $45K is to leave it in a bank account, getting 0.02% interest, while inflation is 7% every year. You can't just "deposit" the money into an IRA, there are contribution limits (usually $6k/year) and they have income cutoffs. So, you'd hypothetically want to either put it into a non-IRA brokerage account, or pay off any other debt you have with it (student loans above 5%).

What if we get sick/home reno's get more expensive?

With all of your anxiety about money, it doesn't make a ton of sense to buy spendy home reno's. I would recommend DIY work. Home reno's are for people that are already maxxing out their 401k contributions (20k/year).

If someone gets sick? That's what emergency funds are for. Keep at least 3 months salary in either a savings or rapidly-accessible investment account for if someone loses a job/gets sick. Anything in excess of that and your monthly spending budgets should ideally be thrown in your investment account!
posted by bbqturtle at 5:54 AM on May 2 [1 favorite]

Home reno's are for people that are already maxxing out their 401k contributions (20k/year).

It really depends on your housing market, the rate homes are currently appreciating at, and what you expect to happen in the future. In LA for example, there is no way the median home owner is increasing their salary (and probably not their retirement accounts) at the same rate homes are appreciating at. So spending your money on a kitchen upgrade makes a lot of sense in places like that.

But OP lives in a low COL area, so it could be housing appreciation is lower, so retirement accounts could be better investments that your home.

Also: you may live in a low COL area with a decent salary, but COL is across an entire metro, most things cost pretty similar amounts (housing is the main difference) and there will still be plenty of people there with more money than you, given the amounts you are mentioning in your post. So you need to let that anxiety go.
posted by The_Vegetables at 7:46 AM on May 2

The financial value you retain from home renovations isn't really related to the amount that houses appreciate. Appreciation should be for a like-house. Usually renovations aren't cost effective, something like 10%-50% of spend on renovations are captured in the home's value, but it really depends on the market and competition.

Then why ever do them? There's flipping a house, which OP isn't doing, and there's doing it to improve your current lifestyle.

And - it's a huge luxury to pay. People that spend on a new extension to their house that costs $80K could take a $8K europe vacation each year for ten years. It's a luxury... and (in my opinion, obviously) luxuries like spendy vacations and home renovations happen after your 401K is maxxed.
posted by bbqturtle at 11:47 AM on May 2 [1 favorite]

I don't see anyone else mention this but just spit balling, I wonder if the high emotion is some irrational conflation of the lump sum with your connection to this aunt? Paying down the debt = smaller balance but also = sending away your connection to her? She must have cared for you if she left you that money. Did you grieve for that loss? Could some grief be squeaking out in this context, in a roundabout fashion?
posted by crunchy potato at 3:37 PM on May 3 [1 favorite]

What if we run into huge problems with the home renovation? What if one of us gets very sick? What if one of us loses our job?

Then you can run the credit card back up. In the interim, you're not paying interest.
posted by Jacqueline at 5:09 AM on May 6

« Older Software/app to transcribe music from digital...   |   I want to move my Mac Home folder to an external... Newer »

You are not logged in, either login or create an account to post comments