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Use a windfall to pay off loans, build wealth

[Oct 29, 2010.]

 

Are you getting a bonus at work? Maybe you entered a contest and actually won a sizable amount of cash? Or maybe you just got married and received a boatload of cash gifts. Whenever you receive a financial windfall, don't blow it all on frivolous purchases if you have a lot of debt from personal loans, credit cards, or other bills.

Pay down personal loans

Even if you've managed to keep up with personal loan payments it's a good idea to put your windfall toward wiping out this debt. Freeing up the money you currently put toward a loan or credit card can help you reach other financial goals. If the windfall is large enough to completely wipe out a loan, put the money you would normally pay on it each month toward another debt. Each time you pay off a credit card or loan, roll over the amount of the payments you were making into the next debt. This can help you pay off bills much quicker.

Build wealth

Once you've paid off loans and other debt, you'll have more cash to put toward building up your savings. First, it's important to establish an emergency fund that can pay for at least six to nine months of living expenses. However, the real key to building wealth is socking away as much money as possible at the best rate of return you can find. Getting stuck in a constant cycle of taking out short-term loans and struggling to pay them off can keep you from accumulating wealth. Once you're debt free you can fund retirement and college accounts.

Should you pay off a mortgage loan?

Paying off a loan today with a financial windfall can put the steps in place for you to have a brighter future. Once you've begun to accumulate various savings and investment accounts and are on your way to having a higher net worth, you may want to look at escalating payments on a mortgage loan. Paying off a home loan can give you an even greater sense of financial peace.

Set your goals

The bottom line is that the decisions you make each an every day have the power to impact your future. Using a windfall to pay off just one of your loans can put you on the path to financial wellness so that you can build wealth. Write down your financial goals and start working on a plan to reach them.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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