An unexpected windfall of money is a great opportunity to get ahead financially. Whether it's a larger than expected tax refund, a court settlement, or an inheritance, there are a wide range of options when deciding what to do with this surprise money. By choosing one or a combination of the following ideas, you will make the most out of your windfall and avoid going through it too frivolously or quickly. Here are three smart things to do with an unexpected windfall:
Pay off High Interest Debt
High interest debt, like credit cards or short-term loans, can eat away at all your extra money until they're paid off. The longer you have the debt, the more you end up paying in interest over time. A sudden windfall can be a great opportunity to get out from under the weight of unmanageable high interest debt. Even if you only pay off one credit card, you will have one fewer bill each month, freeing up that money for savings or to buy something you really want.
Sock it Away in a Money Market Account
Instead of stashing your extra money in a regular checking or savings account that pays very little interest, you can start a money market savings account. These accounts typically offer higher interest rates than a standard savings account, while also offering some of the flexibility of a checking account.
Money market accounts also require higher minimum balances than most savings accounts, and while they do allow check-cashing privileges, they limit the number of transactions you're allowed in a month. Because of this, they might not be practical as your main bank account but make a lot of sense if you want to protect and make the most of your windfall.
Invest Some of it in a CD
A Certificate of Deposit typically offers an even higher rate of return, one that increases the longer the length of the CD. CDs involve letting your money sit in an account and "mature" or accrue interest for a set amount of time, and you are not able to access the money until the term is up. CDs are a great option if you know you won't need the money before the CD matures, since early withdrawal incurs penalties that can wipe out whatever interest you earned.
By being deliberate and thoughtful in how you handle your windfall, you will be setting yourself up for financial success.
To set up a money market account, contact a business such as Rio Grande Credit Union.