Smart Money Podcast: How to Choose Between Paying Debt and Investing After a Windfall

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Learn from others’ missteps in our new segment, “My Favorite Financial Mistake.” Plus: balancing paying debt vs. saving.

This Week in Your Money: What can you learn from making financial mistakes? Should you save and invest or pay off debt when you get a financial windfall? Hosts Sean Pyles and Sara Rathner, along with their new co-host Elizabeth Ayoola, discuss turning financial blunders into learning opportunities to help you set up for future financial success. They begin with a candid discussion about their personal financial missteps, offering insights on mental accounting, the perils of emotional spending, and the importance of maintaining flexibility in your financial planning.

Then, Adam, a Colorado firefighter, joins Sean and Sara to discuss cash windfalls and long-term planning. They delve into the intricacies of choosing between paying off debt and investing in a 529 college savings plan, the merits of a zero percent APR balance transfer, and the joy of spending on memorable family experiences. They also explore long-term financial goals and the art of balancing immediate financial needs with future planning. They highlight the benefits of starting an emergency fund with modest contributions, the strategy of tackling high-interest credit card debt while saving, and the value of investing in life experiences.

Check out this episode on your favorite podcast platform, including:

• Apple Podcasts

• Spotify

NerdWallet stories related to this episode:

11 Big Tax Mistakes to Avoid

529 Plan Rules and Contribution Limits

Just Starting Out? Learn From Our Mistakes

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

This transcript was generated from podcast audio by an AI tool.

Sean Pyles:

Sometimes you have to learn your lessons the hard way, and this episode we’ll explore the good that can come from some of our worst moments. Welcome to NerdWallet's Smart Money Podcast. Our job today is to help you be smarter with your finances, one money question at a time. I'm Sean Pyles.

Sara Rathner:

And I'm Sara Rathner. So listener, like Sean said, this show is all about your money questions. Whatever financial decision you're pondering or mistake you're worried about, let us know. This episode, Sean and I talk with a listener about how they should use a windfall, pay off some credit card debt or invest for their kids' college education.

Sean Pyles:

But before we get into that, we are dredging up our messy financial histories for a new segment that we're calling My Favorite Financial Mistake. In this segment, we're going to share some of our financial missteps from the past and what we learned from them.

Sara Rathner:

And listener, we want to hear your favorite financial mistake too. Leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or you can email it to [email protected]. The goal is that by sharing our money mistakes, we can take away some of those feelings of financial shame. And who knows? You might just help someone else avoid the same mistakes you made.

Sean Pyles:

Yep. And we are joined in this segment by our new co-host, Elizabeth Ayoola. Elizabeth has covered investing and personal finance at NerdWallet for a few years now, and she most recently hosted our series on Smart Money about self-employed finances. Elizabeth, welcome.

Elizabeth Ayoola:

Hey, guys. Thanks for proving that three is not a crowd. I am always writing about money, so I'm excited to actually be talking about it more now.

Sara Rathner:

And we are so excited to have you join us in the hosting seat, or really seats because we are all located in different cities, so we all have our own respective chairs.

Sean Pyles:

Yes. Well, Elizabeth, since you are the newcomer here, let's start with you. What is your favorite financial mistake?

Elizabeth Ayoola:

I'm sorry to break it to you, Sean, but none of them are my favorites.

Sean Pyles:

That's fair.

Elizabeth Ayoola:

I'm happy to share a financial mistake though. So one that comes to mind is pretty recent, and it is a mental accounting mistake that I made. For everyone who is like, "What is mental accounting?" It's a term that I learned in a finance course I'm taking, which basically says that sometimes when people have money in different buckets and they set it aside for specific things, they would actually rather make a not-so-smart financial decision than use the money for something else. I'm going to use myself as an exhibit A here.

Sean Pyles:

Yeah. Mental accounting happens when people place subjective value on different categories of money. The girl math meme that we saw a lot over the past few months is a good example of this. If you get a refund for something that you returned, people might feel like that is just free money and can be spent however they want. Or sometimes I personally feel like cash is not real money because the dollars have already left my bank account.

Elizabeth Ayoola:

Oh, I've not heard that one before, Sean. I got to start using that.

Sean Pyles:

It's not a good one. Do not take that from me.

Elizabeth Ayoola:

Yeah, okay, so exactly. Thanks for explaining that, Sean. So for my short story, I had a stint during the holidays where I was overspending on my credit card. So what happened is I kept having to withdraw money from my savings to clear my balances because I didn't want to get charged interest. And at one point, I was like, "Enough is enough, Elizabeth." I got mad at myself and I was like, "You're going to have to suffer the consequences of your actions. And what that means is your balance is going to stay high and you're not allowed to take any more money from your emergency fund." Well, I did punish myself because my credit score dropped that month and that was so unnecessary. What I actually should have done is just clear the balance and then revisited my budget and got to the bottom of why I kept overspending.

I have finally done that and I explored the underlying issue and honestly, I was emotional buying. And I mean, I was buying for every emotion, happiness, sadness, joy, anger, I was buying. So now we're back on track though. Point of my long-winded story? Just because money is earmarked for something, it doesn't mean it can't be used for something else, especially if it makes more financial sense to use it for something else. Don't be rigid like Elizabeth.

Sara Rathner:

That is so true. Flexibility is one of the most important things in any sort of financial plan that you can ever make because life doesn't happen on a schedule. You have to leave room for the schedule to change. And yeah, you just punished yourself just doubly. But that's good that you know that now because you're not going to do that again.

Elizabeth Ayoola:

No.

Sean Pyles:

And I'm not an advocate for punishing yourself, especially around money things because there's so much shame tied up with money and spending and judgment being placed on spending in one category versus another. And it's good to get to the root of your problem like you did and address it. Try to not make the same mistake again, but don't beat yourself up over it. And it seems like that's kind of where you've gotten to.

Elizabeth Ayoola:

Exactly. I was beating myself up about it because you're right, I did feel shame because I'm like, "Hey, I should know better. Why am I overspending?" But at the same time, I love what you said, Sara, which is you need to be flexible. And that's actually something I took from that as well. I need to revisit my splurge budget because it's too small so I'm not being realistic with how much I'm leaving myself aside to just do my frivolous spending. And I do actually have room in my budget to spend a little bit more on these things. All right, Sara, now let's hear your favorite financial mistake.

Sara Rathner:

All right, mine has to do with money and relationships, which is always a juicy topic. So there are all these warnings out there to avoid dating people with debt or low credit scores. 12 years ago I met this cute guy in an improv class and he asked me out for a drink and several years later, listener, I married him. But he, when we met, was in a job that was definitely underpaid.

He had some credit card debt, he wasn't living his best financial life. And so if you listen to sort of the conventional wisdom like red flags all around, avoid, avoid, avoid. But the reality is we met in our 20s and neither of us had peaked yet. And so there needs to be a little bit of grace I think when it comes to dating and money when you meet somebody that you really like, but their financial management is still kind of touch and go.

There absolutely are circumstances where somebody is exhibiting some serious red flags about money and if you remain partnered with them, they will drag you into someplace that you don't necessarily want to go when it comes to your money. But a lot of people, everybody's just doing the best they can and sometimes you end up in credit card debt, sometimes you don't have a big enough emergency fund.

Sometimes you're dealing with a medical issue, sometimes your company refuses to give you cost of living raises and your salary just isn't keeping up with how much things cost. And that doesn't make you a bad person to be in a relationship with, it just means that there are things you need to work on, but we all have things we need to work on.

Sean Pyles:

Yeah. There's so much more to people than their credit scores, than what they have in their savings accounts. So judging someone just based on those categories or prioritizing those over whether they're a good person, they're a funny person, they make you feel loved, is just not a path that I would recommend, I'll say that. But I think that it's good to bring grace to this as well because who knows why someone might not have a financial education or why they might be in debt.

People are in debt for any number of reasons, doesn't mean that they are not a good person or they are not smart or savvy in their own way. Life is just hard and expensive. So if you want to build a life with someone, you can help them get through this difficult financial time that they might be in. But to your point earlier, Sara, have clear boundaries around what you will and won't spend your money on, how you will and won't help them so that you can also keep yourself financially sound too.

Sara Rathner:

Yeah. And what I noticed in him is we spoke openly and frequently about money throughout our relationship, even pretty early on, and why we made the decisions that we made. And so I could tell one, that we felt comfortable with each other to be honest about our money, which is very helpful. And two, I saw that he had the grit to evolve into something more substantial when it came to his money and then eventually our joined money. And so really it's like you want to see that potential with somebody that you're dating and not everybody with financial issues is a walking red flag.

Elizabeth Ayoola:

Absolutely. The last line is a word. And actually I think that would make a great podcast episode too, but I am going to give Sara a shameless plug because she actually wrote a column on financial red flags. You guys can go Google that.

Sean Pyles:

Okay. My favorite financial mistake, or at least the one that I'll talk about this time around, because I have a few favorites, is that during my early 20s I managed my finances with my head deep, deep in the sand. And this was not because I had a ton of money and could just spend it frivolously. I actually had basically no money and I really did not want to know how little I had. And I ended up having a pretty brutal and uncomfortable wake up call when I went out to do some grocery shopping for my birthday one year.

I think I was turning 23 years old and I wanted to make a really nice meal with my boyfriend at the time and some friends and I was checking out my groceries, wanted to swipe my debit card, and my debit card did not go through because shocker, I had no money in my account.

So I really had to figure out what I was doing with my finances. Fortunately, my then partner could cover the grocery bill for me, but that was an abrupt wake-up call to sort out how I was managing my finances or really how I wasn't managing my finances, how I could begin to earn more money so that I would have money to cover the food that I need in my life and generally just get my stuff together and start being an adult.

Elizabeth Ayoola:

Sean, I completely feel you. And I'm going to be honest and I'm going to say even sometimes til today I'm still like that. The good thing is that I'm a good saver. So because I'm a good saver, usually it kind of covers the rest, but sometimes it's scary to look at your bank account, but also that has been the thing that has helped me to get my money together as well because I'm like, "Come on, girl. You can't keep avoiding your balance."

Sara Rathner:

Yeah. See here, my take on this is you had this experience that was really negative and you didn't just keep doing what you were doing. You knew that that was the moment where you're like, "All right, I got to do things differently. This is not working for me and I want to be able to buy the things I want to buy and not worry about whether or not the payment's going to go through." So what works in your favor really is you learn this at a young age. 23 is young. Anybody who's listening who's like, "Oh my God, I'm going to be 25."

Oh, you are so young, and you can still learn all these lessons and you can learn these lessons at 45, but it is so much better when it comes to your money to have an expensive lesson when you're younger because then you can take that lesson and apply it to your life for a long time. The lessons when you're older get a little bit more expensive and a little bit more dicey because just so much more is on the line in your life. And so I love this for you. I love that you're well beyond this point, not that well beyond. You're not that-

Sean Pyles:

Well, almost a decade beyond this now, fortunately.

Sara Rathner:

Yeah. And how different are things for you because you took this experience and you learned from it.

Sean Pyles:

Things are so much better now, of course, but like Elizabeth mentioned, this is a lesson that I'm continuing to learn too. It also helped me learn something about myself at sort of a higher level, which is that the things that I tend to avoid or that I want to shy away from are typically the things that I actually need to focus on the most.

So for example, if I'm feeling really wary of checking my credit card balance or logging in to my bank account and seeing what the number is there, it's probably because I know that I spent more than I should have over the past week or month. And this is a really common pattern that a lot of people have. So if you find yourself being avoidant or not wanting to log in or engage with something, it's actually a good signal to just rip off the bandaid and deal with it.

Elizabeth Ayoola:

Yes, I'm so with you on that. And it's actually such an interesting dynamic because I get all scared about looking and then I look and then I almost feel relieved because no matter what damage I've done, I know that now I know how to fix it, if that makes sense. Then I also am more cautious after I look at it about my spending, if that makes sense

Sean Pyles:

Yeah. It's so funny. Nothing feels worse than the moment that you're in that loading screen waiting for the account to pop up. And then once you see the number, you're like, "Okay, now I know what I'm working with. I can make a plan and move forward." But you have to have that information first.

Sara Rathner:

It's kind of like getting a blood test done and the needle's about to go in and you're like, "This is going to hurt," and then it pinches for a second and then you can breathe again and you're like, "Oh, okay, that wasn't so bad." So if you just remember the pinch is just a second, it'll be okay. You're going to come out the other side just fine.

Sean Pyles:

The pinch is just a second, I love that. Well, that is it for our favorite financial mistakes for now. Listener, like we said earlier, we want to hear your favorite financial mistakes and what you learned from them. So leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or you can email it to [email protected]. And Elizabeth, thank you so much for coming on. We are really excited to have you as our new co-host going forward.

Elizabeth Ayoola:

And I'm excited to be here and listen to the listener questions and share more of my quirky money stories too.

Sean Pyles:

We're going to have a lot of fun.

Elizabeth Ayoola:

I think so.

Sara Rathner:

This episode's money question is coming up next. Stay with us.

Sean Pyles:

We're back and answering your real world money questions to help you make smarter decisions about your money. In this episode we are talking with a listener, Adam, who's 35 and lives in Colorado. Adam has some questions about what to do with a windfall, whether it's wisest to use it to pay off credit card debt or invest it. He also has a question about his 529 account. Adam, welcome to Smart Money.

Adam:

Thank you, Sean. Thank you Sara. Happy to be here.

Sean Pyles:

Great to have you on. So let's start by getting to know you a little bit, in part because I know Sara and I, and I'm sure our listeners, are nosy people. So tell us a bit about your financial life right now. What's your income like, your debts, your financial goals, the whole spectrum of things?

Adam:

Sure. So I am happily married with two little boys, one's four and one's a year and a half. We live in Colorado. I work full-time as a professional firefighter and my wife works in the restaurant industry. We have a pretty healthy retirement thanks to a state pension that I'm a part of. And we live comfortably. We own our house. We have two cars.

We're very fortunate to have a roof over our heads. But we do have some credit card debt that set us aside when the water pump goes out on the truck or I break my tooth or what have you. We've had a couple expenses. So we have that and we're trying to build a college fund for our children with the 529s that you previously mentioned. So other than that, we're just your normal average Americans trying to plug through life and provide the best life we can for our children.

Sean Pyles:

Well, it seems like you've checked a lot of the American dream boxes there with kids and a house and retirement funds, so that's great to hear. Congratulations on achieving that because by 35, that's a lot to accomplish, especially for folks in our generation. And before we get too far into this conversation, I did want to remind folks that we are not financial or investment advisors.

And Adam, we're not going to tell you what to do with your money in this conversation. It's really just some nerdy food for thought for you as you consider what to do with all of your financial goals. So I know that you are debating what to do with a windfall that you might be getting. So as it relates to your credit card debt, your investment goals, other life goals that you have, how would you consider using a windfall currently?

Adam:

So we were fortunate enough to apply for and get a new credit card where we did a balance transfer at 0% APR. So our goal in 2024 is to hammer out as much as we can to pay down that debt at the 0% interest. So everything's been transferred to that card except for one card that has about a thousand dollar balance on it. So that's one piece of the puzzle.

The other piece of the puzzle is I have a 457 account through work that has an additional retirement account outside my pension, and then I have a Roth that I just set up completely on my own just this year just to diversify my retirement accounts so that this windfall could go either into the 457 payoff credit card debt or we could even put it into my children's 529. So a lot of different options there.

Sean Pyles:

Those are all great goals. So one thing that I like to suggest people do when they get a windfall is take 10% of it and just enjoy it because not every dollar that comes into your life has to be put toward the most utilitarian and efficient function. It's great to do that. And it seems like you are honed in on some very efficient ways to use a windfall. However, you’ve got to enjoy life too. So what do you think you might want to do if you did have, let's say a $3,000 windfall? What would you do with maybe $300 of that?

Adam:

I think we'd best use the $300 to maybe take a short vacation in state with the boys, rent a cabin or do something over what we call a four day. I work two days on, I have four days off, so I have a lot of time off to spend with my children. So I'd say something like that.

Sean Pyles:

That's great. I mean, because those are memories that you would build with your kids now and that is well worth $300, I would argue it could be priceless. So I want to hone in on the credit card debt a little bit more. How much do you have in total right now?

Adam:

So between my wife and I in total we're about 11, 12 thousand dollars.

Sean Pyles:

And you mentioned that all but a thousand is on a zero APR credit card, is that right?

Adam:

Yes, almost all of it. Yep.

Sean Pyles:

All right. And how long do you have that zero APR term?

Adam:

It was definitely at least 12. It might've been 18 months. I'd have to double check.

Sean Pyles:

Either way it does give you some breathing room, so that's really nice to have. And remind me, what's the APR on the amount of debt that's not in the balance transfer your APR?

Adam:

25%.

Sean Pyles:

That's the hard thing with credit card debt right now is that since the Fed has raised interest rates over the past year and some change, these rates have gone up and they are just so expensive as you know well. So 25%, it makes that a very expensive kind of debt and a lot of financial planners would say that should be your priority right now, is knocking that out. So even if it is just a few hundred dollars extra over the course of a few months to try to wipe that out, that will free up your cash so you can do something like beef up your emergency fund.

Adam:

Right. And like I said earlier, I only have about a thousand dollars on the 25% APR card. The rest has been transferred to the 0%. And that is something we've talked about just this morning over coffee, my wife and I, of focusing on crushing that and leaving that account at zero and just being done with that one.

Sara Rathner:

Tell me a little bit about your emergency fund because sometimes you're just one unexpected expense away from adding even more debt onto those credit cards. So what do you have set aside right now for those unexpected costs?

Adam:

An emergency fund is something that we've never really prepared for or had in place until I got into the financial podcast world and started learning from you guys. So just recently I did a little shopping around and found a high yield savings account that I opened and we've been putting in $25 in every week since we started that. So our goal is to have a month or two worth of expenses saved up. We've only just begun in the last six, seven weeks. So there's not quite a lot of money in there yet, but it's growing and it's growing quickly and it's something we've budgeted for and should be snowballing and snowballing here.

Sara Rathner:

I love to hear that because $25 a week doesn't feel like much, but you let a few months go by and you automate those contributions so they happen regardless of what else is going on in your life. You don't get too busy and forget to make the contribution. And you'll be surprised at how much is in there after just a few months assuming you don't have to tap into it. And if you ever do have to tap into it, it's going to be really nice to have. So yes, that is excellent progress. I'm so happy to hear that.

Sean Pyles:

Yeah. And building on that, there is a debate in the personal finance space around whether if you have high interest credit card debt, if you should focus on that primarily at the expense of all other goals. I'm a big proponent of doing multiple things simultaneously. So right now it seems like you can focus on paying off that high interest credit card debt while continuing your $25 a week deposits into this high yield savings account for your emergency fund. That is a great way. So you can basically shore up your defenses for when the next emergency does happen, like Sara said, and not go into credit card debt.

Sara Rathner:

Yeah. Sean and I both had unexpected expenses over the past couple of weeks. Sean, I know you had car repairs, I had roof repairs and life just happens. So it's nice to have the funding available when you need it.

Sean Pyles:

Yeah. I had a nice $1,500 surprise car expense, actually two expenses. And yeah, it wasn't fun, but I did have the money set aside to cover this, so I was really grateful for that and now I realize it's going to take me some time to build up those reserves again and that makes me just a tad bit anxious.

But I know that I have these automated deposits set up, I'll be there eventually and this money was there for me when I needed it. Okay. So now I want to talk about investing for retirement. It seems like you have a few different types of retirement accounts going on right now and you're considering maybe putting some windfall cash into one of them, so talk us through that in more detail.

Adam:

So I'm lucky in the regards that I as a public service employee have a pension, which I know is dwindling in the current economic climate. I think only 10% of most people have funded pensions now. So I'm very, very fortunate in that regard. I have, let's see, 10 years in my pension already, so hopefully I can retire around 55 with 30 years of my pension, maybe a little bit more.

I'm very comfortable with that. In addition to my pension, I have a managed 457, which is essentially just like a 401k account. It's an account that I put money in. Our new union contract now stipulates that my department will match up to 3% of my contributions, so yay for that. Free money. And that's coming in too. That's experienced really, really healthy growth over the last few years, which has been great. So I have those two main things.

I've had those for several years now. And I just recently opened a Roth, completely independent, not associated with my department, just on my own accord just to kind of diversify some income streams when we do retire. Just to kind of change up my different tax advantages. So that is something new within the last two, three months. And that Sara, like you were talking about earlier with automation, that's all automated now. It's just a single investment once a month at a set amount. And I'm already starting to see minuscule, but some returns on that and hopefully that gets bigger and bigger over the next 20, 25 years.

Sean Pyles:

That's great to hear. And I think your approach to investing makes sense for where you are in life and the income that's at your disposal and the debt that you're trying to pay off. For a lot of people, the best, easiest, most effective way to invest is going to be in different tax advantaged retirement accounts. Unless you have hundreds of thousands of dollars at your disposal and you're going to be doing some very complicated investing, investing slow and steady for the long term is likely going to be just the simplest and most effective route so you can have that comfortable life later on.

Sara Rathner:

And you are in a line of work where retirement is typically done at a younger age. You mentioned retiring in your mid-50s and that you're a firefighter and typically with pensions for careers like being a firefighter or a police officer, a normal retirement age is quite a bit younger than the typical retirement age we anticipate, like 67 or so. Right? When you retire in your mid-50s, do you want to have some sort of encore career or are you thinking that that's the point at which you would ideally like to stop working if you can?

Adam:

I believe I see myself retiring between 55 and 60 and then going a little bit further. I teach outside my department now on kind of a national conference circuit. I have my own company outside of that and I would like to continue doing that for the rest of my career and being some sort of speaker on a lecture circuit. So I envision myself maintaining some semblance of a work life, albeit probably part-time once I fully retire from the fire department. So I would expect some trickle of income in addition to drawing upon my retirement funds after I truly leave the fire department.

Sean Pyles:

That's a really smart approach going into retirement because the reality for a lot of people is that retirement doesn't mean not working ever again. It's really great to have some other kind of stream of income to offset what you might be able to get from your pension and these other retirement accounts so you have more flexibility to go on trips with your kids or with your wife so you can actually enjoy those years and travel or do whatever you want to do.

Adam:

Like my dad says, he likes to just, wants to work at a motorcycle shop just for something to do and make a couple extra bucks here and there, so.

Sean Pyles:

And so much of retirement is about pursuing your life purpose and it seems like teaching is what gives you a lot of satisfaction.

Adam:

That's right, Sean.

Sara Rathner:

So another thing people can think of doing with the windfall money as you've mentioned, is funding educational savings accounts for their kids. And you mentioned having two young children that you have established 529s for already. So can you tell me a little bit about those accounts and how they are saved or invested?

Adam:

Sure. So when my first son was born, I knew right away I needed to set up 529 and just start making deposits into it. And we did and I researched 529s in Colorado and went through a local bank that offered a 529 that sounded like something that was very, very applicable if he wanted to stay in state or even go out of state sometime in the future.

We've made several large contributions into the account just when we have, again, random windfalls. But now that I'm taking a much more active approach in my financial wellbeing, I went back and looked at the APR that I actually get on that account and it's only half a percent.

So I'm thinking this is really just kind of like a money depot. Right? I'm just putting money in and then it's not growing or doing anything for me. I'm not really sure what advantage, if any, having a 529 that I created for my two children is compared to say a high yield savings account that is returning at 4.5% or some other 529 that may be invested or managed through a different financial entity. I'm not really quite sure what that looks like.

Sean Pyles:

I think you're in a really interesting situation because, well one, you mentioned you're getting an APR on your 529 account of less than 1%. So that is, to your point, less than what people would be able to get right now in a high yield savings account. But also it's a little bit unusual to be getting an APR like that.

Basically a return on just the cash you have in this account from a 529. Because typically the returns you're getting from a 529 are from investments in the account. You put money into the 529 and then you have selected investments like maybe a target date fund for example. But I looked into the different 529 options in Colorado. And you mentioned that yours is with First Bank, is that correct?

Adam:

That is correct. And to my knowledge, there's no management. It's just a, I put money in and it just hangs out there forever.

Sean Pyles:

It's just a 529, yes. So just a savings account essentially. And so when I hear people say they have money in an investment account and it's not growing, they're getting 0.5% back, my first thought is, "Is this money actually invested?" Because this is a semi common issue that we run into in the personal finance space. People will open a brokerage account or an IRA, put a bunch of money in and then be like, "Hey, nothing's really happening. What's going on here?"

Turns out they didn't select the investments. So I was going to say, "Hey, look into the investment options that you have with this account, make sure the funds are actually invested." However, because you selected a very unique kind of 529 that is essentially just a savings account. It's a very conservative type of 529 account that keeps this cash liquid and accessible for you, then it seems like you might actually want to look into other types of 529s.

Because Colorado has three other options that you can look into. One is more of a traditional 529 investing account and you have the ability once per year, once every 12 months, to roll the funds in one 529 account over to another. So that might be something that you want to look into because it seems like you are wanting a more aggressive type of investment with these funds. Is that correct?

Adam:

Very much so. And I like taking an active part in seeing my money actually grow. Even though I'm not always in the account every week or two, it's nice to come and check up on it once a month, every few months just kind of to make sure that the target dates are where they should be and everything's balanced as it should be.

Sara Rathner:

Yeah. 529s that have those investment options. It's very common for them to offer target date funds, so it'd be very low effort on your part other than the administrative work of transferring the money and selecting the investment. But they list those targets by the age of your children, assuming they'll be around 18 when they pursue education and need this money. That being said, you can still also use 529 money for K through 12 education.

That's a relatively new feature that was introduced a couple of years ago. But if you are saving for college or university or other education beyond high school, you do have a bit more of a time horizon. So you can select target date funds that are sort of geared toward where your children are in their age and what the time horizon is.

So it could be a little bit more aggressive when your children are quite young. And then as they approach those college years, the investments become more conservative. So you can keep an eye on how it's performing, but otherwise you don't really have to put too much effort into it, which is a really nice thing because parents are busy, so. And I say this as somebody who opened a 529 for my kid recently too, and I don't have time to manage it.

Adam:

So do you think the best course of action would be to go into the local branch and talk with somebody about how to roll that 529 into something? Because I haven't had a lot of luck with their online banking or their website.

Sara Rathner:

Yeah. You can start by talking to them and see what the process is. You might also, depending on what you select, you can initiate the rollover on the side of the brokerage that will be accepting the money, too. I've worked with several and they have excellent customer service and they can walk you through the process. And there might be some extra steps like getting forms notarized and things like that. So it's going to take a little bit of time to complete the process, but it's well worth the effort.

Sean Pyles:

And I would recommend as a starting place to look at collegeinvest.org. This looks like it's Colorado's main page where you can compare 529 accounts that are available in your state. So you can look at which ones might be best for your investment and savings goals and choose one from there. And then once you have the right account selected, you'll be able to look into what the rollover process is like.

Adam:

Okay, I see. I see. I've got my work cut out for me for sure.

Sean Pyles:

Yes.

Sara Rathner:

We're leaving you with a little bit of homework.

Sean Pyles:

Including thinking about what to do for fun. Okay, Adam, so we've talked about a bunch of different things that you can do with a windfall that might be coming your way. What are you currently thinking that you might want to prioritize first?

Adam:

I definitely think paying off the high interest credit card debt, the last remaining balance of 25% is number one by far. I want to pay that off. There is no annual fee on that account. So once it's done, just leave it open to help my credit utilization and we're done with that. Put that in the drawer, say goodnight.

And then after that I'd like to make a large payment towards the 0% balance that we have, the 0% APR balance, just to get a big chunk of that paid off. A little bit for something fun like we talked about. We want to live a little, we want to use money. And then maybe it's time to set aside another portion and open a new account for my youngest for his 529 and go from there. I would absolutely say my number one priority right now is paying off the high interest remaining balance.

Sean Pyles:

Well, Adam, thank you for taking the time to talk with us.

Adam:

Thank you, Sean. Thank you Sara.

Sean Pyles:

And that's all we have for this episode. Remember, listener, that we are here for you and we want to hear your money questions because that's our job, is to answer them. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you're getting this podcast.

Sara Rathner:

This episode was produced by Sean Pyles. Kevin Berry helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet's editors for all their help. And here's our brief disclaimer, we're not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: