What to do with $20,000 gift?

[549350]

I am a third year medical student at a private school. Taking out the full cost of attendance with no financial help from family so far. I recently received a $20,000 gift from a very generous relative. I am trying to determine the best use for it. I keep my monthly expenses and cost of living low, and have enough money to live on excluding the gift for the next year. Is my best option to immediately use this to reduce my loan burden? I have about $150k in principal, with the highest loan at 7.4% interest. I certainly hate having this money lying around in a savings account, even short term. It needs to go to something more productive.

 

Are there other options I am not considering that would be of better utility?

 

Thank you for your thoughts!

[VagabondMD]

I guess I would want to know if the generous relative had something specific in mind for the $20k when it was bestowed upon you. Barring any strings attached, I would recommend lowing your loan burden as much as possible, starting by paying down the highest interest loans.

[G]

Agree with VagabondMD.  Ensure generous relative didn't have specific goal.  Otherwise, treat yourself to a nice dinner and use the rest to pay down that 7.4% loan!

 

G

[MochaDoc]

Will s/he need to pay taxes on the money?

[DMFA]

Holy @$%@, 7.4%?  How did that happen?  Are those federal unsubsidized loans which you'll be able to either refinance or structure into an income-driven plan?

If you were considering investing it, then purely from a mathematical perspective, to be able reliably to earn 7.4% on it annually is not too likely, and you'd probably be best off knocking out your student loan principal.

However, life is about more than just monetary mathematics.  $20,000 can do a lot more for your life at this point in the third year of medical school than to reduce your future debt.  You may want to put it toward some things to help make your life easier (or at least more tolerable), like a decent vacation or two.  If it fits your overall life's plan, it might also be handy to keep it around as a down payment on a home whenever that time becomes right, which would probably best be placed in a tax-efficient mutual fund; since you'll probably be in the 15% bracket when you draw it, your long-term (> 1 year) capital gains tax on it would be zero.

Notice all the italicized conditional statements...but $20,000 is probably worth more to you now than $30,000 (or whatever amount it would become) might be in the future when it comes time to pay your student debt.

[Craigy]

As others said, responsible thing is to pay down that debt.

But also, as others said, what were the motivations of your relative?  Was this gift solicited for a purpose?

If the relative wants you to enjoy yourself, you could easily justify (or perhaps you really ought to be) spending half or more going on some nice trips, upgrading your dumpy car to a slightly nicer one, buy a TV or something.

Absolute best investment though with the biggest payoff, hands down, without a doubt, no questions, would be to take that $20k, maybe a few k extra if you're feeling flush, and buy your med student girlfriend a really nice engagement ring.  Or maybe an engagement rolex if it's a boyfriend.       Bonus points if he or she is going into ortho, cards, anesthesia, derm, radiology...  might want to wait until match day  :lol: