31 May Should I pay off my mortgage or credit card?

Q. We owe about $21,000 on our house and have a high interest card to pay off. We came into enough money to pay off the house, but I’m not sure that’s the right thing to do. We are in our 60s, live on disability and have no savings. I’ve heard that if you go to a nursing home and your house is paid for, they’ll take it and sell it to pay for the nursing home. What’s the best thing to do?
— Unsure

A. We’re glad to hear you’re carefully considering what to do with your windfall.

There are a few items your should weigh, and because we don’t know how much money you came into, your basic living expenses and the balance on the credit card, we’re going to discuss the options generally.

You should think about starting an emergency fund.

“Here is where your expenses come into play,” said Michael Green, a certified financial planner with Wechter Feldman Wealth Management in Parsippany. “Normally, we recommend that you save six months of expenses in the event of an emergency. Your situation is unique because you are currently living on disability.”

But first, let’s consider your debt.

Green said it may seem like paying off your house would be the best option because it has the greater balance. But actually, he said, you should consider paying off whichever debt has the highest interest rate.

Even without knowing all your details, it is very likely this would be your credit card.

“After paying off your credit card balance, you should consider establishing an emergency fund that would cover your expenses for six months,” he said. “It is important to have a sufficient amount of liquid savings available to you. Right now, you don’t have any, so even a small amount will go a long way towards giving you that cushion you need.”

Now, the house.

Green said while you generally do not have to sell your home in order to qualify for Medicaid coverage for nursing home care, it is possible the state can file a claim against your house after you die.

“If you receive Medicaid to pay for the nursing home, the state must attempt to recoup from your estate whatever benefits it paid for your care,” he said. “This is called `estate recovery.’”

Given the rules for Medicaid eligibility, the only property of substantial value that a Medicaid recipient is likely to own at death is his or her home, Green said.

“This may be what you heard about when you say that ‘they’ll take it and sell it to pay for the nursing home,’” Green said. “You should consult with an attorney before entering a nursing home, to discuss ways to protect your home.”

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This story was originally published on May 31, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.