What to Do With Found Money

By Eileen AJ Connelly, AP Personal Finance Writer

It could happen to you.

A surprise inheritance, a lawsuit settlement, a lottery prize or perhaps a buyout from your employer could mean you suddenly find yourself with extra cash. Chances are, it won't be a $300 million Mega Millions jackpot. But even a far smaller windfall can help provide financial security if you handle it wisely.

The key is to think first, spend later.

Before you buy a round for everyone at the pub or spread the word on your Facebook page, financial advisers say you should quietly assess your current situation. Taking stock of your short- and long-term goals, debts and other personal circumstances will help you decide the best way to use the money. Plus, keeping the news to yourself will give you time to make decisions before relatives, friends, charities or questionable investment schemes can try to stake claims on your emotions.

Correct past mistakes

If you receive a fairly modest amount, say $10,000 to $50,000, a good use may be to repair some potential problems.

For instance, when examining your debt load, you should certainly focus on any high-interest balances.

The average household carries more than $8,000 in credit card debt and the average interest rate is up to about 13.55. Making only minimum payments and adding no more charges, it would take nearly 10 years to pay that balance, costing an additional $3,000 in interest.

Using your windfall to pay down that debt would not only remove the burden of monthly payments, but save more in interest than you could expect to make by investing the same amount in the stock market. The vast majority of the time, paying down debt is going to be "at the top of my list," said Ronald Myers, a planner with Associated Investor Services in Fort Lauderdale, Fla.

Identify goals

In the same way, removing other financial obligations that cause stress or cost a lot could help dramatically improve your financial situation. This will allow you to use future earnings to reach your goals.