Student Loans and the Correct Course of Action

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Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 1:41 pm

First time poster here. I'm a big fan of the forum!

A little about my situation.. I went to an expensive private school for college. My entire education was financed by student loans. In hindsight, a cheaper college would have been a better option but I can't change that now and I am proud to be an alum.

I came out of school with about $125k in student loans. I have that down to about $112k now. I've gotten much smarter about dealing with these things over the past three years and have taken some steps to improve my situation. I surely don't know everything and that is why I'm coming for advice.

All these are estimates because I am on my phone.

Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290

These are all private loans. Unfortunately, loan 2 does not allow a 30 year repayment plan. I have enrolled in the two year program to halve my payment in the first year and pay only interest from the first year in the second. I'm putting the remainder into loan 3. My father is giving me $185/month to apply to any of these loans. This is allowing me to put about $600/month into loan 2. I make 55,000 per year and am saving about $200 per month into a Roth IRA(this will change to a split between Roth and 401k next year when my company starts matching). I don't have any credit card debt on the four cards that I have. I have an excellent credit score but DTI is obviously an issue.I have all the normal bills listed below:

Car/Renters Insurance: $90
*Mortgage: $600
Cellphone: $85
*Cable/Power:~$150 but varies

*Split value. Girlfriend pays the other half

I have found it difficult to save any money outside of my retirement which is troubling. Especially because my girlfriend and I have been dating for 3 1/2 years and marriage/engagement is definitely on my mind.

Obviously I'm trying to get the smaller, high interest loan out of the way but am open to any other suggestions. I have things under control but all it would take is one accident etc..

Do any of you have advice? I'll answer any questions!
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Re: Student Loans and the Correct Course of Action

Postby ieee488 » Fri Jul 26, 2013 3:27 pm

GoDeacs wrote:Cellphone: $85
*Cable/Power:~$150 but varies

Why is cable lumped in with "power"?
How much is cable? Basic cable is $17 for me.

$85 for cellphone is too much. I'd get one of the cheaper unlimited prepaid plans.
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Re: Student Loans and the Correct Course of Action

Postby tludwig23 » Fri Jul 26, 2013 3:41 pm

GoDeacs wrote:
Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290

These are all private loans. Unfortunately, loan 2 does not allow a 30 year repayment plan. I have enrolled in the two year program to halve my payment in the first year and pay only interest from the first year in the second. I'm putting the remainder into loan 3. My father is giving me $185/month to apply to any of these loans. This is allowing me to put about $600/month into loan 2...


Do you mean loan 3? Clearly I'd agree with your plan to get rid of loan 3 ASAP then loan 1. The others have such low interest rates, especially after considering the tax adjustments, that I would just pay them off at the minimum rate.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 4:12 pm

ieee488 wrote:
GoDeacs wrote:Cellphone: $85
*Cable/Power:~$150 but varies

Why is cable lumped in with "power"?
How much is cable? Basic cable is $17 for me.

$85 for cellphone is too much. I'd get one of the cheaper unlimited prepaid plans.


My girlfriend and I split them so I grouped them together. Most of the cable cost comes from internet which I need for work. She watches a large majority of the TV in the house.

Cell phone is needed for work. Plan has to be through one of the big 3 providers. I've cut out all fringe options to shrink the cost.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 4:13 pm

tludwig23 wrote:
GoDeacs wrote:
Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290

These are all private loans. Unfortunately, loan 2 does not allow a 30 year repayment plan. I have enrolled in the two year program to halve my payment in the first year and pay only interest from the first year in the second. I'm putting the remainder into loan 3. My father is giving me $185/month to apply to any of these loans. This is allowing me to put about $600/month into loan 2...


Do you mean loan 3? Clearly I'd agree with your plan to get rid of loan 3 ASAP then loan 1. The others have such low interest rates, especially after considering the tax adjustments, that I would just pay them off at the minimum rate.


Sorry. I meant loan 3. I want to get 3 taken care of and then throw my weight into 1.
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Re: Student Loans and the Correct Course of Action

Postby BrandonBogle » Fri Jul 26, 2013 4:23 pm

Is the car worth enough that you can refi it with cash out, then apply the extra balance to Loan #3?

I did that with my truck a year ago. It was paid off and I got a 1.49% $20k loan on it to wipe out my 6.8% Stafford loans.
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Re: Student Loans and the Correct Course of Action

Postby WendyW » Fri Jul 26, 2013 4:23 pm

GoDeacs wrote:*Cable/Power:~$150 but varies

Cancel your Cable TV and buy a set of bunny ear antennas. Supplement this with Hulu Plus or Netflix streaming ($8/mo).

I'm saving nearly $100 a month this way, and watching better stuff to boot.
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Re: Student Loans and the Correct Course of Action

Postby BrandonBogle » Fri Jul 26, 2013 4:24 pm

BTW, Wake Forest Football games were always very fun. Good crowd for tailgaiting!
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Re: Student Loans and the Correct Course of Action

Postby BrandonBogle » Fri Jul 26, 2013 4:25 pm

Is it truly $600/mo for a mortgage, or for rent? If the latter, it might be time to move to a cheaper place.

If not, it still might be time to move to a cheaper place and rent out the house!
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 4:42 pm

WendyW wrote:
GoDeacs wrote:*Cable/Power:~$150 but varies

Cancel your Cable TV and buy a set of bunny ear antennas. Supplement this with Hulu Plus or Netflix streaming ($8/mo).

I'm saving nearly $100 a month this way, and watching better stuff to boot.


This will not fly with the girlfriend. It is a necessary evil, sadly.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 4:46 pm

BrandonBogle wrote:Is it truly $600/mo for a mortgage, or for rent? If the latter, it might be time to move to a cheaper place.

If not, it still might be time to move to a cheaper place and rent out the house!


We just moved into this new house after renting for a few years. We got it for a steal and will be here for the next 5-10 years. This is another area that the girlfriend wouldn't budge on but I think will pay off in the future.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 4:48 pm

BrandonBogle wrote:Is the car worth enough that you can refi it with cash out, then apply the extra balance to Loan #3?

I did that with my truck a year ago. It was paid off and I got a 1.49% $20k loan on it to wipe out my 6.8% Stafford loans.


This is a really good idea. I still owe about 9300 but it should be worth more than that. 2012 honda civic sedan with 30k miles.
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Re: Student Loans and the Correct Course of Action

Postby Caduceus » Fri Jul 26, 2013 4:58 pm

Obviously I'm trying to get the smaller, high interest loan out of the way but am open to any other suggestions. I have things under control but all it would take is one accident etc..


I think you're doing well and short of taking steps to aggressively increase your earning power, your loan repayment will take as long as it takes. Do you already have an emergency fund? If as you say "all it would take is one accident" then I would calculate out how much your living expenses are (including minimum loan repayments in total) for at least three months and try to build up a cash buffer first. You could focus on one loan at at time while paying minimums on the rest:

1. Emergency fund / cash reserves
2. Invest up to the employer match
3. High interest loans at 6% (loan 3)
4. High interest loans at 6% (loan 1)

We don't know what your cash flow/budget looks like, but as it's likely that you'll need quite a while to pay these off, I would also invest in a Roth in the meantime to build some tax-advantaged space but not max the 401(k).

good luck
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Re: Student Loans and the Correct Course of Action

Postby Bob's not my name » Fri Jul 26, 2013 5:01 pm

tludwig23 wrote:The others have such low interest rates, especially after considering the tax adjustments
There are no tax adjustments that impact payoff strategy. Currently, the OP is eligible for the student loan interest deduction, but since it maxes out at $2,500 (single or married), his interest at the margin is not deductible, and he's paying the whole 6% (probably 6.8%, I imagine). Obviously it's going to take some years to pay off the higher interest loans. By the time that's done, the OP is hopefully going to have a higher income, which will place him above the deduction phaseout. At that point the 2.75% loan won't be deductible, and he'll be paying the whole 2.75% -- I suspect it's a variable rate, in which case it's not low. The remaining loan is a car loan and is not deductible.

Recap: The student loan rates are either fixed and painfully high, or likely variable and non-deductible, so they're all bad.
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Re: Student Loans and the Correct Course of Action

Postby Kosmo » Fri Jul 26, 2013 5:07 pm

You put 30k miles on a 2012 car? That can really kill the value.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 7:03 pm

Kosmo wrote:You put 30k miles on a 2012 car? That can really kill the value.

I bought it used in 2011 with 8k on it.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 7:14 pm

Bob's not my name wrote:
tludwig23 wrote:The others have such low interest rates, especially after considering the tax adjustments
There are no tax adjustments that impact payoff strategy. Currently, the OP is eligible for the student loan interest deduction, but since it maxes out at $2,500 (single or married), his interest at the margin is not deductible, and he's paying the whole 6% (probably 6.8%, I imagine). Obviously it's going to take some years to pay off the higher interest loans. By the time that's done, the OP is hopefully going to have a higher income, which will place him above the deduction phaseout. At that point the 2.75% loan won't be deductible, and he'll be paying the whole 2.75% -- I suspect it's a variable rate, in which case it's not low. The remaining loan is a car loan and is not deductible.

Recap: The student loan rates are either fixed and painfully high, or likely variable and non-deductible, so they're all bad.


Definitely a bad situation. The two high interest loans are 6% and 5.85% on the dot. The 2.75 is variable.
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Re: Student Loans and the Correct Course of Action

Postby Rubiosa » Fri Jul 26, 2013 7:37 pm

1. How much, if anything, does your girlfriend owe for her college loans?

2. Is she a college graduate and does she work?

3. What is her income?

Thanks
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 9:11 pm

Rubiosa wrote:1. How much, if anything, does your girlfriend owe for her college loans?

2. Is she a college graduate and does she work?

3. What is her income?

Thanks


She has about $11k in student loans. Has a steady job and makes 40k. Also is a college grad.

I've thought about asking her to help, but that obviously comes with its own problems as we aren't engaged yet.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Fri Jul 26, 2013 9:12 pm

BrandonBogle wrote:BTW, Wake Forest Football games were always very fun. Good crowd for tailgaiting!

Go Deacs :)
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Re: Student Loans and the Correct Course of Action

Postby Rubiosa » Fri Jul 26, 2013 11:31 pm

You're absolutely right. DO NOT ask for your girlfriend's help with your student loans.

I hope the relationship works out, but I'm sure you realize that she'll be reluctant to tie in to a loan as big as yours. She'll have much better offers, financially speaking.

I sincerely hope I'm wrong. Just speaking the truth as I see it.

Signed, Professor Emerita. Seen it all.
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Re: Student Loans and the Correct Course of Action

Postby vachica » Sat Jul 27, 2013 12:03 am

Deac, I am around the same age and paid off my student loans earlier this year. I contributed to retirement since age 22, and didn't really get aggressive about my loan pay down until about a year ago, though my loans were mug less than yours. I have some general advice; and I also encourage you to check out Dave Ramsey. His investing advice sucks, but his get out of debt plan can't be beat.

I assume you have some sort of efund since you own a home. I would then advise that you make a monthly budget of all expenses, both necessary expenses and fun ones. Start with your take home pay, subtract out the Roth contribution, and work backward from there. It looks like you're paying $1k/mo in minimums. You should be able to dig up another $500/mo to throw to the loans. I would snowball them (ie pay smallest to largest) and pay off the car first since its a high (relatively) payment with no tax break. Also chunk bonuses, tax refunds, and the like at your loans and you should be out of this mess in a few years with a nice Roth to start retirement savings.

Oh, and unless its worth it to you, I wouldn't go crazy about cell phone bills and the occasional happy hour. Focus on the big wins.
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Re: Student Loans and the Correct Course of Action

Postby M_to_the_G » Sat Jul 27, 2013 7:02 am

I'd put together a drastic "five year plan." I'd figure out my minimum living expenses, forgo investing for now, and aim to have all those loans paid off in five years. Well... I think I would. :? Nevertheless, that's my suggestion.
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Re: Student Loans and the Correct Course of Action

Postby lindisfarne » Sat Jul 27, 2013 5:52 pm

Get another job & use that $ for your retirement contributions. Pay off the student loans ASAP & live extremely frugally until they are paid off.

Both the car loan & the student loans were bad decisions that you now have to live with. Presumably, you took out the car loan when you already knew what your student loan amount was. Real bad decision. What matters now is whether you learn enough from these bad decisions to completely change your spending habits.

I'd think twice about a relationship with a person who can't live without cable. There isn't $100 monthly value from cable. But then again, she didn't take out over 100K in student loans. I'd advise her not to marry someone with that kind of debt.

Who is responsible for the mortgage? If you're paying only $300/month for living expenses (with GF paying other $300), that's pretty reasonable.
$85/month for a phone is a luxury rather than a basic need. Or is your employer essentially requiring you have one but not paying its cost?
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Re: Student Loans and the Correct Course of Action

Postby LAlearning » Sat Jul 27, 2013 6:05 pm

GoDeacs wrote:I came out of school with about $125k in student loans. I have that down to about $112k now.
--Great job.

Loan 1: $56,000 @ 6% -$400Priority.
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200Priority.
Loan 4(car): $9,400 @ 2.5% -$290Able to sell car and buy an older used car? Would free up cash flow at least....try to avoid this in the future or until it makes economic sense.

My father is giving me $185/month to apply to any of these loans.
--Thank him! Odd amount though, $2220/yr....
This is allowing me to put about $600/month into loan 2.
--Keep this at whatever the minimum is for loan 2.
I make 55,000 per year and am saving about $200 per month into a Roth IRA(this will change to a split between Roth and 401k next year when my company starts matching).
--This is the rub. That $200 may or may not earn 6%/yr. But by paying the loan, its GUARANTEED 6%. Tough to beat. I hate saying this, but you cant afford to fund the rIRA for now.
I don't have any credit card debt on the four cards that I have. I have an excellent credit score but DTI is obviously an issue.I have all the normal bills listed below:

I have found it difficult to save any money outside of my retirement which is troubling. Especially because my girlfriend and I have been dating for 3 1/2 years and marriage/engagement is definitely on my mind.
--It will be difficult for a few years. Put the blinders on and carry on.

Obviously I'm trying to get the smaller, high interest loan out of the way but am open to any other suggestions. I have things under control but all it would take is one accident etc..
--I know rIRA can be an EF. But I would want this VERY liquid (ie Savings account at a local CU). Build this up slowly but surely.

--You sound very level headed and reasonable. I wish you the best. Tough situation, but if you keep it up, this too shall pass.
--Agree, don't mix finances with the GF. If she complains about not eating out/going to fancy parties/buying a new car, trade her in! If you get married, consider it a $40k raise :wink:
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Re: Student Loans and the Correct Course of Action

Postby ieee488 » Sat Jul 27, 2013 6:11 pm

GoDeacs wrote:
ieee488 wrote:
GoDeacs wrote:Cellphone: $85
*Cable/Power:~$150 but varies

Why is cable lumped in with "power"?
How much is cable? Basic cable is $17 for me.

$85 for cellphone is too much. I'd get one of the cheaper unlimited prepaid plans.


My girlfriend and I split them so I grouped them together. Most of the cable cost comes from internet which I need for work. She watches a large majority of the TV in the house.

Cell phone is needed for work. Plan has to be through one of the big 3 providers. I've cut out all fringe options to shrink the cost.

Why does it have to be one of the big 3 providers?
If it is work mandated, shouldn't they be paying for some of it?

As for the cable and internet, it doesn't hurt to shop around if you have competition between cable and FIOS.
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Re: Student Loans and the Correct Course of Action

Postby ieee488 » Sat Jul 27, 2013 6:13 pm

GoDeacs wrote:
WendyW wrote:
GoDeacs wrote:*Cable/Power:~$150 but varies

Cancel your Cable TV and buy a set of bunny ear antennas. Supplement this with Hulu Plus or Netflix streaming ($8/mo).

I'm saving nearly $100 a month this way, and watching better stuff to boot.


This will not fly with the girlfriend. It is a necessary evil, sadly.


Then, shouldn't she paying for that portion of it?
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Re: Student Loans and the Correct Course of Action

Postby Rubiosa » Sat Jul 27, 2013 9:31 pm

I'm retired from thirty-five years of teaching at a large state university, and I can tell you that the situation in which Godeacs now finds himself is unusual but not THAT unusual. While tens of thousands of students manage to graduate every year paying their entire way through college without parental help and ENDING UP WITH NO DEBT AT ALL, an increasing number of students give no thought whatever to the morrow and wind up (like Godeacs) with $50K jobs (if they get a job) and owing the equivalent of $750 per month for their entire 30-year working life. This must stop. It's bad for the student. It's bad for the family. And it's awful for the broader economy at large. Unchecked, it will shrink the middle class.

There are several components to the problem. (1) Parents, often in their 40s, are as financially ignorant as their children. They themselves are often tapped out and they give horrible advice. Their first stop when visiting campus with their kids is the Financial Aid Office. Oh, bad, bad, bad. STAY AWAY! (2) The university, I'm sorry to say, is concerned only with your money, not its source, and will gladly direct you to loan providers (who often kick back a small percentage to the university - YES! (3) Your CONGRESS has just effectively doubled the cost of student loans. That's another discussion entirely.

I have posted some suggested solutions to this problem here many times. You can find them if you look.
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Re: Student Loans and the Correct Course of Action

Postby thebogledude » Sat Jul 27, 2013 11:07 pm

GoDeacs wrote:My father is giving me $185/month to apply to any of these loans.
Do any of you have advice? I'll answer any questions!


Can your dad give you a low interest loan to wipe out the higher interest loans? I find that the only way to chip away at a loan is to pay part of the principal
along with the scheduled payments. I didn't know Wake Forest was that expensive.
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Re: Student Loans and the Correct Course of Action

Postby nimo956 » Sat Jul 27, 2013 11:27 pm

$112k in loans may seem like a daunting amount, but if you make a plan and dedicate a substantial portion of your salary to paying off these loans, you could probably pay them all off in 5-7 years, not 30 years. $55k is a good salary. I made much less than you out of college 5 years ago and had $25k in loans. I lived at home for 2 years, saved every penny I earned and am now debt free with over six figures in retirement savings. It's a great feeling without all that debt hanging over your head. You feel like your free and have more control over the direction of your life/career. I know you can get there too; you just need to prioritize debt repayment over everything else (like your IRA, 401k, and any other frivolous expenses).
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Re: Student Loans and the Correct Course of Action

Postby tom0153 » Sun Jul 28, 2013 1:53 am

See if consolidating the two more expensive loans makes any sense. Read the attached thoroughly.

http://www.finaid.org/loans/privateconsolidation.phtml
Best, Tom
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Re: Student Loans and the Correct Course of Action

Postby tom0153 » Sun Jul 28, 2013 1:59 am

Another article explaining why consolidating loans might work to your benefit: http://www.forbes.com/2009/04/15/studen ... idate.html

In addition to the loan providers mentioned, get back to the current provider and indicate you are willing to jump ship.

I don't understand the disparity in interest rates among the four loans.
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Re: Student Loans and the Correct Course of Action

Postby RobInCT » Sun Jul 28, 2013 1:12 pm

Any chance to work OT/freelance/get a PT job on the side? It's no fun, but unless you have a serious and legitimate expectation of making a significantly higher salary within the next 5-10 years, NOW is the time to get those debts under control, through whatever means possible.

As I'm sure you already know, your current debt load will have a significant impact on your life and your future decisions for many years to come. It will play a role in decisions central to what the rest of your life is going to look like--decisions about getting married, when/if to have kids, when/if to pursue a graduate degree if necessary to advance in your field. The time to address this is now, while you're a single person with no kids and your decisions and your time are your own. This is likely the last time in your life when it's going to be possible for you to work 60, 70, 80 hours a week and to make your own decisions about how to spend/save it.

This may be difficult, and it will definitely require support from your current girlfriend. But your girlfriend should understand, if you're both really serious about marriage, that if you don't make these sacrifices now, your debt is going to affect her life and her life choices as well and should be supportive. Good luck.
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Re: Student Loans and the Correct Course of Action

Postby Outer Marker » Sun Jul 28, 2013 2:01 pm

First off, you seem to be doing fine with a decent salary and focus on debt reduction and savings. It may take a while, but you'll get there and doesn't seem you need to do anything drastic.

However, it does seem like there's a leak somewhere else in your budget.

With a 55,000 salary, let's guestimate you pay in the neigborhood of $10,000 in taxes, for a net income of $45,000
Dad provides a loan subsidy of $2,000, so that bumps your net to $47,000 year
Your listed fixed expenses are $2,000 month, or $24,000 per year.
$47,000 -$24,000 = $23,000 ...
You're putting $2,000/into roth savings -- and need to pay for food and gas -- but seems like there should be more potential savings somewhere in there that could go do debt reduction.
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Re: Student Loans and the Correct Course of Action

Postby BolderBoy » Sun Jul 28, 2013 2:35 pm

GoDeacs wrote:All these are estimates because I am on my phone.

Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290

I could use some input from the gallery on this. Isn't the objective to minimize the amount of interest being paid? To this end, I'd tackle loan #1 first (highest balance with highest interest rate = most interest paid, right?). I think all the respondents who addressed this, said to go after loan #3 first.

Why?
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Re: Student Loans and the Correct Course of Action

Postby strbrd » Sun Jul 28, 2013 2:48 pm

BolderBoy wrote:
GoDeacs wrote:All these are estimates because I am on my phone.

Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290



I could use some input from the gallery on this. Isn't the objective to minimize the amount of interest being paid? To this end, I'd tackle loan #1 first (highest balance with highest interest rate = most interest paid, right?). I think all the respondents who addressed this, said to go after loan #3 first.

Why?


Paying down the same amount of principal on either Loan 1 or Loan 3 will reduce the same amount of total amount of interest paid. But if he has a constant amount of money to throw at the loans, paying down Loan 3 entirely will allow him to knock that minimum payment out and apply the extra $200 per month to Loan 1. If the interest rates are the same, you're best off snowballing (paying off the smallest, not largest, balance first).
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Re: Student Loans and the Correct Course of Action

Postby grabiner » Sun Jul 28, 2013 3:51 pm

strbrd wrote:
BolderBoy wrote:
GoDeacs wrote:All these are estimates because I am on my phone.

Loan 1: $56,000 @ 6% -$400
Loan 2: $35,000 @ 2.75% -$175
Loan 3: $23,000 @ 6% -$200
Loan 4(car): $9,400 @ 2.5% -$290



I could use some input from the gallery on this. Isn't the objective to minimize the amount of interest being paid? To this end, I'd tackle loan #1 first (highest balance with highest interest rate = most interest paid, right?). I think all the respondents who addressed this, said to go after loan #3 first.

Why?


Paying down the same amount of principal on either Loan 1 or Loan 3 will reduce the same amount of total amount of interest paid. But if he has a constant amount of money to throw at the loans, paying down Loan 3 entirely will allow him to knock that minimum payment out and apply the extra $200 per month to Loan 1.


And it improves cash flow as a result. If he pays down $23,000 on Loan 1, he will owe $1380 less of interest next year with a $1065 monthly payment still due. If he pays off Loan 3 entirely, he will owe $1380 less of interest next year, with an $865 payment, which makes it easier to handle making only the minimum payment in a month in which cash flow is tight.

If the interest rates are the same, you're best off snowballing (paying off the smallest, not largest, balance first).


Snowballing always has a psychological advantage (getting rid of one loan is a reasonable goal, and you'll accomplish it more easily if that one loan is small); the equal interest rates are the one situation in which you can get the psychological advantage without a cost. I wouldn't recommend that he pay off the car quickly; that would improve his cash flow, but paying off the car rather than paying down a 6% student loan would cost about $300 extra in interest per year. (The student loans can be treated as non-deductible because the total interest is above the $2500 IRS limit.)
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Re: Student Loans and the Correct Course of Action

Postby BolderBoy » Sun Jul 28, 2013 4:24 pm

Thank you for the explanation of which loan with equal interest rate to tackle first. Things are not as simple as they appear (to moi, the simpleton.)
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Mon Jul 29, 2013 1:36 pm

ieee488 wrote:
GoDeacs wrote:
WendyW wrote:
GoDeacs wrote:*Cable/Power:~$150 but varies

Cancel your Cable TV and buy a set of bunny ear antennas. Supplement this with Hulu Plus or Netflix streaming ($8/mo).

I'm saving nearly $100 a month this way, and watching better stuff to boot.


This will not fly with the girlfriend. It is a necessary evil, sadly.


Then, shouldn't she paying for that portion of it?
she does pay for a portion of it. I look at it as a fairly even split between what I use most(internet) and what she uses (cable)
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Mon Jul 29, 2013 1:42 pm

Outer Marker wrote:First off, you seem to be doing fine with a decent salary and focus on debt reduction and savings. It may take a while, but you'll get there and doesn't seem you need to do anything drastic.

However, it does seem like there's a leak somewhere else in your budget.

With a 55,000 salary, let's guestimate you pay in the neigborhood of $10,000 in taxes, for a net income of $45,000
Dad provides a loan subsidy of $2,000, so that bumps your net to $47,000 year
Your listed fixed expenses are $2,000 month, or $24,000 per year.
$47,000 -$24,000 = $23,000 ...
You're putting $2,000/into roth savings -- and need to pay for food and gas -- but seems like there should be more potential savings somewhere in there that could go do debt reduction.


The rest goes to health/dental/vision/parking/groceries/gas. I definitely think I can find some savings in different places, though.
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Mon Jul 29, 2013 1:45 pm

thebogledude wrote:
GoDeacs wrote:My father is giving me $185/month to apply to any of these loans.
Do any of you have advice? I'll answer any questions!


Can your dad give you a low interest loan to wipe out the higher interest loans? I find that the only way to chip away at a loan is to pay part of the principal
along with the scheduled payments. I didn't know Wake Forest was that expensive.


This is a good question. I've waited to use that as a last resort but I think it may be necessary at this point. He or my grandfather. I actually already have the legal docs drafted up..
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Re: Student Loans and the Correct Course of Action

Postby GoDeacs » Mon Jul 29, 2013 4:28 pm

I did a little budget analysis and came up with a possible plan of action. I don't think it is the most financially sound, but it would give me some breathing room.

Forego putting money into Roth for one year.
Put $850 month into car loan.
This would pay it off in 11 months. Quickly freeing up an extra $300 per month.

I've thought about it quite a bit and I don't want to get rid of the car. It is in very good shape and I plan to drive it for as long as it runs.

Does this sound feasible?
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Re: Student Loans and the Correct Course of Action

Postby BrandonBogle » Mon Jul 29, 2013 4:52 pm

GoDeacs wrote:I did a little budget analysis and came up with a possible plan of action. I don't think it is the most financially sound, but it would give me some breathing room.

Forego putting money into Roth for one year.
Put $850 month into car loan.
This would pay it off in 11 months. Quickly freeing up an extra $300 per month.

I've thought about it quite a bit and I don't want to get rid of the car. It is in very good shape and I plan to drive it for as long as it runs.

Does this sound feasible?


If you are willing to do something this drastic, I would instead put all the money towards paying off loan # 3. You gain much more at the sacrifice of Roth funds by paying down the high interest loan instead.
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Re: Student Loans and the Correct Course of Action

Postby tom0153 » Mon Jul 29, 2013 5:47 pm

You need to adopt, as a hobby, "frugal living." Some of it gets pretty extreme. Some makes plain sense. You might engage your girlfriend in the same, and see if she can get on board.

You must also "pay yourself first." Perhaps you have seen how your student loan lender encourages you to do this for them, giving you a discount off your rate if you pay them directly and on time for a certain period.

There are a couple of ways you can do this for yourself.

One is to establish direct deposit into a credit union, and then to take full advantage of all of their services. In terms of the breadth of their services, while we took out car loans from them, we were also able to help my daughter arrange a scholarship through them. You can split your deposit made from your check, some going into what is your operating account, and the balance into the CU.

Another way I have saved recently, wishing to avoid entirely cash crunches during certain times of the year, is to save for a specific goal via www.smartypig.com

Some have been interested to see that you can reach your goal, and then use what you saved for significant savings (furniture at Macy's, travel at Expedia (I think it was them, maybe Travelocity). It is worth your review, and, it might be something over which you can engage your girlfriend.

By the way, you must have some particular reason to want to get rid of the auto loan? I understand you want to keep the car, but the rate does not compare with your most expensive student loan. You can focus on that expensive loan, and chip away at the car. What is the thinking here?
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Re: Student Loans and the Correct Course of Action

Postby mamarachel » Mon Jul 29, 2013 5:55 pm

Minimums on everything. Save up and marry her with a low-budget wedding.

Then, with combined incomes you have combined power.

You can then set a household budget and kill this debt in about 4 years.

Teamwork works best. If you love her and she loves you, shacking up isn't in either of your best interests. Cash flow is the name of the game when you are young. Kill the debts together and get started on paying yourself as soon as possilble.
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