Student Loan Debt Repayment

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Topic Author
jr1210zz
Posts: 22
Joined: Tue Sep 18, 2018 4:19 pm

Student Loan Debt Repayment

Post by jr1210zz »

Hi, everyone! I've been a reader of this board for over a decade. It's now time for my inaugural post--

I'd like some feedback on my current financial profile and how I should prioritize my short and long-term goals. First and foremost, I want to pay off my remaining student loan debt. I've made considerable headway over the past 6.5 years, but I want it gone ASAP. Second, I need a legitimate emergency fund. I have been using my checking account as a pseudo-emergency fund because I keep a $5-10k cushion at all times, but I recognize that this isn't nearly enough and that I should have a separate savings account. Third, I want to buy a house (most likely a townhouse in the DC area, which can range from $600k for a "fixer" to 800k+ for move-in ready) in about five years. I will also want to ramp up my retirement savings as my salary increases. (And after years of financial sacrifices and living conservatively, I also would like to buy a "new," i.e., used, car in about five years.)

Here are my stats:

31, male living just outside of DC
Associate lawyer at a law firm in DC

Annual Income

Earned Income: $175,000 (Started at a small firm in a small city making $71,500 in 2012. Income gradually and then rapidly increased with two job changes over the past couple of years. Income expected to continue to increase $5-10k annually over the next few years. Partnership possible in about 5 years.)
Bonus: new job so unclear, but possibly $5-10k
Rental Income: $16,800

Savings and Investments

ROTH IRA: $93,088 (includes prior 401k rollover contributions)
TRAD IRA: $50,600 (same)
401k: $10,467
Checking: $7,450
Savings: $0

Retirement Contributions

401k: $795 bi-weekly (started new job so had to increase contributions in order to max $18.5k for 2018; will reduce to $711 biweekly next year)
IRA: $5,500 annually (usually dip into my checking account cushion to fund this, depending on size of annual bonus and estimated tax refund)

Value of other Assets

Townhouse: $165,000 (approximately $89,000 principal mortgage at 3.6% with 25 years remaining)
Car: $3,000 2003 BMW (good condition so should go at least another 3-5 years with regular maintenance; driven less than 3k miles annually)

Expenses

Mortgage: $765/mo (includes P&I, insurance, prop taxes)
Rent: $1,950/mo (includes rent, parking, and utilities)
Healthcare: $0 (fully covered by employer, except $250 annual deductible)
Credit Card: $1,500-2,500/mo (includes all incidentals, food, gym membership, rental and auto repairs/maintenance, public transport (to/from work), vacations, and auto, renters, umbrella, and long-term care insurance premiums)

Student Loans
All are federal loans and from law school.
# 1: $416/mo at 8.5% (balance $15,139; original $31,000)
# 2: $263/mo at 6.55% (balance $12,069; original $20,500)
# 3: $258*/mo at 6.55% (balance $9,180; original $20,500)
# 4: $382/mo at 6.3% (balance $11,961; original $32,050)
# 5: $480/mo at 8% (balance $14,695; original $36,452)
# 6: $0 at 8.5% (paid off last month; original $22,000)

*After paying off loan # 6, I added that monthly payment to loan # 3. Currently paying $655/mo on loan number 3.

Total monthly student loan payment is $2,200 and balance is $63,045 (down from about $180,000 when started making payments in early 2012). My plan is to pay off # 3 by the end of this year (hopefully), then increase payments on # 5 by $655. Use the avalanche method thereafter.

Totals

Monthly take-home: $9,605 (earned and rental income)
Monthly expenses: $7,000-7,500 (on average)

As you can see , I currently have approximately $2,000/mo leftover after all bills are paid and retirement is funded. Should I double-up my student loan payments? I figure I could eliminate all of the student loans by the end of 2019 or Q1 2020 if I paid $4,200/mo towards them, which would then free up lots of cash for an emergency fund and house savings.

How am I doing otherwise? Any areas for improvement or suggestions to shore up any aspect of my finances? Thanks, everyone!
mortfree
Posts: 2965
Joined: Mon Sep 12, 2016 7:06 pm

Re: Student Loan Debt Repayment

Post by mortfree »

I would throw the 2k extra towards loan #1 plus the 400 that you had been paying towards loan 6.

About 2800/month until that is done.

Then attack loan 5.

Again that is what I would do but I’m just a stranger on the internet as some folks like to say.
Mid-40’s
mortfree
Posts: 2965
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Re: Student Loan Debt Repayment

Post by mortfree »

Have you thought about selling the townhouse?

Selling the car?

Do you really need umbrella insurance?

Long term care Insurance at 31?
Mid-40’s
Topic Author
jr1210zz
Posts: 22
Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

I’ve thought about selling the townhouse, but I concluded that would be short-sighted. I paid $125k for it in 2013 and now it’s worth about $165k. Meanwhile, rental income nets me about $4-5k annually (after repairs and taxes). If anything, I could tap the equity in five years to help finance the purchase of another house or to remodel one. The neighborhood continues to improve. I don’t see any downside to having tenants carry 100% of the cost.

I can’t sell the car. I need transportation to/from Baltimore where my family lives. And it’s paid off, so my costs are minimal.

The umbrella policy is $139 annually. I’d rather have the $1 million in coverage with a rental property. One bad accident and I’d be ruined with legal bills and a potential judgment or settlement.
Minty
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Location: NorCal

Re: Student Loan Debt Repayment

Post by Minty »

mortfree wrote: Tue Sep 18, 2018 7:30 pm I would throw the 2k extra towards loan #1 plus the 400 that you had been paying towards loan 6.
I agree with this. Why not pay the highest interest rate loans first? Can you refi to a lower rate?
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15 -> R4 1.875% 15
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neurosphere
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Re: Student Loan Debt Repayment

Post by neurosphere »

You could probably get lower rates by refinancing. However, you would then permanently lose some valuable protections of federal loans such as, should you lose your job and have zero income, to be able to set your required payments to zero and have the interest accumulation cut in half during this time (i.e. the REPAYE payment plan).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
Topic Author
jr1210zz
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Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

I could refi but I already elected a 10-year repayment plan, which started April 2012. At this point, refinancing would get me a 5 year loan at the shortest, but the longest repayment plan remaining is less than 4 years. (Some of them are around 3 years because I’ve paid extra.) Why refi and pay more interest than principal at this point? I’d also lose some federal protections if I ever needed them due to job loss.

I was going with the snowball method for now to knock out some of these smaller loans. Because so much of the monthly payments already go toward principal and given that the interest rate spread isn’t significant, pay big the higher interest loan versus the lower interest loan is almost negligible. I get more satisfaction paying off some of them sooner.
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neurosphere
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Re: Student Loan Debt Repayment

Post by neurosphere »

jr1210zz wrote: Tue Sep 18, 2018 7:56 pm Why refi and pay more interest than principal at this point? I’d also lose some federal protections if I ever needed them due to job loss.
Maybe I'm misunderstanding. But if you refinanced to lower rates, and put the same money towards your loans that you were planning to anyway, a lower rate would result in less total money paid towards your debt. Your point about federal protections is spot-on, however.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
FoolMeOnce
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Re: Student Loan Debt Repayment

Post by FoolMeOnce »

Your IRA contribution would not be deductible at your income level. Unless you plan to do a backdoor Roth, which perhaps you are not (considering it looks like you have other earnings in your tIRA already) I'd throw that $5,500 at your loans. But first save up at least a few months expense as an emergency fund.

At your income level, you should be able to knock those loans out in the timeframe you suggested. Faster if you want to get serious and trim your budget with an axe until they are paid off. Wouldn't be too long of living like you are still in law school.
TIAX
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Re: Student Loan Debt Repayment

Post by TIAX »

jr1210zz wrote: Tue Sep 18, 2018 7:56 pm I could refi but I already elected a 10-year repayment plan, which started April 2012. At this point, refinancing would get me a 5 year loan at the shortest, but the longest repayment plan remaining is less than 4 years. (Some of them are around 3 years because I’ve paid extra.) Why refi and pay more interest than principal at this point? I’d also lose some federal protections if I ever needed them due to job loss.
The above doesn't make any sense. It doesn't matter how many years you have left. What matters is the interest rate you're paying, which is 7-8%. Refi into 3% or so - read this thread and get some quotes.

Are you really willing to pay thousands of dollars a year to keep the federal protections? How likely is it that you'll be unemployed for an extended period of time?
Topic Author
jr1210zz
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Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

I’ve looked into refinancing. The best rates out there are around 4-5%. My top rate is 8.5%. Assuming I could lower it by 4%, my repayment amortization would be 5 years, with a bigger chunk of the early payments going towards interest rather than principal. Currently, it’s the reverse (more than 80% of every payment goes towards principal), and I have 4 years (or fewer) on all of these loans. Refinancing would have been smart 6 years ago, but I did not want to risk losing the federal protections at that time. My income then was significantly lower and my financial picture was precarious.
Topic Author
jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

My point is I want to pay them off sooner than the remaining time—not prolong the pain another 1-2 years. And I’ve done rough math. It’s most certainly not savings of thousands of dollars, especially if I plan to pay them off in the next 15 months.
strafe
Posts: 1070
Joined: Sat Mar 03, 2007 11:49 am

Re: Student Loan Debt Repayment

Post by strafe »

jr1210zz wrote: Tue Sep 18, 2018 8:09 pm I’ve looked into refinancing. The best rates out there are around 4-5%. My top rate is 8.5%. Assuming I could lower it by 4%, my repayment amortization would be 5 years, with a bigger chunk of the early payments going towards interest rather than principal. Currently, it’s the reverse (more than 80% of every payment goes towards principal), and I have 4 years (or fewer) on all of these loans. Refinancing would have been smart 6 years ago, but I did not want to risk losing the federal protections at that time. My income then was significantly lower and my financial picture was precarious.
Student loans have no prepayment penalty and are simple interest. The longer amortization schedule of a refinanced loan does not matter — you would just pay more than the minimum to pay off more quickly. You should refinance to a lower rate if you can get a lower rate.
Dottie57
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Location: Earth Northern Hemisphere

Re: Student Loan Debt Repayment

Post by Dottie57 »

mortfree wrote: Tue Sep 18, 2018 7:36 pm Have you thought about selling the townhouse?

Selling the car?

Do you really need umbrella insurance?

Long term care Insurance at 31?
Ltc is usually bought after age 50.
Last edited by Dottie57 on Tue Sep 18, 2018 8:38 pm, edited 1 time in total.
Topic Author
jr1210zz
Posts: 22
Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

True. However, I secured it for $72/mo. Assuming I paid this for the next 50 years (I’d be 81), I’d have paid just above $43k (assuming premium doesn’t increase, admittedly unlikely) for inflation adjusted coverage. My parents bought LTC in their mid-50s and are paying significantly more. I think I’m saving money long term on that, unless anyone has LTC statistics showing otherwise.
Minty
Posts: 713
Joined: Sun Mar 24, 2013 3:19 pm
Location: NorCal

Re: Student Loan Debt Repayment

Post by Minty »

jr1210zz wrote: Tue Sep 18, 2018 8:12 pm My point is I want to pay them off sooner than the remaining time—not prolong the pain another 1-2 years. And I’ve done rough math. It’s most certainly not savings of thousands of dollars, especially if I plan to pay them off in the next 15 months.
Of course. Pay the loans off ASAP. But with a refi you might be able to save $1200 in nondeductible interest--assuming a 3% (you said 4) interest reduction on a 30K average balance over 1.25 years. That would be worth it to me, but I admit that I am extremely attentive to fees, expenses, interest, costs, etc. in the belief that saving a thousand here and a thousand there adds up in the long run.
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15 -> R4 1.875% 15
Topic Author
jr1210zz
Posts: 22
Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

I will look into this again. Last year I checked rates with three lenders, and the best I could get was 4.95% (which didn't make any sense to me given my high credit score). If the rates are now around 3%, I agree it would be worth the time to refi even if for 1.25 years. :thumbsup
TIAX
Posts: 1433
Joined: Sat Jan 11, 2014 11:19 am

Re: Student Loan Debt Repayment

Post by TIAX »

jr1210zz wrote: Tue Sep 18, 2018 8:49 pm I will look into this again. Last year I checked rates with three lenders, and the best I could get was 4.95% (which didn't make any sense to me given my high credit score). If the rates are now around 3%, I agree it would be worth the time to refi even if for 1.25 years. :thumbsup
What rate did First Republic and Laurel Road give you? In any case, as long as the offers are less than the rate you have now, you should refi (unless there's a high chance of you being long term unemployed that you think would make it worth it to pay thousands more in interest per year).
Topic Author
jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

I checked Earnest and CommonBond. Their fixed rates ranged 3.5-3.75%. I applied and chose a variable 2.47% rate. I plan to pay this off within the next 15 months, so even if LIBOR increased by 1% during that time (possible, but unlikely), it's still less than 3.5%. Refi done.
:sharebeer
SoAnyway
Posts: 422
Joined: Tue Jul 31, 2018 11:49 pm

Re: Student Loan Debt Repayment

Post by SoAnyway »

jr1210zz wrote: Tue Sep 18, 2018 5:30 pm First and foremost, I want to pay off my remaining student loan debt. I've made considerable headway over the past 6.5 years, but I want it gone ASAP. Second, I need a legitimate emergency fund. I have been using my checking account as a pseudo-emergency fund because I keep a $5-10k cushion at all times, but I recognize that this isn't nearly enough and that I should have a separate savings account.
Congrats on plugging away at those loans, OP! Question for you: How "recession proof" is your practice area? Depending on that answer, I'd consider reversing the priority of the two items above, i.e. first, minimum loan payments on all; second, all other extra funds toward emergency fund (it shouldn't take long at your income-level, esp. if you cut expenses - see below); third, any extra back at the loans per whichever strategy you choose. Personally, I'd go after highest-interest rate loans first regardless of loan balance, but I recognize the benefit to some of other strategies. Reason for the suggestion: As I'm sure you're aware, law firms are notorious for sending associates/non-equity partners out the door in droves in every downturn since the crash of '87. If your practice area isn't pretty solidly recession-proof (and most aren't), what's your plan if you lose your job in a downturn?
FoolMeOnce wrote: Tue Sep 18, 2018 8:05 pm At your income level, you should be able to knock those loans out in the timeframe you suggested. Faster if you want to get serious and trim your budget with an axe until they are paid off. Wouldn't be too long of living like you are still in law school
+1. This is similar to WCI's advice to doctors coming out of residency who have a ton of med school loans but are suddenly making a good 6-figure income: "Live like a resident and pay down the loans." Your expenses seem high. Track every expense - EVERY one, big or small - for the next few months. Then take a good look at where the money's going and look for ways to trim. There are ALWAYS ways.

EDIT: I don't get the LTCI either at your age (see here), but to each his/her own. I also just saw that you refi'd, which is great. I'd have chosen fixed due to my advice above. Up to you whether or not it still applies, dep. on what you think re. interest rates/economy/your job security over the next couple of years.
Last edited by SoAnyway on Tue Sep 18, 2018 9:57 pm, edited 1 time in total.
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.
Topic Author
jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

FoolMeOnce wrote: Tue Sep 18, 2018 8:05 pm Your IRA contribution would not be deductible at your income level. Unless you plan to do a backdoor Roth, which perhaps you are not (considering it looks like you have other earnings in your tIRA already) I'd throw that $5,500 at your loans. But first save up at least a few months expense as an emergency fund.

At your income level, you should be able to knock those loans out in the timeframe you suggested. Faster if you want to get serious and trim your budget with an axe until they are paid off. Wouldn't be too long of living like you are still in law school.
I go back and forth with the IRA contribution and loan repayment and/or emergency fund. I recognize the importance of emergency savings, so I think I'll stash away $1k/mo plus whatever else I can trim from the budget. Honestly, the biggest expense is rent, which isn't cheap in or around DC. I already chose to live outside of the city (which has had some negative consequences on quality of life) and the only way to reduce further would be to get roommates. I know it sounds pigheaded, but roommates would make a less-than-ideal situation even worse. I'm willing to spend the extra $5,000 annually for peace and quiet. On the upside, I'm saving about $10k annually by not living downtown in similar accommodations.

Credit card expenses have averaged higher than normal lately due to some cosmetic upgrades to my rental property. As a result, I secured a higher rental amount, so those expenses will be recouped during the course of this 18-month tenancy. Monthly expenses are usually closer to the $1,500 mark, the majority of which is commuting costs, internet only (don't pay for cable), insurance, and food (pack lunch and cook dinner M-F).
Topic Author
jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

SoAnyway wrote: Tue Sep 18, 2018 9:39 pm
jr1210zz wrote: Tue Sep 18, 2018 5:30 pm First and foremost, I want to pay off my remaining student loan debt. I've made considerable headway over the past 6.5 years, but I want it gone ASAP. Second, I need a legitimate emergency fund. I have been using my checking account as a pseudo-emergency fund because I keep a $5-10k cushion at all times, but I recognize that this isn't nearly enough and that I should have a separate savings account.
Congrats on plugging away at those loans, OP! Question for you: How "recession proof" is your practice area? Depending on that answer, I'd consider reversing the priority of the two items above, i.e. first, minimum loan payments on all; second, all other extra funds toward emergency fund (it shouldn't take long at your income-level, esp. if you cut expenses - see below); third, any extra back at the loans per whichever strategy you choose. Personally, I'd go after highest-interest rate loans first regardless of loan balance, but I recognize the benefit to some of other strategies. Reason for the suggestion: As I'm sure you're aware, law firms are notorious for sending associates/non-equity partners out the door in droves in every downturn since the crash of '87. If your practice area isn't pretty solidly recession-proof (and most aren't), what's your plan if you lose your job in a downturn?
FoolMeOnce wrote: Tue Sep 18, 2018 8:05 pm At your income level, you should be able to knock those loans out in the timeframe you suggested. Faster if you want to get serious and trim your budget with an axe until they are paid off. Wouldn't be too long of living like you are still in law school
+1. This is similar to WCI's advice to doctors coming out of residency who have a ton of med school loans but are suddenly making a good 6-figure income: "Live like a resident and pay down the loans." Your expenses seem high. Track every expense - EVERY one, big or small - for the next few months. Then take a good look at where the money's going and look for ways to trim. There are ALWAYS ways.

EDIT: I don't get the LTCI either at your age (see here), but to each his/her own. I also just saw that you refi'd, which is great. I'd have chosen fixed due to my advice above. Up to you whether or not it still applies, dep. on what you think re. interest rates/economy/your job security over the next couple of years.
My practice area is fairly recession proof. I'm not too concerned about a downturn, but I acknowledge it could have an impact. Now that I've refinanced the student loans (see above), I should probably set aside a hefty chunk on a monthly basis for an emergency.

In terms of LTC, I'm single (another reason for an emergency fund!), and I don't really have family who could afford to take care of me if something were to happen. I also made the decision based on family health history and life expectancy. For me, it's a small cost for peace of mind, and the coverage is great.
SoAnyway
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Re: Student Loan Debt Repayment

Post by SoAnyway »

jr1210zz wrote: Tue Sep 18, 2018 10:07 pm
SoAnyway wrote: Tue Sep 18, 2018 9:39 pm EDIT: I don't get the LTCI either at your age (see here), but to each his/her own. I also just saw that you refi'd, which is great. I'd have chosen fixed due to my advice above. Up to you whether or not it still applies, dep. on what you think re. interest rates/economy/your job security over the next couple of years.
My practice area is fairly recession proof. I'm not too concerned about a downturn, but I acknowledge it could have an impact. Now that I've refinanced the student loans (see above), I should probably set aside a hefty chunk on a monthly basis for an emergency.

In terms of LTC, I'm single (another reason for an emergency fund!), and I don't really have family who could afford to take care of me if something were to happen. I also made the decision based on family health history and life expectancy. For me, it's a small cost for peace of mind, and the coverage is great.
Hahaha, OP - It looks like I was entering my edits above as you were composing your response. "Two posters passing in the night...." :happy All good.
I agree on the EF - You never know....
On the LTCI, understood. I figured you had your reasons. Peace of mind is important.
I also saw your subsequent post on your expenses. It looks like you're doing pretty well there, but keep looking.... ; )
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.
Topic Author
jr1210zz
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Joined: Tue Sep 18, 2018 4:19 pm

Re: Student Loan Debt Repayment

Post by jr1210zz »

SoAnyway wrote: Tue Sep 18, 2018 10:24 pm
jr1210zz wrote: Tue Sep 18, 2018 10:07 pm
SoAnyway wrote: Tue Sep 18, 2018 9:39 pm
Hahaha, OP - It looks like I was entering my edits above as you were composing your response. "Two posters passing in the night...." :happy All good.
I agree on the EF - You never know....
On the LTCI, understood. I figured you had your reasons. Peace of mind is important.
I also saw your subsequent post on your expenses. It looks like you're doing pretty well there, but keep looking.... ; )
Hah -- thanks, and will do! :wink:
imfocusedman
Posts: 53
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Re: Student Loan Debt Repayment

Post by imfocusedman »

jr1210zz wrote: Tue Sep 18, 2018 9:37 pm I checked Earnest and CommonBond. Their fixed rates ranged 3.5-3.75%. I applied and chose a variable 2.47% rate. I plan to pay this off within the next 15 months, so even if LIBOR increased by 1% during that time (possible, but unlikely), it's still less than 3.5%. Refi done.
:sharebeer
Sounds like the ship has sailed but +1 on checking First Republic. Much much better rates than this and will refund you partial interest if paid off in less than 4 years.
Valuethinker
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Re: Student Loan Debt Repayment

Post by Valuethinker »

jr1210zz wrote: Tue Sep 18, 2018 5:30 pm

As you can see , I currently have approximately $2,000/mo leftover after all bills are paid and retirement is funded. Should I double-up my student loan payments? I figure I could eliminate all of the student loans by the end of 2019 or Q1 2020 if I paid $4,200/mo towards them, which would then free up lots of cash for an emergency fund and house savings.

How am I doing otherwise? Any areas for improvement or suggestions to shore up any aspect of my finances? Thanks, everyone!
At the loan interest rates you are paying, early repayment is the best investment you will make - it's a risk free return. That 2k pcm would make a decent dent in it.

On emergency cash, you need to figure out how long you can survive without an income? Ideally you should have 6 months safe savings, however if you have any assets in taxable accounts, you can include those.
hightower
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Re: Student Loan Debt Repayment

Post by hightower »

I would ditch the townhouse and use the proceeds to pay a chunk of your student loans. That property hasn't increased in value much since you bought it. It's probably not earning you much in actual profits either. The housing market is in a bit of a bubble at the moment in my opinion. I would sell it while prices are good. Not worth it to hold on to IMO. It would free up cash, free up your credit, and instantly lower your overall debt burden.
Outside of that, I would definitely ramp up your payments on the loans and get rid of them asap. No reason to still be carrying around that debt when you're making 175k/yr. Once the debt is gone, then start throwing those extra payments towards savings for a house down payment.
Topic Author
jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

imfocusedman wrote: Wed Sep 19, 2018 5:15 am
jr1210zz wrote: Tue Sep 18, 2018 9:37 pm I checked Earnest and CommonBond. Their fixed rates ranged 3.5-3.75%. I applied and chose a variable 2.47% rate. I plan to pay this off within the next 15 months, so even if LIBOR increased by 1% during that time (possible, but unlikely), it's still less than 3.5%. Refi done.
:sharebeer
Sounds like the ship has sailed but +1 on checking First Republic. Much much better rates than this and will refund you partial interest if paid off in less than 4 years.
I am not within First Republic’s “service area.” Their website refers me to CommonBond, whose rates I checked and are comparable.
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jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

hightower wrote: Wed Sep 19, 2018 6:30 am I would ditch the townhouse and use the proceeds to pay a chunk of your student loans. That property hasn't increased in value much since you bought it. It's probably not earning you much in actual profits either. The housing market is in a bit of a bubble at the moment in my opinion. I would sell it while prices are good. Not worth it to hold on to IMO. It would free up cash, free up your credit, and instantly lower your overall debt burden.
Outside of that, I would definitely ramp up your payments on the loans and get rid of them asap. No reason to still be carrying around that debt when you're making 175k/yr. Once the debt is gone, then start throwing those extra payments towards savings for a house down payment.
The house has increased in value 6.8% annually since buying it. The annual return on my initial $25k down payment is over 18%, assuming 20% cap gains taxes (the full amount of which I’ve never paid due to maintenance deductions and depreciation) and 20% annual repair costs (again, being very conservative). Sure, selling it would emilinate the mortgage, but it wouldn’t eliminate the student loans entirely. I’d walk away with about $45k (including return of initial capital) after paying commissions, closing costs, and cap gains (I haven’t lived in the property for three years). I’m sure the day will come when I get a terrible tenant, but I’ve been lucky for three years so far. Major systems are relatively new so no major repairs either. The time I spend “managing” the property is minimal, and I have a flexible job that allows me to handle any issues if they arise. Your point about “decluttering” from a financial perspective and paying down more of the student loans is well taken, though, and something I’ve certainly considered in the past.
Jack FFR1846
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Re: Student Loan Debt Repayment

Post by Jack FFR1846 »

Sell the town house. It's making you less than you're paying in student loan interest. No brainer.

Of course, pay off the HIGHEST interest loans first. Snowball is for people who don't know how to save and don't know how to pay their bills. Avalanche (highest interest first) is what engineers, mathematicians and accountants do because you pay less money in total. You want to pay less money, right?
Bogle: Smart Beta is stupid
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jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

Jack FFR1846 wrote: Wed Sep 19, 2018 7:54 am Sell the town house. It's making you less than you're paying in student loan interest. No brainer.

Of course, pay off the HIGHEST interest loans first. Snowball is for people who don't know how to save and don't know how to pay their bills. Avalanche (highest interest first) is what engineers, mathematicians and accountants do because you pay less money in total. You want to pay less money, right?
Already refinanced to 2.47% per the above.
LawEgr1
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Re: Student Loan Debt Repayment

Post by LawEgr1 »

First, congrats on making this a priority. I'm sure you've realized that the law world has plenty of individuals with much more dire situations than you. Good job on the income, good job with the recognition on crushing the debt.

Looks like you've optimized some interest rates, well done.

Only suggestion for me would be to optimize the interest rates on the student loans.

Then, crush the debt in <15 months. As someone stated earlier, it is entirely up to you if saving an extra XXX is worth your time. For me it would be, for them it would be, but only you can make that determination.

I wouldn't even think on selling the townhome unless you want to get out of there anyway.

But let me tell you, no law loan debt is awesome. Keep it up, you're so close. :sharebeer
Last edited by LawEgr1 on Wed Sep 19, 2018 8:49 am, edited 1 time in total.
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jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

LawEgr1 wrote: Wed Sep 19, 2018 8:29 am First, congrats on making this a priority. I'm sure you've realized that the law world has plenty of individuals with much more dire situations than you. Good job on the income, good job with the recognition on crushing the debt.

Looks like you've optimized some interest rates, well done.

Only suggestion for me would be to optimize the interest rates on the student loans.

Then, crush the debt in <15 months. As someone stated earlier, it is entirely up to you if saving an extra XXX is worth your time. For me it would be, for them it would be, but only you can make that determination.

I wouldn't even think on selling the townhome unless you want to get out of their anyway.

But let me tell you, no law loan debt is awesome. Keep it up, you're so close. :sharebeer
Thank you! :beer

Yes, I have a few friends/colleagues who have significantly more debt coupled with sky-high expenses. One in particular just started contributing to a 401k and has essentially no retirement or emergency savings. I don't know how a lot of these people are able to sleep at night. (Maybe they aren't...)

I haven't heard any compelling reasons to sell the townhouse. I'm not in a rush to offload an appreciating asset that has been generating pure profit. Keeping it might mean an extra 6-12 months of payments on the student loans, but I think this is a small price to pay, especially given the low mortgage and student loan rates. And once the student loans are paid off, I'd have no other debt besides a fully covered mortgage. For some, this still wouldn't be worth it, but it really isn't a hassle for me. Maybe I'm missing something, but I think selling would be precipitous and something I'd regret in 10 years.
Lucien786
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Re: Student Loan Debt Repayment

Post by Lucien786 »

Fellow lawyer here -- I'm curious what practice area you're in that's recession proof!
jr1210zz wrote: Tue Sep 18, 2018 10:07 pm
SoAnyway wrote: Tue Sep 18, 2018 9:39 pm
jr1210zz wrote: Tue Sep 18, 2018 5:30 pm First and foremost, I want to pay off my remaining student loan debt. I've made considerable headway over the past 6.5 years, but I want it gone ASAP. Second, I need a legitimate emergency fund. I have been using my checking account as a pseudo-emergency fund because I keep a $5-10k cushion at all times, but I recognize that this isn't nearly enough and that I should have a separate savings account.
Congrats on plugging away at those loans, OP! Question for you: How "recession proof" is your practice area? Depending on that answer, I'd consider reversing the priority of the two items above, i.e. first, minimum loan payments on all; second, all other extra funds toward emergency fund (it shouldn't take long at your income-level, esp. if you cut expenses - see below); third, any extra back at the loans per whichever strategy you choose. Personally, I'd go after highest-interest rate loans first regardless of loan balance, but I recognize the benefit to some of other strategies. Reason for the suggestion: As I'm sure you're aware, law firms are notorious for sending associates/non-equity partners out the door in droves in every downturn since the crash of '87. If your practice area isn't pretty solidly recession-proof (and most aren't), what's your plan if you lose your job in a downturn?
FoolMeOnce wrote: Tue Sep 18, 2018 8:05 pm At your income level, you should be able to knock those loans out in the timeframe you suggested. Faster if you want to get serious and trim your budget with an axe until they are paid off. Wouldn't be too long of living like you are still in law school
+1. This is similar to WCI's advice to doctors coming out of residency who have a ton of med school loans but are suddenly making a good 6-figure income: "Live like a resident and pay down the loans." Your expenses seem high. Track every expense - EVERY one, big or small - for the next few months. Then take a good look at where the money's going and look for ways to trim. There are ALWAYS ways.

EDIT: I don't get the LTCI either at your age (see here), but to each his/her own. I also just saw that you refi'd, which is great. I'd have chosen fixed due to my advice above. Up to you whether or not it still applies, dep. on what you think re. interest rates/economy/your job security over the next couple of years.
My practice area is fairly recession proof. I'm not too concerned about a downturn, but I acknowledge it could have an impact. Now that I've refinanced the student loans (see above), I should probably set aside a hefty chunk on a monthly basis for an emergency.

In terms of LTC, I'm single (another reason for an emergency fund!), and I don't really have family who could afford to take care of me if something were to happen. I also made the decision based on family health history and life expectancy. For me, it's a small cost for peace of mind, and the coverage is great.
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jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

Lucien786 wrote: Wed Sep 19, 2018 10:44 am Fellow lawyer here -- I'm curious what practice area you're in that's recession proof!
I'll PM you.
hightower
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Re: Student Loan Debt Repayment

Post by hightower »

jr1210zz wrote: Wed Sep 19, 2018 7:38 am
hightower wrote: Wed Sep 19, 2018 6:30 am I would ditch the townhouse and use the proceeds to pay a chunk of your student loans. That property hasn't increased in value much since you bought it. It's probably not earning you much in actual profits either. The housing market is in a bit of a bubble at the moment in my opinion. I would sell it while prices are good. Not worth it to hold on to IMO. It would free up cash, free up your credit, and instantly lower your overall debt burden.
Outside of that, I would definitely ramp up your payments on the loans and get rid of them asap. No reason to still be carrying around that debt when you're making 175k/yr. Once the debt is gone, then start throwing those extra payments towards savings for a house down payment.
The house has increased in value 6.8% annually since buying it. The annual return on my initial $25k down payment is over 18%, assuming 20% cap gains taxes (the full amount of which I’ve never paid due to maintenance deductions and depreciation) and 20% annual repair costs (again, being very conservative). Sure, selling it would emilinate the mortgage, but it wouldn’t eliminate the student loans entirely. I’d walk away with about $45k (including return of initial capital) after paying commissions, closing costs, and cap gains (I haven’t lived in the property for three years). I’m sure the day will come when I get a terrible tenant, but I’ve been lucky for three years so far. Major systems are relatively new so no major repairs either. The time I spend “managing” the property is minimal, and I have a flexible job that allows me to handle any issues if they arise. Your point about “decluttering” from a financial perspective and paying down more of the student loans is well taken, though, and something I’ve certainly considered in the past.
I personally am not a fan of real estate investing for people carrying around student loans and other types of consumer debt. Real estate is risky. I lived through the 2008 collapse and it left a bad taste in my mouth after seeing the value of our home drop by 50% almost overnight. If you had no other debt and had all your other ducks in a row, then diversifying your portfolio with some real estate, would be okay. Maybe 5-10% of ones entire portfolio if you believe in the boglehead way of broadly diversified portfolios. But when you're carrying debt, don't have a great handle on retirement accounts yet, still trying to save for a home of your own, etc, it's probably not a good idea to be investing in real estate right now.

Also remember, the value of the home "increasing by 6.8% annually" since buying it, is just an estimate. It's not real until you sell. If the market drops before you sell, those 6.8% returns you are counting on will be nothing but imaginary. You could get lucky and do very well, many people do. But, my point is that you're invested in a single property that is highly dependent on the local market for it's value. IMO you have better uses for that money right now and it would be wise to take the equity while you still can. Right now it's as if you're investing a large chunk of your portfolio in an individual stock. Too risky when it's such a large part of your net worth IMO.
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jr1210zz
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Re: Student Loan Debt Repayment

Post by jr1210zz »

hightower wrote: Wed Sep 26, 2018 2:31 pm
jr1210zz wrote: Wed Sep 19, 2018 7:38 am
hightower wrote: Wed Sep 19, 2018 6:30 am I would ditch the townhouse and use the proceeds to pay a chunk of your student loans. That property hasn't increased in value much since you bought it. It's probably not earning you much in actual profits either. The housing market is in a bit of a bubble at the moment in my opinion. I would sell it while prices are good. Not worth it to hold on to IMO. It would free up cash, free up your credit, and instantly lower your overall debt burden.
Outside of that, I would definitely ramp up your payments on the loans and get rid of them asap. No reason to still be carrying around that debt when you're making 175k/yr. Once the debt is gone, then start throwing those extra payments towards savings for a house down payment.
The house has increased in value 6.8% annually since buying it. The annual return on my initial $25k down payment is over 18%, assuming 20% cap gains taxes (the full amount of which I’ve never paid due to maintenance deductions and depreciation) and 20% annual repair costs (again, being very conservative). Sure, selling it would emilinate the mortgage, but it wouldn’t eliminate the student loans entirely. I’d walk away with about $45k (including return of initial capital) after paying commissions, closing costs, and cap gains (I haven’t lived in the property for three years). I’m sure the day will come when I get a terrible tenant, but I’ve been lucky for three years so far. Major systems are relatively new so no major repairs either. The time I spend “managing” the property is minimal, and I have a flexible job that allows me to handle any issues if they arise. Your point about “decluttering” from a financial perspective and paying down more of the student loans is well taken, though, and something I’ve certainly considered in the past.
I personally am not a fan of real estate investing for people carrying around student loans and other types of consumer debt. Real estate is risky. I lived through the 2008 collapse and it left a bad taste in my mouth after seeing the value of our home drop by 50% almost overnight. If you had no other debt and had all your other ducks in a row, then diversifying your portfolio with some real estate, would be okay. Maybe 5-10% of ones entire portfolio if you believe in the boglehead way of broadly diversified portfolios. But when you're carrying debt, don't have a great handle on retirement accounts yet, still trying to save for a home of your own, etc, it's probably not a good idea to be investing in real estate right now.

Also remember, the value of the home "increasing by 6.8% annually" since buying it, is just an estimate. It's not real until you sell. If the market drops before you sell, those 6.8% returns you are counting on will be nothing but imaginary. You could get lucky and do very well, many people do. But, my point is that you're invested in a single property that is highly dependent on the local market for it's value. IMO you have better uses for that money right now and it would be wise to take the equity while you still can. Right now it's as if you're investing a large chunk of your portfolio in an individual stock. Too risky when it's such a large part of your net worth IMO.
Thanks for the insight. You make some fair points, which I agree with based on certain assumptions. However, I didn't buy the house as an investment. I bought it to live in. And I did so for several years very affordably, which allowed me to pay down more debt that I would have otherwise been able to (because renting would have been significantly higher). Due to beneficial job changes, the house has become an investment property. Perhaps the more appropriate question is whether I should hold onto it and continue to earn a hefty return on my initial down payment "investment," or pay realtor fees, closing costs, and capital gains associated with a sale, the proceeds of which would not be enough to pay off my now refinanced student loan.
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