$135,000 in student loan debt, graduating in summer

[Grad2be]

I'm graduating this summer and I'll have about $135,000 in student loan debt with an average interest rate of 8.5% and 0 savings. How would you deal with this? I'm not sure of the right way to deal with the debt while also putting money in a 401(k), IRA, savings account and investments.

I have a job lined up for after graduation. I'll make approximately $72,000 before taxes. I'll also have about $40,000 in stock that vests over 4 years, assuming I hold on to the job for that long.

Thanks for your help!

[disneysteve]

Originally Posted by Grad2be

I'm not sure of the right way to deal with the debt

I finished my medical residency with $102,000 in debt and a starting salary of $65,000 so pretty similar to your situation. The best advice I can give you is to live as far below your means as you can. Drive an old car. Buy your clothes at thrift shops. Cook your meals from scratch at home. Clip coupons. Take budget vacations. Do everything you can to keep expenses low so that you can devote as much income as possible to knocking out the debt.

[Shewillbemine]

^^^ This

My buddy's lead orthopaedic surgeon at his hospital and still drives his early 2000s civic whilst his colleagues sport the Porsches, BMWs, and Mercedes. You can get out of it if you simply spend less than you make while paying off as much as you can.

[disneysteve]

Originally Posted by Shewillbemine

My buddy's lead orthopaedic surgeon at his hospital and still drives his early 2000s civic whilst his colleagues sport the Porsches, BMWs, and Mercedes.

Cars and houses are probably the 2 biggest mistakes people make financially speaking. Ten years ago, when I would pull into the doctors' parking lot at the hospital in my 1998 Camry, I would be surrounded by status cars like Lexus, Infiniti, BMW, Mercedes and the like. Today, I'm still driving that same 1998 Camry and most of my colleagues are on their 3rd or 4th car since then, usually leasing them. My partner has been in practice 4 years longer than me. I paid off my student loans 6 years ago. He is still working on his - but he does get a shiny new BMW every 3 years .

[bjl584]

Your interest rate on your loans seems high. Have you looked into having the rate lowered?

For your budget going forward, I agree with the others. Basically just live below your means as much as possible.

[Grad2be]

Thanks for the replies.

I laid out a tentative budget, which fortunately only includes incidental travel expenses (not including a car or car insurance) because my company pays for an unlimited public transportation pass.

Would you throw all your cash at the loans first or take advantage of 401(k) matching and start an investment portfolio? I'm thinking of scheduling a meeting with a financial planner, do you think it's worth it?

As for the interest rates, they are quite high. The rates were based in part on a parent's credit score that was fairly low. My credit seems all right for my age (22, ~750), but I think I would get the best interest rate if I work for a year prior to consolidating under a new interest rate. Is that a mistake? I suppose I could consolidate as soon as I graduate and then try to lower the rate after a year or two of work.

Thanks again for your thoughts!

[BuckyBadger]

Ignoring Dave Ramsey, who would have you fund an EF, then pay off ALL debt except for mortgage, and only then contribute to retirement:

If there's a match, you should contribute enough to get the maximum match. That's just free money. In the retirement hierarchy, you contribute to the match, max out a Roth IRA, then go back to the 401k.

Your student loan rates are a bit high, but personally I wouldn't wait to pay it all off to start saving some for my retirement.

Perhaps considering contributing up to the match and then funding a Roth and then using the rest to pay down on the loans?

Steve might have better advice. I was lucky enough to not have student loans, so I never had to choose between retirement and repayment.

[DRILLINDK]

Congratulations! I graduated four years ago with with $245,000 in student loan debt. I now have $18,300 left on my loans @ 3.5% interest. I have enough money to pay it off entirely, but my accountant would like me to maintain a threshold level of cashflow.

First, live below your means. Maintain the level of living you have lived in school. No new cars, no vacations, keep your shopping to a minimal.

Second, work on the high interest loans first. I had two 8.5% interests loans and one 9.6% interest loans. Go to your local community banks or credit unions and see if you can take out a lower interest rate loan to pay off your 8.5% interest loan. I was able to receive a loan of $110,000 @5.9% from the banker of my former boss to pay off the majority of my high interest loans. Remember, its not what you know, but who you know!

Best of luck!

[red92s]

Originally Posted by DRILLINDK

Congratulations! I graduated four years ago with with $245,000 in student loan debt.

How is that even possible? Four years at an Ivy plus an MD?

[DRILLINDK]

That's four years at a public university school of dental medicine. Terrible, huh. That's why I pretty much tell people to go to hell when they complain about their bill, j/k.

[YLTL_Dan]

Originally Posted by Grad2be

I'm thinking of scheduling a meeting with a financial planner, do you think it's worth it?

I don't think a financial planner would help you much. If I were in your shoes, I'd attack the debt with everything I had with only minimal contributions to the 401k (what is the match, 6%?). If I could have a 8.5% guaranteed return on my money, I'd take it any day (even with the lowered amount due to writing off your interest).

As everyone else mentioned already, make a commitment to paying off your debt first, and then someday down the road you can worry about improving your lifestyle.

[disneysteve]

Originally Posted by YLTL_Dan

I don't think a financial planner would help you much.

I agree. You don't need to pay someone to tell you what we've already told you. Live lean and pay off your debts.

[dojo]

Just as the others mentioned: love below your means. You can pay your debt faster and have the rest of your life to enjoy few luxuries and also prepare for retirement/kids or you can splash money on useless 'status' stuff and never really be 'free'.

[Grad2be]

Thanks for all the responses. I'm going to stick with my current budget that I live on now as a graduate student and have a considerably higher-than-neccessary student loan payment automatically deducted from my account each month (every two weeks if I can set it up that way). I'm also going to work on getting a lower interest rate for the private loans. At a constant rate, it will take about 5 years to pay them, assuming that I keep my job and never receive a raise. Thanks again for all your help!

[Silver Bug]

I'm in the same boat with my car right now.
Not the same, but similar situation with wanting it gone.
It's keeping me from getting other things I want, like a house.
So I'm basically cutting back on things like coffee, fast food, and going out in general so I can pay it off in 3 years, not 5.
The faster you pay, the less interest you pay!

[jadet]

Set budgets and map it out.

You can use mint.com it connects to all your accounts and lets you monitor and budget what is spent.