Do I pay off student loans fast or save for a house?

[stewart715]

Do I pay off student loans fast or save for a house?

[disneysteve]

Originally Posted by stewart715

Do I pay off student loans fast or save for a house?

Welcome to the site. We need a lot more info than that to answer your questions. How much debt? What's your income? What are your monthly expenses and how quickly could you retire the debt? What is the interest rate on the debt and is it deductible? Where are you living now?

[stewart715]

Originally Posted by disneysteve

Welcome to the site. We need a lot more info than that to answer your questions. How much debt? What's your income? What are your monthly expenses and how quickly could you retire the debt? What is the interest rate on the debt and is it deductible? Where are you living now?

Thanks

Here is my basic info:

Revolving Debt: $0
Installment Debt (Student Loans): $70,000 at an average of ~6.5-7 % interest
Gross Annual Salary: $120,000 + $15k bonus
Monthly Income (Post-Tax): $6,617
Bonus (Post-Tax): ~$9,500
Monthly Expenses (Including minimum payment for student loans): $1,517
Monthly Expenses (Gas, Food, Other): $500
Living Expenses: Free (Living at home)

I might be able to deduct $2,500 of interest per year.

Thanks for any help!

[bjl584]

From the information that you provided, you have $4600 left after expenses. There are probably more expenses, but I will work with the numbers that you gave.

You could absolutely knock out your loans very quickly, but how long do you want to live at home? Do you have anything saved for retirement or for an Emergency Fund?

You may want to build up some savings AND accelerate payment on the loans. It depends on your goals and circumstances.

[stewart715]

Well, I'm only 23 -- and I spent alot of money in college -- I have no savings and under 5 grand in my 401(k). I guess I'm trying to pay my loans off faster (to avoid the ~$45k in interest I'd end up paying on $70 principal) and at the same time, save money. I just don't know how or where to balance it...

I'll be at home for approx. 2 years.

[artwest]

I would pay off the student loan as quickly as possible.

You should be able to pay that off in about 15 months or less by my calculations. $70k less $9k bonus equals $61k. Divide $61k by $4600 equals 13.2 months.

If you then save $4600 for 10.5 months, you will have $49,000. Use $20k for an EF and you will have $29k for a house. That is 20% down on a $145k house. If you get more bonuses and raise you can increase that amount. That also does not factor in the minimum payment that you are making on your student loans.

You are in great shape. Congratulations!

2 years from now you should be debt free, have a fully funded EF, be able to buy a house and start contributing to your retirement. At age 25 you will be in great shape.

[stewart715]

Thanks, that makes alot of sense -- go all out on removing debt, and then all out on saving -- unfortunately for me, the saving period might be a big longer than a year because the average cost of a house where I will need to live (I work in NYC) is around $400k.

A bit longer saving, and I'll be there

[snshijuptr]

Make sure along the way that you keep an open communication with your parents about your plans. You should be able to estimate how long it will take you to pay down the debt and save the down payment so you should let them know. Make sure that they are okay with your timeline. It sounds like they might already be okay with around 2 years, but you always want to communicate these sorts of things.

[YLTL_Dan]

Originally Posted by stewart715

Thanks, that makes alot of sense -- go all out on removing debt, and then all out on saving -- unfortunately for me, the saving period might be a big longer than a year because the average cost of a house where I will need to live (I work in NYC) is around $400k.

A bit longer saving, and I'll be there

I think that's a good idea - it will give you some more time to figure out where/how you want to live as well. Luckily, I didn't buy a house until five years after college... and after my third move! Owning a house/condo would have been much more expensive and limiting for me.

[disneysteve]

I'm going to offer a different opinion.

You are an adult earning an excellent income. Move out. Start living as an adult, an independent being. Pay your own way in life.

Yes, that will mean being in debt longer. Yes, that will delay when you buy a home. So be it.

At the very least, if you remain living with your parents, start paying rent and your share of the expenses they are incurring from having you there.

Clearly, I am not a fan of the current trend of adult children staying with their parents longer and longer, especially when they have more than adequate means to move out.

I realize there are cultures where it is more normal and that's fine if that applies here. I also realize there are sometimes extenuating reasons to stay home, like a disabled parent needing care, and that's fine too if that applies. Otherwise, I'd be apartment hunting.

ETA: On rereading this, I realize it sounds kind of harsh. Not my intent, but it does reflect my personal opinion about adulthood, a concept that seems to be fading away for many. I'm an old fogie (47) and just can't imagine myself still living at home at 23 making a six-figure income. I love my parents but their job was to raise me to be a productive adult. When I finished college, I got my own place for grad school and beyond. Obviously, your opinion (and that of your parents) may vary. I just know what I would do in your situation.

[dczech09]

My view is that you should absolutely knock out your student loan debt prior to moving into a house. So put the pedal to the metal and save for emergencies, set some money aside for retirement, and knock out that debt!

You have an excellent income for 23, however you are also in the most expensive city in the US. Even so, you should still be able to make it stretch and take care of a lot of goals in due time.

[JustBill]

Originally Posted by stewart715

Thanks

Here is my basic info:

Gross Annual Salary: $120,000 + $15k bonus
Monthly Income (Post-Tax): $6,617
Bonus (Post-Tax): ~$9,500

I am impressed! Very well done. You should be proud of yourself, as I'm sure your parents are.

While you have the low cost of living, my opinion is to make history of the student loans. I'm sure your parents would rather continue having you as a tenant whilst you retire the debt, than to have paid the 70k, provided they could have, themselves.

You'll have plenty of time to make stacks of cash to devote to that home purchase once you know where you wish to live. Just pass on the new BMW for the time being.

-Enjoy

[Mr Nice Guy]

Originally Posted by disneysteve

I'm going to offer a different opinion.

You are an adult earning an excellent income. Move out. Start living as an adult, an independent being. Pay your own way in life.

Yes, that will mean being in debt longer. Yes, that will delay when you buy a home. So be it.

At the very least, if you remain living with your parents, start paying rent and your share of the expenses they are incurring from having you there.

Clearly, I am not a fan of the current trend of adult children staying with their parents longer and longer, especially when they have more than adequate means to move out.

I realize there are cultures where it is more normal and that's fine if that applies here. I also realize there are sometimes extenuating reasons to stay home, like a disabled parent needing care, and that's fine too if that applies. Otherwise, I'd be apartment hunting.

ETA: On rereading this, I realize it sounds kind of harsh. Not my intent, but it does reflect my personal opinion about adulthood, a concept that seems to be fading away for many. I'm an old fogie (47) and just can't imagine myself still living at home at 23 making a six-figure income. I love my parents but their job was to raise me to be a productive adult. When I finished college, I got my own place for grad school and beyond. Obviously, your opinion (and that of your parents) may vary. I just know what I would do in your situation.

For some reason I remember reading about a week ago you saying something to the effect of "I don't necessarily offer advice on what I would do, I offer advice on the most conservative method of handling finances." Paraphrased obviously.

I am curious Steve why you would change your mantra for this particular situation?

The most conservative advice here would be stay with parents as long as possible to decrease expenses.

[ecoadapt]

You are an adult earning an excellent income. Move out. Start living as an adult, an independent being. Pay your own way in life.

I believe with your income, you can definitely live on your own!

Clearly, I am not a fan of the current trend of adult children staying with their parents longer and longer, especially when they have more than adequate means to move out.

Haha, It's not a bad thing living with parents, at least there's someone (yourself) can look after your parents! BUT, I guess you could share the expenses!!

[disneysteve]

Originally Posted by Mr Nice Guy

For some reason I remember reading about a week ago you saying something to the effect of "I don't necessarily offer advice on what I would do, I offer advice on the most conservative method of handling finances." Paraphrased obviously.

Fair question. I don't view this as a financial decision but rather as a personal/life decision. Assuming normal conditions, I believe adults should live as adults. There may be financial sacrifices involved in doing so but that's part of the process.

I heard a quote a while ago that said something to the effect of, "A parent's job isn't to raise children. It is to raise adults." Once the child grows into adulthood, it is time to spread his wings and leave the nest. I don't think it is best for the young adult or the parents to do otherwise, particularly if the parents are still financially supporting the young adult. There was another thread about baby boomers suffering financially because they are still supporting their adult children at the expense of their own retirement savings and overall financial well-being.

So when it comes to life issues, I will give advice as someone with 47 years of life experience including 16 as a parent. And I will base my advise on what I would do, have done and probably should have done but didn't.

[Mr Nice Guy]

Originally Posted by disneysteve

Fair question. I don't view this as a financial decision but rather as a personal/life decision. Assuming normal conditions, I believe adults should live as adults. There may be financial sacrifices involved in doing so but that's part of the process.

I heard a quote a while ago that said something to the effect of, "A parent's job isn't to raise children. It is to raise adults." Once the child grows into adulthood, it is time to spread his wings and leave the nest. I don't think it is best for the young adult or the parents to do otherwise, particularly if the parents are still financially supporting the young adult. There was another thread about baby boomers suffering financially because they are still supporting their adult children at the expense of their own retirement savings and overall financial well-being.

So when it comes to life issues, I will give advice as someone with 47 years of life experience including 16 as a parent. And I will base my advise on what I would do, have done and probably should have done but didn't.

Touche.

Not that I disagree with you in any way. (I have lived on my own after high school bringing home less than 20k/ year and still managing to save a little and make 401k contributions.)

[snshijuptr]

Personally, I feel in these circumstances, living with your parents is not a huge deal. As he earns his own income and has decent expenses, my guess is that OP is paying his way except for rent. This is a lot better than many people my age who don't earn anything and still live the high life. Living at home with a plan to move out and buy a place isn't a bad situation as long as everyone is communicating. I know lots of people, older than me, who lived with their parents until they married.

[mom-from-missouri]

I vote pay off the loans first--hit them as hard as you can, then start the emergency fund. Once that is in good shape, start the house fund.

The reason I say emergency fund first, is once you have a house, there is always something to repair or replace. And, you will have a mortgage that has to be made. So, make sure you have a solid footing before you build on it, financially speaking.

[disneysteve]

Originally Posted by mom-from-missouri

I vote pay off the loans first--hit them as hard as you can, then start the emergency fund. Once that is in good shape, start the house fund.

Great point. Far too many people buy a house but deplete their savings in the process. Then they find themselves not able to afford furniture, window treatments or routine maintenance items. People often fail to realize how expensive home ownership truly is. They figure if the mortgage payment is the same as the rent payment, they can afford it and that is so far from reality.

[photo]

Originally Posted by disneysteve

Once the child grows into adulthood, it is time to spread his wings and leave the nest.

It can also interrupt the maturing process and learning about responsibility. True, someone new in the workforce may only be able to only afford a shoebox of an apartment, but at least it's his apartment, and he can do whatever he wants. This is my own prejudice, but in the US, I would find it odd that an adult with a six-figure income is still living with mom and dad (assuming, as Steve said, no disabilities or illnesses or other circumstances that may change the situation). If nothing else, I would think it would have a negative impact on a social and dating life.

To the original question, my vote is to get rid of those loans, even with an apartment. If you learn to scale-down expenses early, you will be richly rewarded in just a few years!