I have $72k in student loan debt and $90k in savings. What should I do?

[Ashley1987]

I'm 29 years old and make $98k a year (+ bonus). My boyfriend (no student or cc debt and $30k in savings) and I are considering buying a house with help from his parents for a downpayment. I recently upped my 401K to 15% but I currently have about $40k in my 401k account. I know nothing about investing and haven't done anything other than putting money into my 401k. Should I pay all of my loans off (average interest is 5%), some of them or none of them and invest? I have no credit card or auto debt. I have a precarious family situation and will need to make sure I have a nest egg for anything that comes up, but I also want to make sure I'm planning for my future. I've read so much advice on the subject and have read different things (don't pay off loans if they are under 7% because you should invest, etc)

[Nutria]

I'm 29 years old and make $98k a year (+ bonus).

Good.

My boyfriend (no student or cc debt and $30k in savings)

Better.

and I are considering buying a house with help from his parents for a downpayment.

How expensive of a house?

Who's name will it be in? (If I were ponying up a DP for my son and his GF, then I'd want the title in his name. But that would give him excess power in the relationship.)

How much will each of you contribute to the mortgage?

What if you break up? By what mechanism will the two of you split the equity if one of you leave?

I recently upped my 401K to 15% but I currently have about $40k in my 401k account. I know nothing about investing and haven't done anything other than putting money into my 401k.

What investment choices did you make?

Should I pay all of my loans off (average interest is 5%), some of them or none of them and invest? I have no credit card or auto debt.

You don't mention how much your loans are.

Are you and your BF on a budget, or do you just spend what you want?

How integrated are your finances?

Do both of you have a similar "fiscal vision"?

I have a precarious family situation and will need to make sure I have a nest egg for anything that comes up, but I also want to make sure I'm planning for my future.

Having a nest egg is planning for the future.

I've read so much advice on the subject and have read different things (don't pay off loans if they are under 7% because you should invest, etc)

That's pretty darned high, especially when the historical stock market yearly return is only 8%.

[Ashley1987]

Thanks so much for your reply!

What investment choices did you make?

This is where I need to learn more. I currently leave my 401k alone - it's invested in a diverse portfolio, but I do not make these choices - the employer's stock management does.

How expensive of a house?

Who's name will it be in? (If I were ponying up a DP for my son and his GF, then I'd want the title in his name. But that would give him excess power in the relationship.)

How much will each of you contribute to the mortgage?

What if you break up? By what mechanism will the two of you split the equity if one of you leave?

We're looking at a house around $300k outside the city. The mortgage would be in both of our names, and the loan for the downpayment is not payable until we sell. We are both planning to contribute half to the mortgage (he makes less, $65k). We've been together for about 7 years, and while we don't expect to break up we have planned that we'd split any equity half and half after his parents' downpayment is repaid. That said, I have $90k in savings and could make the entire downpayment instead of paying off my student loans - something I'm grappling with as well.

You don't mention how much your loans are.

Are you and your BF on a budget, or do you just spend what you want?

How integrated are your finances?

Do both of you have a similar "fiscal vision"?

My loans are currently at $72k - my private loans have a 3% interests rate and my unsubsidized gov loans are at 6.8%. We are both on a very strict budget - we spend about 25% of our income on rent and divide everything else in the household equally. We share finances 100%, and our finances have been integrated for about 4 years now, but neither of us are financial experts.

Currently, we aren't doing any investing on our own aside from our 401ks, which we do not manually control. He has financial support if needed from his family, but I do not.

[bjl584]

Not one person on this planet has ever gone into a serious relationship with plans to break up, but it happens all the time. I wouldn't buy something as expensive as a house jointly with someone unless I was married.

That being said, You make a good income and have minimal debt. Just make your payments on your loans and stay the course. Throw a few extra hundred at them a month and the balance will drop quickly.

[Ashley1987]

Not one person on this planet has ever gone into a serious relationship with plans to break up, but it happens all the time. I wouldn't buy something as expensive as a house jointly with someone unless I was married.

That being said, You make a good income and have minimal debt. Just make your payments on your loans and stay the course. Throw a few extra hundred at them a month and the balance will drop quickly.

Thanks for the advice! Should I invest the $90k in my savings if I don't pay off loans?

[Eagle]

I'm 29 years old and make $98k a year (+ bonus). My boyfriend (no student or cc debt and $30k in savings) and I are considering buying a house with help from his parents for a downpayment. I recently upped my 401K to 15% but I currently have about $40k in my 401k account. I know nothing about investing and haven't done anything other than putting money into my 401k. Should I pay all of my loans off (average interest is 5%), some of them or none of them and invest? I have no credit card or auto debt. I have a precarious family situation and will need to make sure I have a nest egg for anything that comes up, but I also want to make sure I'm planning for my future. I've read so much advice on the subject and have read different things (don't pay off loans if they are under 7% because you should invest, etc)

Thanks so much for your reply!

This is where I need to learn more. I currently leave my 401k alone - it's invested in a diverse portfolio, but I do not make these choices - the employer's stock management does.

We're looking at a house around $300k outside the city. The mortgage would be in both of our names, and the loan for the down payment is not payable until we sell. We are both planning to contribute half to the mortgage (he makes less, $65k). We've been together for about 7 years, and while we don't expect to break up we have planned that we'd split any equity half and half after his parents' down payment is repaid. That said, I have $90k in savings and could make the entire down payment instead of paying off my student loans - something I'm grappling with as well.

My loans are currently at $72k - my private loans have a 3% interests rate and my unsubsidized gov loans are at 6.8%. We are both on a very strict budget - we spend about 25% of our income on rent and divide everything else in the household equally. We share finances 100%, and our finances have been integrated for about 4 years now, but neither of us are financial experts.

Currently, we aren't doing any investing on our own aside from our 401ks, which we do not manually control. He has financial support if needed from his family, but I do not.

Hey Ashley welcome to SavingsAdvice!

That is excellent that you have 90k saved up! Good that boyfriend has 30k saved up too!

Sounds like your combined income is over 160k a year. That's fantastic!

Some more questions to better understand your situation.

What percentage of your income(s) do you save each month?

Does your boyfriend have any other debt? You mentioned he had no CC or student loan debt.

Is the 90k and 30k savings respectively just sitting in the bank?

How much do you guys typically spend a month?

When is your rent agreement up?

What are you paying monthly in rent now?

What would you be paying monthly on a mortgage loan on a 300k house?

What would be the interest rate on the mortgage loan?

What does a 300k house in your area buy? Is it 3-5 bed and 2+ bathrooms? Is there an office and garage? What features are you looking for in a house.

Do you plan on getting married?

Since you have been together for 7 years what are the laws in your state/country about common law marriage?

I agree with (Brian) BJL584 it's a very, very bad idea to buy a house with someone with whom you are not legally married to. If you pursue this I'd have a lawyer draw up a contract with the specific terms you agree upon. Break ups happen every day even with married couples.

[tripods68]

My loans are currently at $72k - my private loans have a 3% interests rate and my unsubsidized gov loans are at 6.8%. We are both on a very strict budget - we spend about 25% of our income on rent and divide everything else in the household equally.

I'd be terrified having so much in student loans. I think its best if you use the $90K cash pay that off.

With your income $100K and following a budget (no kids), you are both doing well. You should set aside 6 months of expenses towards Emergency (even if you are not married).

$90K - $72student loans = $18K remaining towards EF.

Rebuilt your cash flow, open up a ROTH IRA to invest ($5500 a year) towards retirements. The rest of should be savings towards buying a house with 20% down, if that's the next plan after marriage. Then combine your income together as ONE (my advice)

(I DEFINITELY recommend that you MAX out employer 401K to 18K a year. I think your high income and strict budget you should be able to MAX 18K a year and ROTH and still save towards a home without squeezing out lifestyle easily )

[sv2007]

Paying off with extra money that you have no use for? then yes. By no use, I mean you have so much money to dwarf that student loan amount. How much is so much? That'd depend on you, but it's got to be at least > student loan amount by definition.

If you read our mortgage thread, many here are even paying off long-term 3-4% when IMHO their financial situation is sketchy. So, what does it say about your 5% loan?

Paying off loans is good, but it's not so good when you get caught in a cash squeeze because you can't take money back out at the same terms. When I say cash squeeze, I'm talking about a law suit or needing emergency cash (e.g. when traveling). Not something like $1k-$5k (because you budget should smooth that out), more like $100k. When you don't plan of this stuff, it can make your financial life miserable for a while.

[Eagle]

Thanks for the advice! Should I invest the $90k in my savings if I don't pay off loans?

Personally, I'd wait on the house and pay off the loans. Then build up your savings again to about 6-12 months worth of expenses as your emergency fund. Since you make nearly 100k a year it shouldn't take you very long.

I'd hold off on buying a house until I had $0 debt, 6-12 months in my emergency fund, and were able to pay 20% down of your own money. Best decision we ever made 3 years ago. If you can afford it I'd also recommend getting a 15 year loan and keeping the payment at 25-30% of your take home pay.

A house will always cost you more than you think. It's not just the house (say 300k) either. It's closing costs, home inspection, PMI (if you don't put at least 20% down), taxes, home insurance, yard equipment, appliances, furniture, moving expenses, roof, fence, A/C, Heater, etc.

Read more: http://money.usnews.com/money/person...-buying-a-home

[Ashley1987]

Thanks everyone!

We're actually interested in getting married, we just haven't yet. Neither of us are big on weddings and our families are - so we haven't really invested the time or money because to us, it's just not important.

That said, we may end up at least legally marrying prior to the house, especially if some of our downpayment is a gift from his parents.

To answer a few more questions!

What percentage of your income(s) do you save each month?

I save 15% pre-tax to my 401k and then 20% of my post-tax salary (which is usually about $800 a month) automatically to a high yield savings account (but it only gets 1% interest, so I realize I'm not making the most of my money). I tend to have a little left over every month, so I move that to another "travel and fun" savings account that we both share. He saves a little less, simply do to the fact that he makes $65k, but he is at 10% 401K and 10% after tax savings.

Does your boyfriend have any other debt? You mentioned he had no CC or student loan debt.

Nope, he's debt-free thanks to very generous parents who helped him through college

Is the 90k and 30k savings respectively just sitting in the bank?

Yes. This is where we're most concerned. It's been there for awhile, building no more than 1% interest. Meanwhile I'm paying interest on my student loans, so I realize if I do not invest this money, I'm losing a lot by not paying off loans.

When is your rent agreement up?

We're in a very flexible month-to-month in Brooklyn. That said, rental housing in NYC is very volatile and we're constantly faced with the prospect of moving or paying way too much in rent, hence why we are considering the move to the burbs.

What are you paying monthly in rent now?

We pay $1900 + heating bills, which vary each month.

What would you be paying monthly on a mortgage loan on a 300k house?

Our budget is more around $350K, actually. At $350k, with a 20% downpayment gifted by his parents, we'd pay about $1,300 in mortgage payments + another $800 in property tax and insurance (taxes are very high in NJ). We'd no longer pay NYC city income tax, which would put about $350-400 back in our pockets as well.

What would be the interest rate on the mortgage loan?

We are expecting something around 3.7%, but we haven't gotten pre-approved yet due to the questions surrounding how to spend our money. We both have 780+ credit and with stable jobs.

What does a 300k house in your area buy? Is it 3-5 bed and 2+ bathrooms? Is there an office and garage? What features are you looking for in a house.

Yes - we aren't looking for anything under a 3 bed, 2 bath house with a detached garage. Other than that, we don't have a lot of needs aside from outdoor space and a basement.

Do you plan on getting married?

See above

[Eagle]

I'd be terrified having so much in student loans. I think its best if you use the $90K cash pay that off.

With your income $100K and following a budget (no kids), you are both doing well. You should set aside 6 months of expenses towards Emergency (even if you are not married).

$90K - $72student loans = $18K remaining towards EF.

Rebuilt your cash flow, open up a ROTH IRA to invest ($5500 a year) towards retirements. The rest of should be savings towards buying a house with 20% down, if that's the next plan after marriage. Then combine your income together as ONE (my advice)

(I DEFINITELY recommend that you MAX out employer 401K to 18K a year. I think your high income and strict budget you should be able to MAX 18K a year and ROTH and still save towards a home without squeezing out lifestyle easily )

+1 on maxing out the 401k and getting any matches.

+1 on getting a Roth IRA. https://www.irs.gov/retirement-plans/roth-iras

[Joan.of.the.Arch]

Paying off with extra money that you have no use for? then yes. By no use, I mean you have so much money to dwarf that student loan amount. How much is so much? That'd depend on you, but it's got to be at least > student loan amount by definition.

If you read our mortgage thread, many here are even paying off long-term 3-4% when IMHO their financial situation is sketchy. So, what does it say about your 5% loan?

Paying off loans is good, but it's not so good when you get caught in a cash squeeze because you can't take money back out at the same terms. When I say cash squeeze, I'm talking about a law suit or needing emergency cash (e.g. when traveling). Not something like $1k-$5k (because you budget should smooth that out), more like $100k. When you don't plan of this stuff, it can make your financial life miserable for a while.

Sv2007, do you think people paying off their loans including mortgages when they do not yet have a $100,000 emergency fund is risky or sketchy? Am I interpreting your words too literally?

I will never have a $100,000 emergency fund. In traveling, it is not as though I need the back-up of an emergency ransom fund (and I don't travel internationally to rub elbows with Indian Ocean pirates ). I have Fried Green Tomatoes levels of insurance, including a good umbrella policy. I have feel quite comfortable having paid off my mortgage, and could extend that to paying off loans, if I had any.

Sorry, OP, if this feels like a diversion. I would not want you to fear paying off loans and tending to existing money challenges rather than inflating the probability of oddball things requiring mega money happening. Yeah, buckle your seat belt and don't text while driving. Also eat your vegetables. That gets at the bigger threats in life.

[Jluke]

Step 1: Open a Roth IRA, contribute $5500 for 2016
Step 2: Increase your 401k contribution amount so you contribute close to 18k for 2016
Step 3: Payoff the smallest student loan balance

see how the above impacts your financial mindset. did you like paying off that student loan? would you consider paying off the next lowest balance now too?

Don't worry about investing any of the 92k now. Leave it in the 1% savings account. Esp if you are going to buy a house, save the cash.

Compare a 15-year mortgage vs 30-year mortgage and how it fits your situation.

I probably missed something, but that should be a good, slow, steady start.

[autoxer]

... with a 20% downpayment gifted by his parents

Is the downpayment assistance a loan or a gift? I wouldn't want a loan from my inlaws, and definitely not if I wasn't even married yet.

If I had $90k liquid and $72k in debt, I would definitely start picking off any higher rate loans. How large of an emergency fund would you need to feel comfortable?

How is your cash flow? Are you adding to your savings every month or are you spending your take home pay?

[LivingAlmostLarge]

I am hesitant to say take the DP money because you aren't married. I did buy with my DH before marriage but we went all in together and split everything 50/50 without any parental help. So things were different. Here one set of parents is helping. That would make me hesitant