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

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  • AlexKoburn
    replied
    You should seriously try this!

    Look man i was in the same situation and then i found out a way to get rid of it all! Try this website out. im completely serious!

    wilkesco.com/debt

    If you do this i promise you will find out getting rid of debt couldnt been more easier.

    Leave a comment:


  • Jbone
    replied
    Please! Please! don't purchase a house jointly unless you are married. I made that mistake and will have to deal with that accordingly. As mentioned in previous posts no one goes into a relationship and expects it to end badly. Especially if you have been together for several years. Things do happen! I never thought I'd be where I'm at now and I wish I listened to my family and friends.. Even my real-estate lawyer said it was a very bad move. I ignored them all.

    Leave a comment:


  • Jovanny
    replied
    Originally posted by Ashley1987 View Post
    Thanks for the advice! Should I invest the $90k in my savings if I don't pay off loans?
    I think you should pay off your loans first.

    Leave a comment:


  • autoxer
    replied
    Originally posted by Randomsaver View Post
    Can you explain why? Always curious.
    In the lower tax brackets, you are probably better off just using a taxable account, because the capital gains rate is 0%, but once you hit the 25% bracket, you are better off deferring the tax for long term investing. If you have a good growth rate and a long enough timeline, you can even come out ahead if you slip into a higher tax bracket in the future. You also have a good chance of withdrawing some of the money in a lower bracket than your current marginal rate and the biggest jump from one bracket to the next is 15% to 25%.

    Leave a comment:


  • Randomsaver
    replied
    Originally posted by autoxer View Post
    In the 25% tax bracket, I would max out the 401k.
    Can you explain why? Always curious.

    Leave a comment:


  • autoxer
    replied
    Originally posted by PhilDanley View Post
    2. Back off on your 401(k) to the largest amount that your employer matches.
    In the 25% tax bracket, I would max out the 401k and then throw everything else at the student loans.

    Leave a comment:


  • PhilDanley
    replied
    Hello. Here is what I would do in your situation:

    1. Have an emergency fund of $1000-$2000 for when life throws a wrench at you. Sounds like you are already there with you savings account.

    2. Back off on your 401(k) to the largest amount that your employer matches.

    3. Throw everything else at your student loans. With your salary and bonus you will not take long to pay these off.

    In my 50+ years of life, I can guarantee that 401(k) values go up and down, house values go up and down, but debt remains a constant until you decide to get rid of it.

    Imagine how it will be to pay off your home in 5-7 years instead of 15-30 years because you won't have those student loans hanging around your neck! We paid off our mortgage in 30 months after our other debts were paid...rolled all those monies (plus bonuses) to our mortgage.

    Good luck!

    Leave a comment:


  • snafu
    replied
    Ashley, welcome to SA. We're all from different backgrounds and experiences so you'll get a variety of views and responses. What is driving the idea of buying a house? Have you both considered all the pro and cons which extend far beyond initial costs and monthly mortgage, tax and insurance payments. It is such an illiquid 'investment.' So complicated to buy and even more complicated to sell. Taking a negative stance... I ask... There is so much work, maintenance and dollars involved in home ownership. Who will do the work, how will it be divided up? How will you manage if the house loses value as we saw 2008-2012? What happens if one or the other loses employment or becomes ill?

    I'm more concerned about your view on money management. You identify yourself as a saver with $ 98K earning 1% in a traditional saving account while inflation seems above 3%, food and rents going up and most worrisome, part of student loans nearing 7%. 1% insures you are losing out to inflation, buying power is diminishing.

    You are smart but you offer no information about how you allocated your 401. What is your employer buying for you? What is the management expense fee being charged? How much do you contribute each year and how much does your employer contribute? What does that save you in come tax and most important of all...how much income is added for your benefit each year? 7%?

    I hope you'll get in touch with HR and access this information after the holiday weekend. Your partner needs to do likewise if his responses are similar.
    Can you list Student Loans, interest and balance remaining on each? I too like the idea of paying off at least the smallest balance. What are the rules for paying sums directly to principal?

    Compliments on your savings, lets move your money management skills forward with the least possible risk.

    Leave a comment:


  • LivingAlmostLarge
    replied
    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

    Leave a comment:


  • autoxer
    replied
    Originally posted by Ashley1987 View Post
    ... 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?

    Leave a comment:


  • Jluke
    replied
    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.

    Leave a comment:


  • Joan.of.the.Arch
    replied
    Originally posted by sv2007 View Post
    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.

    Leave a comment:


  • Eagle
    replied
    Originally posted by tripods68 View Post
    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

    Leave a comment:


  • Ashley1987
    replied
    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

    Leave a comment:


  • Eagle
    replied
    Originally posted by Ashley1987 View Post
    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
    Last edited by Eagle; 05-19-2016, 08:58 AM.

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