Enormous debt and overwhelmed

[Snowy]

Hello. So happy to have found you all. I know very little about finance and need some advice.

A little about me: I am in my 30s, a doctor with 1.5 years of training left. I make $60K at the moment. After training, my salary will triple (at least). But I'm 250K in debt from med school loans and 15K in debt from credit cards. I am married and husband makes 30K. We currently rent and pay $1600/month. We don't have enough for the down payment to buy and we don't know if we want to stay in this area when I'm out of training so buying doesn't seem like a possibility at the present time. Both our cars are paid off. We don't have kids and don't plan to for the foreseeable future.

I am nervous about all this debt and how to climb out from under it and actually start saving. We do have retirement accounts through work, but we only have a few thousand in the bank.

One other thing is that I have a brother who is disabled and will never be able to work. My parents care for him currently, but there will likely come a time when they won't be able to do so. I will be supporting him and I'm happy to do so but I'd like to be out of debt when that time comes and be in a place where I can get him the best care.

My question is about how to pay this off as soon as possible? Should we buy a house immediately after my training or wait until all this debt is paid off? One of my biggest fears is something happening to me and leaving my husband with all this debt and leaving my brother without anything should something happen to my parents. Any advice you can give me on reducing such a big debt and saving for my family is welcomed.

[Jluke]

Hi, thanks for posting your information here.

In no particular order:

You need to get Term Life insurance if you are concerned about leaving all that debt.

A house is the last thing you should be worried about right now (and that is not a bad thing). you have too much debt and you said you aren't even sure you want to stay in that particular area.

If you aren't familiar with Dave Ramsey and his approach to debt payoff, you may want to read about that. Main things are maintaining an Emergency Fund (EF) and paying off debt in a strategic manner. His investment advice is not the greatest.


Finally, you may want to check out the whitecoat investor website/forum in addition to hanging around here and asking us more questions.

[Singuy]

Are you saying something happens as in death or disability? If it's death then all unsecured debt are discharged like your CC and student loan debt. If disability, then defaulting is the only option. Sign up for loan forgiveness and your yearly income doesn't match the threshold in which a payment is needed only if the medical school debt is a government debt.

If the medical school debt is private, then that's even easier if you can't no longer work..just default and it'll disappear after the status of limitation period of 5 years.

Lets assume none of that happens then this is my take on the matter.

1. Work with online lending companies like SOFI or Earnest. They can reduce the interest rate of your medical school loan debt as long as you follow their rigorous payment schedule. The faster you want to pay it off, the lower the interest rate..a lot of the time I've heard they can reduce it by 50%.

2. Continue to live like a college student, meaning no new cars, no new house, no new vacations.

3. I will at the very least get rid of the 15k CC debt in the next 1.5 years making 60k/year.

4. Dump as much as you can into the student loan debt, pretend you are making 30k/year and the other 140kish after tax are going into debt. Do this for 2 years.

5. After 2 years, start saving up to a 20% down then buy your house.

My wife came out of optometry school with 178k worth of student loan debt and we got her to pay it off in 2.5 years..and she didn't make 200k/year on average when paying this off...AND had to give her parents 1k/month.

You should be debt free by 34, have a downpayment for a 300k-400k house by 35...and pay off the house by 38 if you are feeling really ambitious. My wife and I did all of that before we turned 33.

[Snowy]

Thank you to you both. Very good information here. I'm so glad I found this forum.

Just another question. Sorry if this sounds stupid, but I thought if I die, then my spouse would be stuck with the CC debt. Only my name is on the CC but we were married when we accrued the 15K in debt. Are you saying it will be discharged if I die? I do have life insurance through my employment. Not sure if that would be used to pay off the CC bill or not.

I have looked up Dave Ramsey and love his strategy for paying down debt. I just feel like his snowball method and avalanche method are dealing with debt that's somewhat similar (15K versus 20K). In my case, the 250K is what's causing anxiety.

I am doing IBR and they say that after 20 years, it will be forgiven, but I'll be stuck with paying taxes on it so I just want to pay it off. The other option I'm under is public service loan forgiveness, but I've heard talk that that's going away and I likely won't be included retroactively. I don't know if this is true. I just found the White Coat Investor forum thanks to you all so I can ask that question there if you all don't know.

Once again, thank you.

[Singuy]

Well if the CC has only your name on it, then I believe it's not your husband's problem if you die.

IRB student loan forgiveness is an option but probably doesn't make sense for you. Your income will be too great at 200k+ in additional to your husband's 30k. So 230k X 10% is 1916 /month for 20 years. This ends up being 459840 after 20 years.

In fact you will only pay 1938/month if you didn't sign up for the program and pay for 20 years @ 7% interest rate.

This is why I didn't even name that option because it's massively better to refinance your student loans with SOFI and pay it off ASAP.

[dczech09]

Just another question. Sorry if this sounds stupid, but I thought if I die, then my spouse would be stuck with the CC debt. Only my name is on the CC but we were married when we accrued the 15K in debt. Are you saying it will be discharged if I die? I do have life insurance through my employment. Not sure if that would be used to pay off the CC bill or not.

If you are the only name on the CC, then it should not follow to your husband if you (let's hope not) pass away any time soon. Do not quote me on this as it could be different depending on the state that you live you and how marital debt is treated, however if only your name is on the CC then it should only be you that answers for it. Not your husband. So that is good news!

I have looked up Dave Ramsey and love his strategy for paying down debt. I just feel like his snowball method and avalanche method are dealing with debt that's somewhat similar (15K versus 20K). In my case, the 250K is what's causing anxiety.

How do you climb Mt Everest? One step at a time. How do you run a marathon? One step at a time. How do you pay off $250k in debt? One step at a time. The principle is exactly the same for $250k in debt as it is for $25k in debt - you are just adding a digit on the end.

The Debt Snowball method has you paying off debt in order from smallest pay off balance to largest. The Debt Avalanche method has you paying off debt in order from highest interest rate to smallest.

Chances are your $250k in student loan debt is made up of several smaller loans. All with varying balances, but probably pretty similar interest rates. Assuming that is the case, then the Debt Avalanche method probably won't make much difference. So use the Debt Snowball method. Any extra amounts you pay should be targeted towards the smaller loan balance. The beauty is that as you progress and pay off smaller student loan balances, your minimum payment actually gets smaller. That is really nice just in case you get into a rough period where you cannot necessarily afford the monthly payment.

I am doing IBR and they say that after 20 years, it will be forgiven, but I'll be stuck with paying taxes on it so I just want to pay it off. The other option I'm under is public service loan forgiveness, but I've heard talk that that's going away and I likely won't be included retroactively. I don't know if this is true. I just found the White Coat Investor forum...

It is funny that you mention this stuff because I was just reading up on it earlier. I have always told people to take IBR and PSLF with a grain of salt because the government COULD possibly discontinue the program. Banking on the government to hold a program steady for 20 years is very dangerous.

I would absolutely pay it off as fast as you can. The (possible) forgiveness in 10-20 years due to IBR or PSLF is not that great of a benefit, especially since you will owe taxes on the forgiven amount. And if your debt negatively amortizes, you could be in for a massive tax bill down the road.

Keep at it and you will be a doc in no time! Then you can smack the student loans in the face and get your life back in just a few years. Once you do that, you will be able to live the good life.

[Snowy]

Thanks guys.

One clarification: I'm already 5 years in with the PSLF, so I only have 5 more to go before it's all forgiven, assuming it's still a thing. And with PSLF, you don't have to pay taxes on whatever is forgiven. It's only if you go straight IBR that you pay taxes on the forgiven amount. Does it still not make sense to continue paying and hope for PSLF in 5 more years?

[Gailete]

As to your brother, that is admirable that you are willing to care for him when your folks can no longer. I hope you have had some serious discussions with them about this. Like is he getting SSI at this point? Are they planning on leaving him his share of any inheritance in trust to be administered by you? Is your husband on board with this situation? Is your brother able to live in a group home, or at least go to a day care program while the two of you work? So much depends on his disability and what your folks have been doing for him. Is he able to do things for himself or does he need help with even dressing, eating, and personal care? He is a whole big topic and what goes on with him depends on the state you are in what he qualifies for in the way of health insurance, and disability help.

Sorry no answers, but some question to look into if you haven't already.

I agree no house until you are where you plan to be a doctor and until you have some money set aside to do so. Houses always cost more than the mortage.

[dczech09]

Thanks guys.

One clarification: I'm already 5 years in with the PSLF, so I only have 5 more to go before it's all forgiven, assuming it's still a thing. And with PSLF, you don't have to pay taxes on whatever is forgiven. It's only if you go straight IBR that you pay taxes on the forgiven amount. Does it still not make sense to continue paying and hope for PSLF in 5 more years?

Good call on the PSLF. Since you only have 5 years left, it should be pretty safe to assume that you will be alright. Even if the law changes, you may very well be grandfathered in as changes may only affect new borrowers.

If I were you, I would consider setting aside all of the money that you "would" pay towards your loans. Like any extra money each month that you would in theory put against your loans - put that money into a savings account. That way if after 5 years the worst happens and you do not get forgiveness, you can pay all of that money you saved up towards the loans and quite possibly pay them off.

Just an idea! If anything, it is insurance that will almost guarantee your loans will be gone in 5 years.

[sblatner]

Re the credit card debt...your estate will have some money in it. I think your estate will have to pay the credit card debt...I don't think it will all be forgiven when you die. Of course, you might not have much of an estate but if you have any money, that needs to be paid from your estate. I suppose he could claim all the money as his but that might not fly.

[bjl584]

Hello. So happy to have found you all. I know very little about finance and need some advice.

A little about me: I am in my 30s, a doctor with 1.5 years of training left. I make $60K at the moment. After training, my salary will triple (at least). But I'm 250K in debt from med school loans and 15K in debt from credit cards. I am married and husband makes 30K. We currently rent and pay $1600/month. We don't have enough for the down payment to buy and we don't know if we want to stay in this area when I'm out of training so buying doesn't seem like a possibility at the present time. Both our cars are paid off. We don't have kids and don't plan to for the foreseeable future.

I am nervous about all this debt and how to climb out from under it and actually start saving. We do have retirement accounts through work, but we only have a few thousand in the bank.

One other thing is that I have a brother who is disabled and will never be able to work. My parents care for him currently, but there will likely come a time when they won't be able to do so. I will be supporting him and I'm happy to do so but I'd like to be out of debt when that time comes and be in a place where I can get him the best care.

My question is about how to pay this off as soon as possible? Should we buy a house immediately after my training or wait until all this debt is paid off? One of my biggest fears is something happening to me and leaving my husband with all this debt and leaving my brother without anything should something happen to my parents. Any advice you can give me on reducing such a big debt and saving for my family is welcomed.

The worst thing that you could probably do right now is buy a house.
You have $265K in debt currently. Taking on several hundred thousand more via a mortgage won't help.

Keep renting for now while you work to pay off what you have.

It would help if you posted a budget listing ALL monthly income and expenses. We will be able to help better if we can see your entire financial picture.

The good news is that your income is going to increase dramatically. You shouldn't have much trouble paying everything down and saving for a house. You just need a budget and a plan.

[disneysteve]

In my case, the 250K is what's causing anxiety.

Welcome to the site. I'm a fellow physician and also graduated with substantial student loans. That was back in 1993 so the numbers were smaller but the significance wasn't. I owed about $102,000 when I was done.

The statement I quoted stands out to me, though. When I read your story, it wasn't the student loan debt that jumped out at me, it was the credit card debt. How you got the school debt is obvious. What you haven't shared yet is how you racked up the CC debt. That is more likely to point to a spending issue that needs fixing.

Overall, I agree with point #2 from Singuy. No matter how much you earn, keep living lean. Use the higher income to attack the debt and save for the future. In just over a year, the two of you will be earning over $200,000. Keep living like you're still earning 90K (or less) and you'll have a very big surplus that can quickly wipe out the debt, save for an affordable home, and start building wealth. Don't buy into the "doctor" lifestyle. You don't need a McMansion, a BMW, a country club membership, and a beach house. You need a balanced budget, minimal debt, and a fat and growing retirement account. Those are far better measures of success.

[Snowy]

Re the credit card debt...your estate will have some money in it. I think your estate will have to pay the credit card debt...I don't think it will all be forgiven when you die. Of course, you might not have much of an estate but if you have any money, that needs to be paid from your estate. I suppose he could claim all the money as his but that might not fly.

Would it also come from life insurance or is that separate? Probably a stupid question.

The statement I quoted stands out to me, though. When I read your story, it wasn't the student loan debt that jumped out at me, it was the credit card debt. How you got the school debt is obvious. What you haven't shared yet is how you racked up the CC debt. That is more likely to point to a spending issue that needs fixing.

So the CC debt is the result of my husband's accident, medical bills, and being unemployed for a year as a result. I also had to have new brakes and tires put on my car back in the fall and we paid for it by CC. He's back at work as of Christmas and we're making a dent in it and haven't used it since the start of the new year.

As for budget, we haven't actually set one, but should. We've just agreed no eating out, no purchases, etc. until this is paid off. We pay $1600/month in rent, $280/month for utilities, cable, Internet, cell phones, $200/month for groceries, $340/month for student loans.

[Gailete]

As for budget, we haven't actually set one, but should. We've just agreed no eating out, no purchases, etc. until this is paid off. We pay $1600/month in rent, $280/month for utilities, cable, Internet, cell phones, $200/month for groceries, $340/month for student loans.

Are those just guesses.? I'm having trouble thinking that two of you are getting by on $50/week for groceries. Unless I am the only one, things like toilet paper, detergent, etc. come in under the grocery budget (the last thing I want to do it take my receipt when I get home and seperate everything into categories). If you are like me and everything ends up in the grocery category, there is not a lot for food for the two of you. Maybe getting free food at the hospital for you?

The numbers above only come out to 1/3 of what you two are earning now. I know somewhere in there is taxes, etc. out of your pay check, but what is your take home and where is all rest of your money going? Are you saving some each month? You do have a a big debt, but you also have a big salary already and with what you have coming in, by being careful, you should be able to make great strides in paying off the credit cards.

Until, you are sure that you know where your money is coming and going from, you are going to remain nervous about your debt You need a plan. Just like you need a full CBC to help diagnosis a patient, you need a full look at your money income and outgo and have it in balance.

[Snowy]

Are those just guesses.? I'm having trouble thinking that two of you are getting by on $50/week for groceries. Unless I am the only one, things like toilet paper, detergent, etc. come in under the grocery budget (the last thing I want to do it take my receipt when I get home and seperate everything into categories). If you are like me and everything ends up in the grocery category, there is not a lot for food for the two of you. Maybe getting free food at the hospital for you?

The numbers above only come out to 1/3 of what you two are earning now. I know somewhere in there is taxes, etc. out of your pay check, but what is your take home and where is all rest of your money going? Are you saving some each month? You do have a a big debt, but you also have a big salary already and with what you have coming in, by being careful, you should be able to make great strides in paying off the credit cards.

Until, you are sure that you know where your money is coming and going from, you are going to remain nervous about your debt You need a plan. Just like you need a full CBC to help diagnosis a patient, you need a full look at your money income and outgo and have it in balance.

So the $200/month for groceries is just for grocery store stuff, like milk, bread, things we buy during the week. I forgot to include the items we pick up at Costco. I don't know how much those cost to be honest because my husband makes the Costco run about once a month or once every other month depending on our need since it's an hour away. That comes out of his paycheck. The only time I paid for those items is immediately after his accident when he couldn't and I was picking them up at the grocery store. The weekly groceries come from my account since I'm the one who gets those. We have been trying to save his paychecks as much as possible and use my salary to pay for COL. The remainder of my salary goes toward CC bill and student loans. I have about $2500 in my savings account that I don't dip into and about $2000 in my checking that I try to keep there at all times, but is available should I need it to cover an unexpected bill or something.