What should I do in my situation?

[porschefb61]

I am currently 198,000 in debt from dental school. I am 28 years old and have been told numerous time that investing early is important. I currently have a diverse IRA that included REIT, stocks, bonds, emerging markets, etc. I would like to have other investments too and create wealth while paying down my loans. I'd appreciate any advice you could give me on new investments and loan repayment. What would you do in my situation? Thanks.

[Eagle]

I am currently 198,000 in debt from dental school. I am 28 years old and have been told numerous time that investing early is important. I currently have a diverse IRA that included REIT, stocks, bonds, emerging markets, etc. I would like to have other investments too and create wealth while paying down my loans. I'd appreciate any advice you could give me on new investments and loan repayment. What would you do in my situation? Thanks.

First welcome to the forums porschefb61!

Second we really need more information to help assess your situation... Particularly with this: "I'd appreciate any advice you could give me on new investments and loan repayment. What would you do in my situation?"

1. What is your monthly net income?

2. What is your monthly expenses?

3. Besides the 198k in what I assume are school loans what other debt do you have?

4. How much money do you have saved up cash in the bank (for your emergency fund)?

5. What are your goals in life? Do you want to buy a house? Do you want to get married and have children? etc.

Welcome again!

[autoxer]

I am currently 198,000 in debt from dental school. I am 28 years old and have been told numerous time that investing early is important. I currently have a diverse IRA that included REIT, stocks, bonds, emerging markets, etc. I would like to have other investments too and create wealth while paying down my loans. I'd appreciate any advice you could give me on new investments and loan repayment. What would you do in my situation? Thanks.

Investing early is important, but it might not be the best move if any of the debts carry a high interest rate. Paying down your debt is a guaranteed return on your investment, by whatever the interest rate is. In order for an investment to outperform a debt, it would need to appreciate by a lot more than the debt's interest rate to cover taxes and inflation and come out ahead.

I would suggest taking complete advantage of the tax deferred accounts you are offered, because you will find yourself in a high tax bracket, so put the maximum that you can into the 401k. Then list out your debts by interest rate and pay down the high rate ones first. Once you aren't carrying any debts over ~5%, then you might want to open a taxable brokerage account for another investing opportunity.

Beware of lifestyle inflation. Just because all of the other dentist are driving Mercedes, doesn't mean you have to. You don't need any other debts, so avoid car loans, furniture loans, revolving credit card debt... etc. The longer you keep your expenses low, the quicker you will get ahead.

[disneysteve]

Beware of lifestyle inflation. Just because all of the other dentist are driving Mercedes, doesn't mean you have to. You don't need any other debts, so avoid car loans, furniture loans, revolving credit card debt... etc. The longer you keep your expenses low, the quicker you will get ahead.

As a physician who graduated with over 100K in debt 20 years ago, this is the best advice you will ever get. Live as lean as you possibly can. No new cars. No fancy vacations. No McMansion. Cook your meals at home from scratch. Shop thrift shops and yard sales. Keep your needs simple and basic and direct as much as you possibly can toward loan repayment. 200K is a HUGE amount of debt no matter how much you're making. You need to attack it aggressively or 20 years from now, you'll still be paying on that debt when your own children are in college.

[porschefb61]

Thanks for the response Eagle.

1. What is your monthly net income? Base salary is $5600 after taxes. I also make 25% of anything after I cover my base salary.

2. What is your monthly expenses? Rent = $1100 Food = 500 Gas = 100 Gym = 370

3. Besides the 198k in what I assume are school loans what other debt do you have? No other debt other than that.

4. How much money do you have saved up cash in the bank (for your emergency fund)? I only have about $7000 right now but I get paid this Friday so I will be getting about 2800 with a 4000 bonus from this passed month.

5. What are your goals in life? Do you want to buy a house? Do you want to get married and have children? etc. I am in the process of planning my wedding in October. Most of it is already paid for. My goal is to buy a house in the next year or two (if feasible) and set myself up to make money working while at the same time producing income in other areas (investments). As of right now we don't plan on having kids. My long term goal is to have a couple million in the bank when I retire. Its a lofty goal but I am a hard worker and know I can do it. As far as my student loans, I didn't know if there were any tricks or strategy's that expedite the repayment process. My problem is that after I graduated I had to take care of my mom who was very sick. So I accrued a years worth of interest which equaled out to roughly 14k which is included in that 198k. The interest rate is 6.8% for all my loans.

[kyoko]

It is great that you are still young, have big goals and a great profession.

I understand that the investment is one of very effective ways to build your wealth, but with that big student loans, I would not get into it yet (except for the retirement savings...)

I would pay off the student loan as much as possible. Did you make 14k return on your investment (including tax from capital gain)? If so, it's great, but if not, it won't make sense to set money aside for investments and accumulate the interests..

To expedite the payment, you can check the lowest balance (for direct loans) and pay it down first, then move it to the second smallest balance.... You can put the loan ID number (or something like that...) on the memo of your check to make sure if your extra payment would go into that specific loan.

[porschefb61]

It is great that you are still young, have big goals and a great profession.

I understand that the investment is one of very effective ways to build your wealth, but with that big student loans, I would not get into it yet (except for the retirement savings...)

I would pay off the student loan as much as possible. Did you make 14k return on your investment (including tax from capital gain)? If so, it's great, but if not, it won't make sense to set money aside for investments and accumulate the interests..

To expedite the payment, you can check the lowest balance (for direct loans) and pay it down first, then move it to the second smallest balance.... You can put the loan ID number (or something like that...) on the memo of your check to make sure if your extra payment would go into that specific loan.

Thanks for the response. So it would be a better idea to hold off on any extra investments until my loans are paid off. As for the loans you said I should pay off the smallest loan first and go to the next smallest one. Why is that? I could be wrong, but wouldn't it make more sense to pay off the biggest loan first?

[autoxer]

Thanks for the response. So it would be a better idea to hold off on any extra investments until my loans are paid off. As for the loans you said I should pay off the smallest loan first and go to the next smallest one. Why is that? I could be wrong, but wouldn't it make more sense to pay off the biggest loan first?

That is just the Dave Ramsey plan. The ideal way to pay down loans is to pay the one with the highest interest rate, ignoring the actual size of the loan. If you need some emotional wins along the way, then you pay off the small debts earlier.

[porschefb61]

That is just the Dave Ramsey plan. The ideal way to pay down loans is to pay the one with the highest interest rate, ignoring the actual size of the loan. If you need some emotional wins along the way, then you pay off the small debts earlier.

Gotcha. So if all the loans have the same interest rate then its more of a moral victory thing to pay off the smaller loan first.

[kyoko]

Gotcha. So if all the loans have the same interest rate then its more of a moral victory thing to pay off the smaller loan first.

That's exactly what I meant, since your student loans have the same interst rate, in my opinion, it would be a lot better to pay off smaller balance first. Once you pay off the first loan, you can apply that payment amount to the next smaller loan to make it even more powerful payment. It may not make much different at first, but soon, you will put a lot more extra into your loans.

Good luck!

[Eagle]

Thanks for the response Eagle.

Sure. And thanks for the information.

1. So you make $5600 and a bonus of 25% after you cover your base salary? So like profit sharing? Nice.

2. So your total monthly expenses are $2070? What kind of gym membership do you have that costs $370? Do you have: a cell phone, internet bill, car insurance, gas expense, entertainment, water, electricity, cable/satellite bill, landline phone, etc.? Might be some opportunities to cut down on some of those expenses.

3. That is good. You have no car payment or credit card debt.

4. $7k in your emergency fund is nothing to shy away from. That’s a good start!

5. Congratulations on getting engaged! And also your upcoming wedding. It’s a good goal to buy a house. Personally, I’d pay off the student loans first then buy the house. A few million in the bank is a good goal. With your profession of choice (and the added income from your husband) and your income that should be attainable. The best trick or strategy is simple: spend less than you make, cut down your expenses, save for a rainy day (e-fund), and celebrate the victories. Since the interest rate is the same for all loans I agree Kyoko pay the smallest off first.

A couple more questions if I may:

6. How much do you think you’ll get back on your tax return?

7. What kind of monthly income, monthly expenses, and debt does your fiancé have?

By the way you are doing pretty good. You have a good profession, you have goals, and you have a plan. The debt you just need to chip away at in chunks at a time.

[snafu]

Good on you for deciding to make a financial plan. As you've seen, interest on student loans has already added $ 14k to sum owed and it's critical to track how much of your monthly payment goes to principal and how much goes to interest. Time is an important factor in your retirement plan so I too suggest you contribute the maximum allowed to your retirement plan. Paying down a loan of nearly $ 200,000. at 6.8% has more potential to drive your wealth forward. It's important to understand how your particular loans accept principal- only payments in addition to your payment requirements. What identifiers does your grantor require?

You might enjoy a quick read like The Automatic Millionaire [Bach] or one of the Wealthy Barber [Chilton] books to move your investments to your future goal.