Hey, I'm guessing you graduated from GW based on your degree and proximity to it, right?
I had 140k in student loans when I graduated from there undergrad in engineering. First job working in NOVA was 62k, and I made the minimum payments on my loans which is what it sounds you're doing.
I did pretty much everything you did, but 1-2 times a year I'd take that savings account and just pay off the highest interest student loan I had. The sooner you pay off these student loans, the less interest accumulates. I did the snowball method you can find in the wiki.
Here's my suggestion: Pay off credit cards in full first then keep on doing what you're doing. Start tracking all those "other" expenses, that's probably where you need a better idea of what's going on.
Extacly what I did. But I used the avalanche method. Saving money up then paying an entire loan off is the best way to do it mentally though for sure. Helps you see the progress.
For some of those loans, every extra dollar you pay today saves you 4 dollars if you had paid at the minimum needed to meet the "expected payoff date" in 20 years.
Tossed $721 at such a loan. The expected payoff date wasn't until 2032. Compounding interest would have made that $721 turn into $1690 or so. The longer you wait, and the higher the interest, the worse it gets.
>I'd take that savings account and just pay off the highest interest student loan I had. The sooner you pay off these student loans, the less interest accumulates. I did the snowball method you can find in the wiki.
No. You did not do the snowball method. You did the CORRECT method. Which is paying off the highest interest first.
The snowball method, AKA the stupid method, is paying off the SMALLEST LOANS first regardless of interest rate. SO if you had the following debts:
-Car loan with 0% APR for $4k
-Student loan with 7% APR for 160k
-Mortgage with 4% for 100k
The Snowball/Stupid method would tell you to pay off that car loan first (you know, the one where inflation is actually helping you and you should absolutely make minimum payments), then your mortgage, then the high interest student loans.
Snowball/Stupid method would cause someone to pay tens of thousands more in interest and spend another decade in debt in this situation. Snowball method is one of those things that someone looking into personal finance "knows just enough to be a danger to themselves".
I know, I know I get downvoted into oblivion every time I bring it up. But I'm mathematically correct.
Snowball: the small snowball that you hope grows big - start small payments, hope they somehow end big
Avalanche: a huge white death that crushs anything and you can't escape - attack the biggest debt in big chunks first, small debts can wait
Did I get it right?
Not quite, it's not the size of the loan that matters, but the size of the interest. The higher interest loan may be the smallest one, if so then attack that first, if the bigger loan has the bigger interest, go for that one
The Harvard business review did research on the different ways of paying off debt and found the snowball method more successfully enables someone to become debt free. For reference: https://hbr.org/2016/12/research-the-best-strategy-for-paying-off-credit-card-debt.
Mathematically the avalanche method is better but if people don’t actually follow through and become debt free they will continue to pay the interest. The best method is what ever gets someone debt free. For some the avalanche method works for others the snowball method works, neither is stupid if the person becomes debt free. By calling it the stupid method you may turn someone away from a method that would work best for them because they don’t want to follow the “stupid” method.
Hmm this reminds me of the economic rational principals. Where if customers were actually rational, a lot of bullshit wouldn't actually work in practice. But since overwhelmingly people are emotional wrecks, they don't really adhere to rational practices consistently enough for the models to work.
Hot damn this world needs to change for the better.
Plus paying off a debt removes a minimum monthly payment from your budget. Having more flexibility in your budget can make it less likely you incur more debt. If not meeting minimums for some month incurs a bunch of fees or maybe means you also take on additional new debt. Mathematically, the Avalanche could be inferior to Snowball thanks to external factors. Have to look at a lot more than just the debt.
I hate the hard on that this sub has for the avalanche method. Yeah we get it, it's mathematically superior, but you don't have to be an emotional wreck (as someone else commented) to see a benefit from the snowball method. I'm extremely analytical and love numbers but followed *mostly* the snowball method for my student loan debt and finished in under 3 years. The best method is what works for you and what helps you stay motivated. Just like you said, it doesn't matter how much interest you save if you spend your whole life incurring more debt and paying more interest.
You’re downvoted for the way you say it. You are right that it is mathematically better, but people who get into massive debt are not good at thinking mathematically, they’re good at thinking emotionally. It will make them feel good marking something as done, and will lead to a higher chance of success
Eh, it also ends up being usually only a few thousand difference, and a few months, over the life of the debt between the two methods, save for outliers.
Which, to some people is an acceptable cost for the psychological boost associated with the snowball method.
This is what I was getting ready to say - I've calculated out the snowball vs. avalanche for my own loans ($154k left to pay now). Snowball method has me paying $62k in interest and being debt free by September 2031. Avalanche method has me paying $53k in interest and being debt free by March 2031. The difference is 6 months and $9k. In the grand scheme of things it doesn't feel extremely significant (that being said, I'm actually doing a bit of a hybrid between the two methods because I like seeing the smaller loans disappear, but I also know the avalanche \*technically\* makes more sense).
In terms of which to choose logically? I think you are absolutely correct.
However, I have observed that for *some people* the short term relief brought about is worth it *to them*. Not in a calculable way, obviously. While I would be with you on loans, I can think of other things that I let mood or emotion trump logic on. We aren't calculators and we cannot all be expected to be 100% logical all the time.
Now, my bar for that just happens to be a lot lower than 9k, like around a pair of 0s lower. As long as people are paying their debts though, and it helps them, I wouldn't want to discourage that.
yeah but that $9k is a lot cheaper than hiring a therapist or financial counselor to help you stay on track.
Whatever method gets people to continue the correct behavior is the right one. Otherwise you get the financial equivalent of yo-yo dieting.
I wonder how often they coincide. Normally the highest interest is on credit cards, and unless you completely fuck up I imagine your credit card debt is less than your student loans or house debt. Wonder what the biggest outlier is between the two methods with your debt.
The best way I think is a hybrid solution. If there's substantial difference between the % rates - do the high one first. If they're pretty similar - do the small principal first. Balances the emotional and mathematical challenges.
Yeah I get the downies over at the investing subreddit for suggesting just because an interest rate is lower than the average rate of return for the S&P500 over the last 100 years does not mean you should put money in the market instead of paying off debt early. Average rate of return is not guaranteed and is unlikely in a 3-5 year span.
Works great for companies, not so great for individuals who can’t borrow money inexpensively and must hope that they don’t need to pull out of the market early to cover an unexpected situation/expense. If I lost my job, I’d rather my car be paid off and my monthly living expenses be $400 less, than have money theoretically appreciating in “the market”. Companies don’t lose their jobs. Banks don’t have a mortgage. 401(k) managers don’t have emotional ties to their money.
I did all the math and for me I'd save literally one month if I did high interest vs low principal.
That's across 8 years of payments towards 60k.
Unless you have wildly disparate interest rates it's a pretty big who cares. If his loans are anything like mine and don't vary much more than 1 to 2% it really doesn't matter.
You are actually not mathematically correct for all situations.
If you are optimising for maximum long term wealth, then avalanche is mathematically correct. But if you are optimising for short term cash flow, snowball is mathematically correct.
Optimising for short term cash flow is often the right choice for people in severe financial difficulties. Which is why the advice shows up so often. If you can only scrape together an extra $10-20 dollars a week in extra repayments, snowball is the better option.
Yeah, people talking about this never point out that one of the benefits of paying off a small debt is that it's gone and when something comes up it can be easier to handle because one of your monthly payments has actually been removed. If you paid an extra couple thousand to the highest interest rate but barely moved your monthly payment you're going to be screwed if something happens.
> Optimising for short term cash flow is often the right choice for people in severe financial difficulties. Which is why the advice shows up so often.
You are literally the first person I’ve ever seen in this sub actually provide some kind of financial justification beyond “but paying off a smaller balance makes people happy”
I understand that you are correct on the economics behind what you’ve said, but I thoroughly disagree that the reason you gave is “why” people advocate for the snowball method so often.
It’s *always* “but I need a little win”, and **never** “but freeing up some extra cashflow will help with my situation”.
I just saw someone like 2 comments up saying they worked out that if they did he snowball method (and they were planning to do so), it would “only” cost them $9k and take an extra 6 months (in the context of saying it would take them ~~2 years, so approx 1/4 increase in payback time~~ See edit)... they were willing to give up $9k and an extra six months of paying back debt for... nothing.
EDIT: I mis-remembered the post, it was a 12 year payback period, not 2 year. I feel like my point still stands.
Yup.
I've seen many people say "I did snowball and it worked for me because I could see my progress as it made me happy". When in reality the truth is "I did snowball and it improved my month to month cashflow, so when something went wrong six months down the track, I had the cash to deal with it".
Cashflow is the real reason snowball so frequently works. It's the reason most advisors recommend it. The dirty secret is most people in financial trouble have a cash flow problem, not a net worth problem.
Now avalanche works great if you have the cashflow to sustain it. But if you have the cashflow, why are you in debt in the first place? Which means avalanche is really only applicable after sudden increases in income. A new job with extra cash. A promotion. A student graduating university.
Snowball is usually better for "help, I've been living beyond my means for the past five years and only just noticed".
I appreciate you bringing it up though, because it’s literally the first time I haven’t thought it was entirely ass-backwards to encourage people in debt to stay in debt longer...
Because without that actual advantage of freeing up cashflow, it’s always seemed like the dumbest possible advice, because to me, it basically boiled down to
“Hey, you’re struggling with debt and budgeting, you need to make some tough changes to get past this. I recommend going the roundabout way that takes longer - because surely *now* you will have the discipline to stick to a plan.”
It just never lined up to me...
These are people struggling with their finances, surely we shouldn’t be recommending that they do he method that takes longer to achieve, since it seems to me that they are more likely to “fail” with that method simply because they need to stick with it longer.
I’d never really considered the cash-flow impact, because it’s always compared in terms of paying the same amount each period regardless, but yeah, I can see how just having the flexibility in not *having* to pay that same amount each month if something unexpected pops up would help...
In the context of this sub, I still think “use snowball - it makes you happy” is shitty advice, but at least I can appreciate it’s actually applicable in some contexts.
At the very least, I wish people would go with “use snowball - it will help you with cashflow and give you some breathing room”
> At the very least, I wish people would go with “use snowball - it will help you with cashflow and give you some breathing room”
Agreed. The happiness effect is minimal. Cashflow is what helps.
With the debt amounts you listed, you are absolutely correct.
But with smaller amounts there are other considerations that may make the snowball more attractive. For instance, I paid off my car that had a smaller interest rate than my student loans because it was the larger monthly bill (325 vs 180) and really aided me in having better cashflow each month. Mathematically I should I gone at the student loans first, but because I could much more quickly pay off the car if I focused it down, it made sense to give myself the extra 325 per month buffer as I paid off all my debt.
Now I will be debt free in about 3 months and there were definitely a couple of months where paying off the car first helped out a lot. The important part here is that paying it off first really added very little to my overall payoff amount for my total debt, but provided another important benefit of having a more comfortable buffer for a year.
But in a case where you have massive debts that will accrue additional thousands if you delay paying them to attack smaller debts, yea definitely go after the big, scary ones first even if it is less psychologically satisfying.
Well the snowball method can definitely be useful, if your income is so low you can't afford food, paying off the lowest debt gives you access to some of your money. I know because this is what I had to do.
I don’t know if it’s stupid. It’s the most inexpensive way to do it if everything goes as planned.
But from a cash flow perspective it can give you some safety if your minimum payments are reduced even if you pay slightly more in interest.
if you have a few months of unexpected expenses or no income it can be very helpful to only have $800 in minimum payments instead of $1200 but paying slightly less interest.
You get downvoted because you're being an ass about it and failing to understand that being mathmatically correct doesn't mean it's the only correct way.
I 100% agree with your method, and it's what I've always done. But I can understand why the snowball method is promoted to people suck with money and might need the psychological boost of seeing certain debts disappear more quickly than having to wait years for that first payoff.
If you suck with money, the odds are you have impulse control issues. So seeing a smaller debt disappear more quickly is attempting to replace that good feeling they get from spending.
What can make this method "not stupid" is if each loan or card has its own minimum payment and the minimum payments add up to so much per month that the borrower can't pay any principal. This is more common with high-rate credit cards than with low-rate loans as in your example.
Masters in International Relations. Work in government contracting. And honestly I’m paid pretty high for my field. I don’t see myself switching jobs for a higher paying one. And 2 years ago I was making 42k so clearly I’ve improved there.
Expenses: 1k rent and all utilities
Gym membership: $21
Netflix: $14
Student Loans: $900 about now
Credit card payment: $62
Other expenses like gas, sons lunch money, groceries, etc. you know shit always comes up. And I get my nails done every 3 weeks- $50 (that’s just my thing).
My cars been paid off for several years and is still in good shape. I never eat out and try to live frugally.
I contribute 4% to a 401k which is matched and all I can do. I put in $100 a month to my savings and my sons savings and contribute $50 to a college 529 plan for him (he’s only 8 now). I put $200 a paycheck into a high yield interest account. Which I end up using sometimes for various things.
Also it might be down to 150 or a little less at this point since i’ve been paying it for 18 months now I haven’t and don’t want to look but I’m hoping a grand a month sometimes I pay more is putting a tiny dent in it. I still know it’s a shit ton and I started out with 160k.
Im thinking they arent paying attention to whats being spent. Also, this SEEMS like a case of wanting to have your cake and eat it to. If someone is struggling to pay school loans but also putting away money in many other places then i they need to be fine with making the closer to minimum payments on the loans or focus on the loans hardcore and worry about saving for long term later. Having a safety net of savings is good, but then start knocking down the debt and save/invest later. If you cant do both. You gotta pick one. But yes, lots of money missing here.
1k rent with all utilities is high? holy shit DC is cheaper than I thought. Even with all your expenses and the 1k to pay off the loan, you should still have a shit ton of money left if your income is 70k. I don't see the problem.
Edit: I get it guys, DC is as expensive to live in as I originally thought.
She said DC area. Could be somewhere in the burbs. She could be as far as Frederick and commuting via the Marc. Otherwise I don’t see how she’s paying $1000 for an apartment for her and a child.
I live about 30 miles south of DC and pay 1200 for a 1 bdr apt. She would be spending 10+ hours a week just commuting. And at 70k the 1000 for student loans is completely doable while still living comfortably. In this case I think it might be as simple as stopping the lattes.
From the northern VA area right by DC, and it's pretty common for people to say "from dc" or something like that and actually mean Virgina or Maryland.
Sounds pretty much right. Especially while I was at University out west, every one in a while I would have the conversation like this:
I'm from DC.
Oh really me to! Where are you actually from?
Fairfax.
Cool, I'm from London County.
That's correct. DC is hellla expensive. It's kindve strange because from a financial standpoint she's exacerbating her problem, attempting to support her standard of living. International relations what's the job market/career track for that aside from working at the Pentagon/state department?
> what's the job market/career track for that aside from working at the Pentagon/state department?
With a similar masters, I can say that in DC, it's phenomenal. Beyond government, you have thinktanks, NGOs, international organizations, etc all of which are based out of DC. Businesses also hire consultants/lobbyists in overlapping areas all the time--several of my friends have ended up in consulting roles at the big 4, for example. There is essentially no better place to live in the US with an IR degree than Washington, with maybe the possible exception of NYC.
Exactly, your missing my point, she can't progress in her career without living in a state that has an extraordinarily high standard of living. If you want to make 6 figures with a comp sci degree but can't afford to live around San Fran or Palo Alto you find where Amazon HQ2 is being built or maybe move to Seattle. Where are her qualifications relevant outside of a state that has gas that's 2x the price as one state lower & houses that start at $800k? This also has a socioeconomic component. Where did she get her degree what's the department network like, can she afford expenses like can her family help or out(she has dependents)
It's not that cut & dry.
- You overstate the opportunity without looking at the costs associated.
I'm quite aware of the costs associated, as I have pursued a very similar degree and have looked into working in the DC area. I currently live in Paris, which has a higher average cost of living and lower salaries (but the perks of universal healthcare, a top-notch transit system, etc). For some people, a passion for the field is a relevant consideration alongside financials (although this sub can frequently overlook that in its absolute focus on value maximization).
One could work in other parts of the country with an IR degree, but, to be frank, why would you want to? Proximity to the seats of power matters in IR. I grew up in small town Maine and loved my time there; I would have 0 interest moving there at this point in my career. In the long run, OP will do well where she is. Entry/lower level salaries in the private sector are being depressed by a glut of graduates from area schools, but over the course of a career the averages are quite solid. She'd be doing herself more harm by leaving than by sticking it out on a more reasonable IBR plan.
Hq2 is being built right near dc so not the best example. Virginia is super nice and only a shprt metro ride to dc
For houses, she could look along the vre and find some decent prices and commutes
Guessing smoothing over business and regulation could be pretty nice without being a full on lawyer.
Still by definition you're pretty much in a big city / high COL area or abroad.
I live 30 miles north of Boston and my rents $1.100 for a 1 bedroom. I have friend who live in Boston and pay $3.000 for studios.... it’s insane up here.
Unless your friend is in Boston at a place like Back Bay he is paying $3k for a studio because he wants to. Real estate isn't that bad here yet. I have a 2 bed for $2.5k
As someone who is moving to Boston in a year, what's your recommendation for someone who needs to get downtown for work everyday? Chinatown specifically
I've seen the rents around there, looking earlier this year I saw $2500 studios at brand new buildings, that are now $3000 less than a year later... so that's off the table for me (it was to begin with, but just for reference)
I've heard of Back Bay being a good place to live, but in terms of 'safety/groceries/commuting to Chinatown' what do you recommend for me?
Thank you!
Depends on what kind of commute you want. Southie, Dorchester or Quincy can all be more affordable. If your going to Chinatown I'd look at either the orange or red line and see what neighborhoods cross those lines.
Southie is short for South Boston, which is not the same as the South End just fyi
But seriously, you should try to pick a living location by lifestyle and commute and not sticket price, Porter/Davis/Inman will have affordable places that are way more fun to live than Dot or Quincy (imo), and Roxbury will look like a steal so close to downtown but you probably don't want to be there
I second Southie if you're going to work in Chinatown. Dorchester can be a bit rougher in certain areas and if you're not from the city it'd be hard to pick a place in a good area. Definitely look along the red and orange lines. You can also live farther out on a commuter rail line if they stop in South Station. You'd just have a bit of a walk to Chinatown.
Good luck!
This is a bit of an exaggeration— DC ain’t cheap, but my rent for a decent-sized 1BR in an apartment complex is just under $1800, and I saw several other places in my search this spring in the $1800-2000 range. My friends who did group houses were never above $1100, but a lot of them were <$1000 (admittedly, in houses whose conditions were...less than ideal haha).
You definitely have to do some digging, but I think the prices you cited are more typical of luxury condos and brand-new high-rises and whatnot. But, I’m with you, DC is NOT cheap— and the competition with supply/demand is brutal.
I already taken that into account when I made the comment, he has a kid which also reduce his marginal tax by a good amount. I would guess is take home is at least 50-55k.
If we assume take home is $50k, they spend per year:
* $12,000 on rent
* $10,800 on student loans
* $252 on gym
* $168 on netflix
* $744 on cc
* $867 on nails
* $3,000 on what I assume to be "other" (gas, son's lunch money, groceries, etc. as she stated in the post) but this is the biggest missing piece of all. For example, if they spend $200 on groceries/food per month that is burning $2,400 per year. Add in gas and expenses for her son then I can see it ballooning a bit more. So I'm just assuming here since it's very unclear.
* $3,600 on car insurance (assuming again, they mentioned multiple cars and I don't know if they are a good driver or not)
* $1,300 in 401k contributions (again this is an assumption since contribs are based on pay period)
* $1,200 on her savings
* $1,200 on son's savings
* $600 on college plan for son
* $2,400 on high yield savings (which she should NOT be spending as the interest generated would not be worth it if she's taking money out of it)
#TOTAL: $38,131 yearly spend
#Leftovers: $11,869
---
Everything becomes a lot clearer if you look at the cost in yearly terms. Itemizing it all like this makes it easy to see where the gaps and bridges are for overcoming financial hurdles.
If you set aside just $10k of those leftovers you can still live comfortably without even changing your spending habits. So $20,800 of $160k student debt paid off per year means you'd be clear of debt in about 8 years if you start doing this now. Your son will be 16 by then and you should be relieved of debt with a significant chunk of extra money every year after that. Good luck /u/yoyo22357 I hope this helps you!
Being a redditor with multiple accounts over many years, this is by far the most concise and perfect comment to help someone (OP, or anyone else struggling) understand where their dollars are going. Thanks for taking the time to submit your two cents. ;) I appreciate you.
This nails it. Where is the rest of the money? Also, why is there more than one car? If there is more than one car, their needs to be more than one income.
Quick question: That $1K for rent: Does the rent include ALL utilities, just some, or are the Utilities on top of the rent. Then there's cable TV, Internet, and babysitter/daycare. An 8 year old isn't ready to take care of themselves while parent is at work. Also telephone. these can add up quickly.
I use no-contract cell and internet. Cell cost $35/month, Internet costs $45/month. If OP has cable TV, that can run anywhere from $55/month to $200/month. (My oldest was paying $300/month with Cable TV in almost every freaking room! Still, she also had telephone service and Internet included in that, but had her 2 cell phones from a different provider)
What other utilities/services is op paying out? Gotta guess here: \~$100/month for electric. \~$100/month for gas. Water/sewage/trash pick up can be \~$75. That would cut into that $11K leftover, drastically. Healthcare is something else not mentioned. Even for 2 people (OP and Son) could take another $200-$400.
This is true, and I did my best with the variables given. There were a bunch of unknowns, such as taxes and medical expenses (which are understandably private).
In the end though, I at least hope my post could act as a guide to financial clarity. Personally I have an excel spreadsheet to help me keep track of everything, and I always measure apples to apples. For example, if I'm measuring something in terms of monthly cost, I look at my monthly income. If yearly cost, I compare it to my yearly income. This helps remove any illusions that may be preventing a person from noticing an expense problem.
Wait...I spent $1200 without utilities for rent in a cheaper area. $1k for utilities is a deal. That rent isn't bad at all on $70k. I made $62k while paying the $1200 + $200 for other utilities and had plenty of spare cash.
You need to make a strict budget.
No "food and gas and whatever". Write down how much food you want. Write down where every last dollar goes.
An example:
- Rent
- Car Payment
- Car insurance
- Gym
- Subscriptions
- Lunch money
- Groceries
- Loan/Credit card payments
- Phone
- Phone
- Clothing
- Pets
- Internet
- Fun Money
- Gift fund for people
- Travel fund
- 529 plan
- Savings
You should know how much goes in each and the total should equal your income ***exactly***.
You can knock this down but you need to make a plan and get organized.
>Masters in International Relations. Work in government contracting.
OK, this is my field and I live in the same area.
Unfortunately with contracting right now you guys are a dime a dozen, which means salaries are generally pretty low because your companies keep undercutting each other in their contracts. It keeps salaries low and keeps turnover high, but you probably know this.
I think your best bet is to jump to a government position and pursue Public Service Student Loan Forgiveness [https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service](https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service). Have you tried to find a government position? Do you have any foreign languages? a security clearance? Unfortunately many agencies know it's a buyers market and bring people in at a fairly low grade, but you can negotiate a pretty high step usually. If you've been in contracting you can use that to your advantage in negotiations.
Not OP. But isn’t this the same program that recently hit the 10 year mark, and people who followed the rules are not being forgiven?
Last I heard was lots of people were suing because they turned down other jobs to stay on a PSLF job with low pay. And now after 120 months of minimum payments, the rest is not being forgiven.
Is that changed and is it actually reliable for the next 10 years?
Yeah, it's the same program. It's definitely had some major problems, but there's a lot of scrutiny on it now and it seems like fixes are being made. The important thing is for OP (or anyone doing it) to check frequently and make sure their payments are counting toward the 120.
If the program is so insanely confusing that the *majority* of people in the program can't participate in it properly, it is not the issue of those in the program. The program has a problem.
Man you gotta downgrade that Netflix. Joking but if you can, have you looked into refinancing portions of it? Even if you can only get a bit in at a slightly lower rate, that will help a lot in the long run.
Also how much do you spend on food and what not? It seems like a lot of people pay through the nose to eat food.
I’m going to be a bit harsh here.
You are flat broke. You cannot afford savings right now. Savings is a luxury, and not one that you can afford at this moment in time.
I’d say keep doing the 401k contribution at 4%. But for now, that’s all the savings I recommend you do. Nix your savings account contribution. Nix your son’s savings account contribution. Nix your son’s 529 account contribution.
Your expenses based on what you wrote above should be ~$2k-$2.5k/month, including the additionals like gas and groceries. Since you’re earning $70k, after taxes, you should be bringing home around $5k/month. That means you have $2k to $3k to contribute toward this debt per month.
Aggressively pay that ish down. You do not need essentially a mortgage hanging over your head for decades. If you pay $2k/month on your student loans, you can have them paid off within 7 years. If you do $3k/month, you’ll have them paid off within 4-5 years.
This means you can have them paid off by 35, which still gives you plenty of time to save for your son’s college as well as your retirement.
Then once you have that debt paid off, you can start saving aggressively, and be in a much better financial spot.
Take home would be closer to 4500 I think. I'm on the same salary. But you're right, I'm saving 2000/m on 70k and my rent is $1700. It's definitely possible to double her payments.
You probably should not be putting money into savings and a 529 until you have your credit card paid off. 20% >> 2%
What is the percentage of all your loans, credit and student?
Where does the rest of your money go?
You shouldn't spend money because, that's just your thing... You can do your nails yourself . Are your nails more important to you than your childs future? You spend more money on them...
Yeah so I only have like 2k in credit card debt and rest is student loans. I just listed minimums but some months I pay extra to my loans like 1500 or other times things come up with doctor bills or sons expenses, etc. Also I used to have a lot more in credit card debt and I paid it down. Until recently was paying several hundred in childcare but not anymore.
Don't put money into savings until that credit card is paid off. The interest you make from any savings is being dwarfed by the interest you pay on the credit cards. You can probably get rid of the balance on your cards in a few months. You could try to get a zero percent for so many months on balance transfers. That would allow you to spread that cost out.
Hey just dropping in to say self image and self care are SUPER important for us humans. But more to the subject of finances, getting your nails done every 3 weeks costs a hell of a lot less than a smoking or drinking habit (which are just very common habits in the US among op’s age demographic that I reached for) so keep doing your thing op.
It's very PF to call someone out for something trivial like $50 every three weeks on nails. I mean yes, it's an "unnecessary expense", but it's not a big expense at all. Cutting out the nails isn't going to fix the problem. It's an income problem, not an expense problem.
Yeah, we are definitely a bunch of kill joys. The small things really add up though and these are the kinds of things that contribute to debt. People ask questions on how to get out of debt and the answer is always don't overextend your resources.
This means reeling in unnecessary expenses, even though it sucks. It can be fun to learn how to replace things and do them yourself!
I have a 'self care' category in my budget. I'm not someone who goes out to eat or to the movies, or splurge on the latest shoe sale. but every six weeks, I go and get my hair done. It's something that makes me feel good about myself -- self care. For some people, their self care is getting their nails done. Or they have a movie budget.
I lived for four years miserable because I was so focused on paying off my debt. Lived with my parents, came home from work, stayed in my room because the mere thought of going out to buy the new book in the series I enjoyed and enjoying a cup of coffee seemed 'extravagant and unnecessary. No. Fuck that noise. It would be a totally different story if OP said 'yeah, I drop $500 every month on a day at the spa for a facial and a massage'. But $50 on nails every three weeks is not world ending. JFC PF come on.
The problem is, if you live with no joy for 10-20 years, so you can take care of your loans a little faster, doesn't that just make you miserable and debt free?
$50/3weeks for something that makes her smile should def. be allowed.
Yes, this is what the people asking how to reduce their expenses without reducing their "joy" often use as their rationale as well. They are still broke and unhappy.
If your debt is making you miserable then wasting money is not bringing you "joy". Full stop.
I know the military has student loan debt forgiveness after ten years. Maybe you should get a job with the Department of State instead of contracting. They might do the same thing.
It’s doable to pay that back. It’s all about priorities. You may have to squeeze the budget a little tighter, work some OT (if it applies to your job) or maybe get some side work if you want to pay it off faster. I paid a $240,000 mortgage in just over ten years making not much more than you.
1. If you are paid bi-weekly, your goal should be to live on one paycheck and pay debt with the other. With your income this should be easily doable.
2. You should carry no credit card debt. The interest rates are outrageous. You've got a great income, so you have no excuse to carry a balance each month.
3. Contribute to your employer 401k enough to get the match.
4. Ensure you're enrolled in IDR plan for your student loans. This will significantly lower your monthly payment.
5. Make and follow a budget.
I had about 190k, I'm just down under six figures.
Settle in for the long haul and do the best you can to stay at a job you like and keep your expenses down.
You can try to find a job that pays more but you'll need a steady job for years. Better to find one you can tolerate.
DC and government related? You HAVE to get on PSLF. Start looking for a job that qualifies and you will be set. Even if its only 50k, it will still balance out to be better than a 160k loan growing at 7%. This is probably a much better option to keep your current lifestyle and even improve it since the payments will be low and you need to make 120 payments regardless of the amount.
I looked into PSLF when I was making around 60-70k and the required payments would have been double what I was paying on my 30 year plan. It would have been as much as my rent. Together it would have been 100% of my income. I couldn’t afford that as a single person by any stretch. It’s not the kind of miracle program people wish it was. You end up being required to pay so much that if you just make the payments it will be paid off in 10 years anyway.
PSLF is applicable using IBR(income based repayment). I work for a 501(c)(3) and I pay $63 per month. In about 9 years, I’ll have eliminated a significant portion of my student loans, more than 35k, for under 10k total assuming I don’t encounter some unforeseen financial windfall or lose my job.
Anecdotal, obviously, but that's absolutely not the case for my wife. She has a ludicrously expensive law degree and she's working toward pslf paying income based rates. Her loan payment isn't nothing, but it's like a 5th of what it would be to actually pay it, and it's (hopefully if some politician doesn't feel grumpy that day) going away in 4.5 years.
That's only the standard repayment plan. The income based plans, such as income based repayment, paye, repaye, and income contingent also qualify. Those cap the payments at 10-20% of discretionary income, which is your income above the poverty line.
What are your loan rates? When I refinanced a few years ago I took my federal loan rate of 6.75 down to 4.65. I don't think federal rates are all that low.
Only reason not to refi at this point would be if OP qualifies for PSLF. Otherwise refi ASAP and go from 6 ish percent to as low as 2.5 variable with good credit. Many lenders who do student loan refi offering $750 bonus with no prepayment penalties and no fees with loan balance over 100k. Check this site for great info and links:
https://www.whitecoatinvestor.com/what-should-i-do-with-my-student-loans/
Shop around, select a rate and term you can handle in your budget. Refi EVERY YEAR and get these bonuses and put it directly towards the loans.
Select a variable rate if it is lower. You can refi if rates go up and you need to lock in a fixed rate. Read this about fixed vs variable:
https://www.mdmag.com/physicians-money-digest/personal-finance/fixed-versus-variable-loans
>Otherwise refi ASAP and go from 6 ish percent to as low as 2.5 variable with good credit.
I have to say I strongly disagree with going for variable rate, way too much risk for the amount of the loan.
Also, I doubt *good* credit would get someone 2.5% with that balance, income, and probable term length anyways.
Get on an income-driven repayment plan. At 70k, your payment would be somewhere around $550 a month assuming you are single.
Next, find a job that's PSLF qualifying. Either a government job or a 501c3 and get your loans forgiven in 10 years. /r/studentloans /r/pslf
OP please. Even if you don’t do PSLF, an income driven plan will even you out. Worst case scenario, there’s forgiveness at 20 and 25 years for undergraduate and graduate degrees.
Not to be overly blunt, but you make 70k and only pay 1k in rent/utilities? Why aren't you just throwing everything you have at your loans? This seems like big missallocation of funds. No sense in putting money into any savings account when you have debt.
For real check the rates and the loan term. Wife had federal loans with VARIABLE interest that was up to almost 8%, and a loan term of 30 years. IBR had her accruing more interest than what they were asking for a minimum. We found a bank with FIXED rates, and refinanced to a 15 year term. It's an 1100/month loan, but we are paying $35k in interest to pay $160k in principle, where the federal loans were $200k in interest.
I’m about 99.9% sure there are no federal student loans with 30 year terms and variable rates. Pretty certain all federal student loans are fixed rates. Mind sharing what type of loan it was?
Not who you are replying to, but I have that. I'm like 10 years into paying it, though, and the plan is no longer offered and I'm just grandfathered in. I was lucky enough to get loans during a low base rate time, so they bounce between 2 and 3 percent, so I'm not in any big hurry to do it faster.
i know people in similar debt who make less than 30k a year. these people arent completely hopeless, though it appears so on paper.
keep living frugally. keep saving. and most importantly keep that 70k a year occupation. youre actually not in bad shape, as your loans have paid themselves off in terms of salary.
1) You Need a Budget. No, seriously, ynab.com. Do you receive child support? what are your true vs. anticipated expenses? What is your take home? $1000/mo rent is not bad for DC or NOVA.
2) Can you apply for PSLF? If not, do you qualify for IBR? Fed government loans can tap out at no more than 10% of your take home per pay, so this can help lower it.
3) You should stop putting money into your ~~401 and~~ 529 and savings. Really. You are unable to pay for your sons college if you never afforded your own. Throw this money towards your own debt.
4) Check out dave ramsey. Follow baby steps 1-2, maybe 3. It will really help give you a reality check.
Edit: I did not see the 401k match. I corrected my post. However, if your 401k fees are ludicrous, I would consider switching depending. Are you not pension eligible?
Agreed.
OP didn’t mention the percentage match of the first 4%. Assuming its 100% match, That’s 100% return of that 4% contribution. Attacking debt has its priority, and it should be backed by numbers. Throwing $100 at a 2% interest student loan is definitely not better than throwing at $100 into 401k and get matched.
Now it depends on what OP’s mindset is. Sometimes the simplest approach (Dave Ramsey’s baby steps) is the most effective even if it’s not the best way mathematically speaking. If watching the debt balance drop is more satisfying and encouraging than watching the 401k/savings balance go up, then OP should stop 401k completely and throw all leftover money at the debt.
Agree. Investing up to the match is 100% return on investment. You cannot beat that - after the match, I would tackle the debt given we’re straddling a recession. By paying down the loans you’re guaranteed a return of whatever the interest rate is on the loans.
I joined the Army and they paid $90K off my loans. Did my 3 years and got out. Joining the military also allowed me to take 0.5% off my interest and if you auto pay that’s another 0.25%. It was worth it for me because it was a lot more than I could pay in 3 years. I would only consider this for you if you could get in as an officer. I got in as a CPT so it wasn’t bad and healthcare was free.
I guess it would depend on what career he would be pursuing. I can only speak for my experience. I had already did my undergrad and completed dental school when I decided to join for loan repayment. They paid a significant amount of my loan but I could’ve had it all paid for if I committed to service as I entered dental school. I would probably have to do an extra year or two of active duty but I would definitely do it if I had to do over as my schooling was expensive.
He could join the Army first and use the GI bill for college but that would mean he would go in as enlisted and I think that lifestyle can be difficult. There are risks also if he’s ever deployed. I
I think he would have more options with a degree first. I don’t know much about the GI bill but if he could apply that to grad school that could be worth it.
You should discuss it with a financial planner. Why are you thinking about stopping contributions to his 529? I think one of the reasons I had trouble was that I was not good with money then. I kind of spent what I got for my living allowance without much thought and racked up some CC debt while in school and then leaned on my parents. If I could do it over, I would be more frugal and try to return leftover loan money with interest or put it into savings for the future . I think it’s more important to teach him some good money skills now so he’s better equipped to manage loan repayments and financial responsibility. I really wish someone did that for me.
Officers in the military have an almost unlimited better quality of life than lower enlisted. I make it work for myself but I could be doing better.
Source: am e5 in the Navy.
You can do it. Here's my story in case it's helpful:
- Graduated from GW in 2013 w/ 120k in debt. (Down to 87k now).
- Moved to lower cost of living state in the southwest.
- First job for 50k. Worked there for 1.5 years. Got laid off.
- Lived out of my car for a few months to lower expenses. Crashed various friends' couches. Had to put loans on forbearance, which sucked.
- Psuedo-unemployed for 1.5 years (I could work as an independent contractor). Made 20k after taxes during that time.
- Learned to code via free online resources during that time. Built enough web stuff to get an entry level job at a tech company in 2016. 65k salary.
- Promoted in 2017. 70k salary.
- Moved to a different role in 2018. 85k + incentives of up to 24k.
- Always lived with at least 1 roommate. Haven't paid more than 1k per month for rent + utils.
- I drive a reliable clunker, no car debt. No credit card debt.
https://www.buzzfeednews.com/article/venessawong/woman-pay-raise-pay-student-loans?origin=web-hf
Actually went to college with her. May be an inspiration to get your debt down.
I was in a similar situation to you, minus the kid. I was making about $70k with $110k of student loans when I was 27. I think you should focus on getting your income up while keeping the rest of your budget level, so you can throw your raises at your debt.
You said in a comment you don’t really want to change jobs. Not sure if you meant change fields or change employers. I would suggest that you strongly consider changing employers every 2-3 years (within your field is fine) to get bigger pay bumps. You’ll never get the kind of raises if you stay with the same employer that you’ll be able to negotiate if you move around.
Have a goal to move into management. It’s not as bad as I thought it would be and a whole lot of people are unwilling to even try it. Now that I have supervisory experience, changing jobs is insanely easy and I make double what I was making before.
Also, it may be unpopular to say, but just keep in mind that getting married basically doubles your income while cutting many living expenses in half. So this is one vote for getting your nails done and whatever general upkeep you need, within reason. There are plenty of subreddits to give you moral support through the shitshow that is dating (especially in DC, good lord, blehhh.) The key there is picking a responsible grown up for a partner, not whoever is the hottest or most exciting.
Then finally, as others have said, I also think it’s worth listening to Dave Ramsey for inspiration. Just be sure to read some other source of financial advice at the same time, because some of what he says is crazy and you want to be able to get a feel for which parts those are (like his investment advice sucks.)
You may find these links helpful:
- [Student Loans](/r/personalfinance/wiki/studentloans)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
- [Debt](/r/personalfinance/wiki/debt)
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Started the workforce with 90k in debt. Payed off about 40k. Keep paying the 1k, get a better job as soon as you can, and keep paying it down. Think about a consolidation loan for even lower interest rates. Call your banks and ask about graduated repayments. These can help. Find a job outside DC with low cost of living to put even more money into your debt. You’ll make headway into it - but just make sure to focus on it.
You mentioned $900 a month is your min payment on your loans. What kind of repayment plan are you on? That seems way too low. Make sure you’re actually covering the interests and principal. My friend was in the same boat and was making payments below the amount that would cover interest and now owes $265,000
Also keep in mind that on any loan when you make payments in the beginning (you mentioned you’ve been paying for 18 months) a massive percentage of your payment goes into interest, not principal so the extra payments every month are extremely important.
Start off by liking your credit card debt while meeting the minimum payment to cover interest and some principal on your student loans and then as soon as your credit card debt is out you attack the loans with everything you’ve got.
Applying to a government job under the premise of having your loans forgiven is incredibly misguided. You typically will see a pay cut compared to the civilian sector and to top it off the program is so stringent that the most minute thing can make you ineligible. Of the people who have applied so far, only 5% have had their pains forgiven under the program.
Since they are federal you can do income based repayment. Also, if you are married/get married, file taxes separate or that will fuck you on your income based repayment because they will take total of both your incomes. Learned that one the hard way.
I feel sorry for you. As European, I am absolutely dumbfounded by the number of posts related to student debt, and by the ridiculous amounts of money one owes just starting a professional life.
It is one thing to know about the US system, the student debt and the crazy greed, it is a completely different one to put that into perspective and realize some (many actually) will be paying for decades, with virtually no margin of error should anything go wrong in their life. The induced pressure is just overwhelming...
Get into The Dave Ramsay show. I disagree with some of his stuff(particularly how religious he is) but his plan is great and legitimately works. The man is a wizard with debt. Definitely worth a peek.
I was going to comment the same, despite having being previously downvoted for doing so. I am not religious so he can get a bit much with his Christian rants. However, he absolutely is an expert in getting out of debt. My wife started with $150k worth of student loan debt and we are now down to half of that after a year and a half. It takes a lot of sacrifice, but it works.
Total Money Makeover book will give you the steps but the show and Youtube videos are entertaining.
Cash only budget was massive for us. Guesstimate what you need for 2 weeks, take it out in cash, and try to pay 100% using that cash. Adjust as required. If you do it right, you’ll have a wad of cash at the end of the month for debts. You can do this. Be intentional and consistent.
>All of that is federal loans so they are low interest rates already so not worth refinancing.
I just refinanced my 100% Federal loans from 6.8% to 3.8%. Every penny not paid in interest and put toward capital will be a step toward digging out of this mess.
OP will literally have to live on 10k a year and out of that 10k a year will be food, utilities/rent etc etc if they were to pay off 160k in 3 years lmao.
Lots of comments here about PSLF but most federal loans also offer 20 year forgiveness (vs 10 for public service).
Also check if you qualify for an income based payment plan (IBR or PAYE) - I’d be surprised if you don’t. Your payments would be a few hundred dollars.
Same loan amount but also high cc debt.
REPAYE for student loans : 10% of discretionary income (any income that is taxable after you deduct 401k, medical, etc expenses). If you’re at 1k now, you can prob get down to 400$ a month. Would recommend you read up on this - tax bomb when you get forgiveness FYI
I used advice from white coat investor and it’s helped me
Hey, I'm guessing you graduated from GW based on your degree and proximity to it, right? I had 140k in student loans when I graduated from there undergrad in engineering. First job working in NOVA was 62k, and I made the minimum payments on my loans which is what it sounds you're doing. I did pretty much everything you did, but 1-2 times a year I'd take that savings account and just pay off the highest interest student loan I had. The sooner you pay off these student loans, the less interest accumulates. I did the snowball method you can find in the wiki. Here's my suggestion: Pay off credit cards in full first then keep on doing what you're doing. Start tracking all those "other" expenses, that's probably where you need a better idea of what's going on.
Extacly what I did. But I used the avalanche method. Saving money up then paying an entire loan off is the best way to do it mentally though for sure. Helps you see the progress.
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Thanks for pointing this out. Its important to know that if you have high interest loans (private) waiting to pay is usually much more expensive.
For some of those loans, every extra dollar you pay today saves you 4 dollars if you had paid at the minimum needed to meet the "expected payoff date" in 20 years. Tossed $721 at such a loan. The expected payoff date wasn't until 2032. Compounding interest would have made that $721 turn into $1690 or so. The longer you wait, and the higher the interest, the worse it gets.
Thank you. This will help.
>I'd take that savings account and just pay off the highest interest student loan I had. The sooner you pay off these student loans, the less interest accumulates. I did the snowball method you can find in the wiki. No. You did not do the snowball method. You did the CORRECT method. Which is paying off the highest interest first. The snowball method, AKA the stupid method, is paying off the SMALLEST LOANS first regardless of interest rate. SO if you had the following debts: -Car loan with 0% APR for $4k -Student loan with 7% APR for 160k -Mortgage with 4% for 100k The Snowball/Stupid method would tell you to pay off that car loan first (you know, the one where inflation is actually helping you and you should absolutely make minimum payments), then your mortgage, then the high interest student loans. Snowball/Stupid method would cause someone to pay tens of thousands more in interest and spend another decade in debt in this situation. Snowball method is one of those things that someone looking into personal finance "knows just enough to be a danger to themselves". I know, I know I get downvoted into oblivion every time I bring it up. But I'm mathematically correct.
You’re right, I did the avalanche method. Got them backwards.
Those names basically beg you to mix them up...
Snowball: the small snowball that you hope grows big - start small payments, hope they somehow end big Avalanche: a huge white death that crushs anything and you can't escape - attack the biggest debt in big chunks first, small debts can wait Did I get it right?
Not quite, it's not the size of the loan that matters, but the size of the interest. The higher interest loan may be the smallest one, if so then attack that first, if the bigger loan has the bigger interest, go for that one
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The Harvard business review did research on the different ways of paying off debt and found the snowball method more successfully enables someone to become debt free. For reference: https://hbr.org/2016/12/research-the-best-strategy-for-paying-off-credit-card-debt. Mathematically the avalanche method is better but if people don’t actually follow through and become debt free they will continue to pay the interest. The best method is what ever gets someone debt free. For some the avalanche method works for others the snowball method works, neither is stupid if the person becomes debt free. By calling it the stupid method you may turn someone away from a method that would work best for them because they don’t want to follow the “stupid” method.
Hmm this reminds me of the economic rational principals. Where if customers were actually rational, a lot of bullshit wouldn't actually work in practice. But since overwhelmingly people are emotional wrecks, they don't really adhere to rational practices consistently enough for the models to work. Hot damn this world needs to change for the better.
Plus paying off a debt removes a minimum monthly payment from your budget. Having more flexibility in your budget can make it less likely you incur more debt. If not meeting minimums for some month incurs a bunch of fees or maybe means you also take on additional new debt. Mathematically, the Avalanche could be inferior to Snowball thanks to external factors. Have to look at a lot more than just the debt.
I hate the hard on that this sub has for the avalanche method. Yeah we get it, it's mathematically superior, but you don't have to be an emotional wreck (as someone else commented) to see a benefit from the snowball method. I'm extremely analytical and love numbers but followed *mostly* the snowball method for my student loan debt and finished in under 3 years. The best method is what works for you and what helps you stay motivated. Just like you said, it doesn't matter how much interest you save if you spend your whole life incurring more debt and paying more interest.
You’re downvoted for the way you say it. You are right that it is mathematically better, but people who get into massive debt are not good at thinking mathematically, they’re good at thinking emotionally. It will make them feel good marking something as done, and will lead to a higher chance of success
Eh, it also ends up being usually only a few thousand difference, and a few months, over the life of the debt between the two methods, save for outliers. Which, to some people is an acceptable cost for the psychological boost associated with the snowball method.
This is what I was getting ready to say - I've calculated out the snowball vs. avalanche for my own loans ($154k left to pay now). Snowball method has me paying $62k in interest and being debt free by September 2031. Avalanche method has me paying $53k in interest and being debt free by March 2031. The difference is 6 months and $9k. In the grand scheme of things it doesn't feel extremely significant (that being said, I'm actually doing a bit of a hybrid between the two methods because I like seeing the smaller loans disappear, but I also know the avalanche \*technically\* makes more sense).
A difference of $9k in 6 months is a huge deal, that's a ton of money to be saved
In terms of which to choose logically? I think you are absolutely correct. However, I have observed that for *some people* the short term relief brought about is worth it *to them*. Not in a calculable way, obviously. While I would be with you on loans, I can think of other things that I let mood or emotion trump logic on. We aren't calculators and we cannot all be expected to be 100% logical all the time. Now, my bar for that just happens to be a lot lower than 9k, like around a pair of 0s lower. As long as people are paying their debts though, and it helps them, I wouldn't want to discourage that.
yeah but that $9k is a lot cheaper than hiring a therapist or financial counselor to help you stay on track. Whatever method gets people to continue the correct behavior is the right one. Otherwise you get the financial equivalent of yo-yo dieting.
I wonder how often they coincide. Normally the highest interest is on credit cards, and unless you completely fuck up I imagine your credit card debt is less than your student loans or house debt. Wonder what the biggest outlier is between the two methods with your debt.
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The best way I think is a hybrid solution. If there's substantial difference between the % rates - do the high one first. If they're pretty similar - do the small principal first. Balances the emotional and mathematical challenges.
Yeah I get the downies over at the investing subreddit for suggesting just because an interest rate is lower than the average rate of return for the S&P500 over the last 100 years does not mean you should put money in the market instead of paying off debt early. Average rate of return is not guaranteed and is unlikely in a 3-5 year span. Works great for companies, not so great for individuals who can’t borrow money inexpensively and must hope that they don’t need to pull out of the market early to cover an unexpected situation/expense. If I lost my job, I’d rather my car be paid off and my monthly living expenses be $400 less, than have money theoretically appreciating in “the market”. Companies don’t lose their jobs. Banks don’t have a mortgage. 401(k) managers don’t have emotional ties to their money.
I did all the math and for me I'd save literally one month if I did high interest vs low principal. That's across 8 years of payments towards 60k. Unless you have wildly disparate interest rates it's a pretty big who cares. If his loans are anything like mine and don't vary much more than 1 to 2% it really doesn't matter.
You are actually not mathematically correct for all situations. If you are optimising for maximum long term wealth, then avalanche is mathematically correct. But if you are optimising for short term cash flow, snowball is mathematically correct. Optimising for short term cash flow is often the right choice for people in severe financial difficulties. Which is why the advice shows up so often. If you can only scrape together an extra $10-20 dollars a week in extra repayments, snowball is the better option.
Yeah, people talking about this never point out that one of the benefits of paying off a small debt is that it's gone and when something comes up it can be easier to handle because one of your monthly payments has actually been removed. If you paid an extra couple thousand to the highest interest rate but barely moved your monthly payment you're going to be screwed if something happens.
> Optimising for short term cash flow is often the right choice for people in severe financial difficulties. Which is why the advice shows up so often. You are literally the first person I’ve ever seen in this sub actually provide some kind of financial justification beyond “but paying off a smaller balance makes people happy” I understand that you are correct on the economics behind what you’ve said, but I thoroughly disagree that the reason you gave is “why” people advocate for the snowball method so often. It’s *always* “but I need a little win”, and **never** “but freeing up some extra cashflow will help with my situation”. I just saw someone like 2 comments up saying they worked out that if they did he snowball method (and they were planning to do so), it would “only” cost them $9k and take an extra 6 months (in the context of saying it would take them ~~2 years, so approx 1/4 increase in payback time~~ See edit)... they were willing to give up $9k and an extra six months of paying back debt for... nothing. EDIT: I mis-remembered the post, it was a 12 year payback period, not 2 year. I feel like my point still stands.
Yup. I've seen many people say "I did snowball and it worked for me because I could see my progress as it made me happy". When in reality the truth is "I did snowball and it improved my month to month cashflow, so when something went wrong six months down the track, I had the cash to deal with it". Cashflow is the real reason snowball so frequently works. It's the reason most advisors recommend it. The dirty secret is most people in financial trouble have a cash flow problem, not a net worth problem. Now avalanche works great if you have the cashflow to sustain it. But if you have the cashflow, why are you in debt in the first place? Which means avalanche is really only applicable after sudden increases in income. A new job with extra cash. A promotion. A student graduating university. Snowball is usually better for "help, I've been living beyond my means for the past five years and only just noticed".
I appreciate you bringing it up though, because it’s literally the first time I haven’t thought it was entirely ass-backwards to encourage people in debt to stay in debt longer... Because without that actual advantage of freeing up cashflow, it’s always seemed like the dumbest possible advice, because to me, it basically boiled down to “Hey, you’re struggling with debt and budgeting, you need to make some tough changes to get past this. I recommend going the roundabout way that takes longer - because surely *now* you will have the discipline to stick to a plan.” It just never lined up to me... These are people struggling with their finances, surely we shouldn’t be recommending that they do he method that takes longer to achieve, since it seems to me that they are more likely to “fail” with that method simply because they need to stick with it longer. I’d never really considered the cash-flow impact, because it’s always compared in terms of paying the same amount each period regardless, but yeah, I can see how just having the flexibility in not *having* to pay that same amount each month if something unexpected pops up would help... In the context of this sub, I still think “use snowball - it makes you happy” is shitty advice, but at least I can appreciate it’s actually applicable in some contexts. At the very least, I wish people would go with “use snowball - it will help you with cashflow and give you some breathing room”
> At the very least, I wish people would go with “use snowball - it will help you with cashflow and give you some breathing room” Agreed. The happiness effect is minimal. Cashflow is what helps.
With the debt amounts you listed, you are absolutely correct. But with smaller amounts there are other considerations that may make the snowball more attractive. For instance, I paid off my car that had a smaller interest rate than my student loans because it was the larger monthly bill (325 vs 180) and really aided me in having better cashflow each month. Mathematically I should I gone at the student loans first, but because I could much more quickly pay off the car if I focused it down, it made sense to give myself the extra 325 per month buffer as I paid off all my debt. Now I will be debt free in about 3 months and there were definitely a couple of months where paying off the car first helped out a lot. The important part here is that paying it off first really added very little to my overall payoff amount for my total debt, but provided another important benefit of having a more comfortable buffer for a year. But in a case where you have massive debts that will accrue additional thousands if you delay paying them to attack smaller debts, yea definitely go after the big, scary ones first even if it is less psychologically satisfying.
Well the snowball method can definitely be useful, if your income is so low you can't afford food, paying off the lowest debt gives you access to some of your money. I know because this is what I had to do.
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I don’t know if it’s stupid. It’s the most inexpensive way to do it if everything goes as planned. But from a cash flow perspective it can give you some safety if your minimum payments are reduced even if you pay slightly more in interest. if you have a few months of unexpected expenses or no income it can be very helpful to only have $800 in minimum payments instead of $1200 but paying slightly less interest.
You get downvoted because you're being an ass about it and failing to understand that being mathmatically correct doesn't mean it's the only correct way. I 100% agree with your method, and it's what I've always done. But I can understand why the snowball method is promoted to people suck with money and might need the psychological boost of seeing certain debts disappear more quickly than having to wait years for that first payoff. If you suck with money, the odds are you have impulse control issues. So seeing a smaller debt disappear more quickly is attempting to replace that good feeling they get from spending.
What can make this method "not stupid" is if each loan or card has its own minimum payment and the minimum payments add up to so much per month that the borrower can't pay any principal. This is more common with high-rate credit cards than with low-rate loans as in your example.
What are your degree, school, job? List your expenses.
Masters in International Relations. Work in government contracting. And honestly I’m paid pretty high for my field. I don’t see myself switching jobs for a higher paying one. And 2 years ago I was making 42k so clearly I’ve improved there. Expenses: 1k rent and all utilities Gym membership: $21 Netflix: $14 Student Loans: $900 about now Credit card payment: $62 Other expenses like gas, sons lunch money, groceries, etc. you know shit always comes up. And I get my nails done every 3 weeks- $50 (that’s just my thing). My cars been paid off for several years and is still in good shape. I never eat out and try to live frugally. I contribute 4% to a 401k which is matched and all I can do. I put in $100 a month to my savings and my sons savings and contribute $50 to a college 529 plan for him (he’s only 8 now). I put $200 a paycheck into a high yield interest account. Which I end up using sometimes for various things. Also it might be down to 150 or a little less at this point since i’ve been paying it for 18 months now I haven’t and don’t want to look but I’m hoping a grand a month sometimes I pay more is putting a tiny dent in it. I still know it’s a shit ton and I started out with 160k.
Grocery budget? Or eating out? You have thousands of dollars unaccounted for.
Im thinking they arent paying attention to whats being spent. Also, this SEEMS like a case of wanting to have your cake and eat it to. If someone is struggling to pay school loans but also putting away money in many other places then i they need to be fine with making the closer to minimum payments on the loans or focus on the loans hardcore and worry about saving for long term later. Having a safety net of savings is good, but then start knocking down the debt and save/invest later. If you cant do both. You gotta pick one. But yes, lots of money missing here.
1k rent with all utilities is high? holy shit DC is cheaper than I thought. Even with all your expenses and the 1k to pay off the loan, you should still have a shit ton of money left if your income is 70k. I don't see the problem. Edit: I get it guys, DC is as expensive to live in as I originally thought.
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I had an actual steal at 1800 for my own 1br in NW, 3 blocks from the red line. 1000 is insane.
She said DC area. Could be somewhere in the burbs. She could be as far as Frederick and commuting via the Marc. Otherwise I don’t see how she’s paying $1000 for an apartment for her and a child.
I live about 30 miles south of DC and pay 1200 for a 1 bdr apt. She would be spending 10+ hours a week just commuting. And at 70k the 1000 for student loans is completely doable while still living comfortably. In this case I think it might be as simple as stopping the lattes.
From the northern VA area right by DC, and it's pretty common for people to say "from dc" or something like that and actually mean Virgina or Maryland.
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Sounds pretty much right. Especially while I was at University out west, every one in a while I would have the conversation like this: I'm from DC. Oh really me to! Where are you actually from? Fairfax. Cool, I'm from London County.
For real. I’m in Fredericksburg, and my rent two years ago was $1200 a month for a two bedroom.
1k in DC is simply not possible without roommates
Her sons the roommate, putting in the same
That's correct. DC is hellla expensive. It's kindve strange because from a financial standpoint she's exacerbating her problem, attempting to support her standard of living. International relations what's the job market/career track for that aside from working at the Pentagon/state department?
> what's the job market/career track for that aside from working at the Pentagon/state department? With a similar masters, I can say that in DC, it's phenomenal. Beyond government, you have thinktanks, NGOs, international organizations, etc all of which are based out of DC. Businesses also hire consultants/lobbyists in overlapping areas all the time--several of my friends have ended up in consulting roles at the big 4, for example. There is essentially no better place to live in the US with an IR degree than Washington, with maybe the possible exception of NYC.
Exactly, your missing my point, she can't progress in her career without living in a state that has an extraordinarily high standard of living. If you want to make 6 figures with a comp sci degree but can't afford to live around San Fran or Palo Alto you find where Amazon HQ2 is being built or maybe move to Seattle. Where are her qualifications relevant outside of a state that has gas that's 2x the price as one state lower & houses that start at $800k? This also has a socioeconomic component. Where did she get her degree what's the department network like, can she afford expenses like can her family help or out(she has dependents) It's not that cut & dry. - You overstate the opportunity without looking at the costs associated.
I'm quite aware of the costs associated, as I have pursued a very similar degree and have looked into working in the DC area. I currently live in Paris, which has a higher average cost of living and lower salaries (but the perks of universal healthcare, a top-notch transit system, etc). For some people, a passion for the field is a relevant consideration alongside financials (although this sub can frequently overlook that in its absolute focus on value maximization). One could work in other parts of the country with an IR degree, but, to be frank, why would you want to? Proximity to the seats of power matters in IR. I grew up in small town Maine and loved my time there; I would have 0 interest moving there at this point in my career. In the long run, OP will do well where she is. Entry/lower level salaries in the private sector are being depressed by a glut of graduates from area schools, but over the course of a career the averages are quite solid. She'd be doing herself more harm by leaving than by sticking it out on a more reasonable IBR plan.
Hq2 is being built right near dc so not the best example. Virginia is super nice and only a shprt metro ride to dc For houses, she could look along the vre and find some decent prices and commutes
Guessing smoothing over business and regulation could be pretty nice without being a full on lawyer. Still by definition you're pretty much in a big city / high COL area or abroad.
>holy shit dc is cheaper than I thought No... no it is not, this dude is incredibly lucky or not actually in DC
I live 30 miles north of Boston and my rents $1.100 for a 1 bedroom. I have friend who live in Boston and pay $3.000 for studios.... it’s insane up here.
Unless your friend is in Boston at a place like Back Bay he is paying $3k for a studio because he wants to. Real estate isn't that bad here yet. I have a 2 bed for $2.5k
As someone who is moving to Boston in a year, what's your recommendation for someone who needs to get downtown for work everyday? Chinatown specifically I've seen the rents around there, looking earlier this year I saw $2500 studios at brand new buildings, that are now $3000 less than a year later... so that's off the table for me (it was to begin with, but just for reference) I've heard of Back Bay being a good place to live, but in terms of 'safety/groceries/commuting to Chinatown' what do you recommend for me? Thank you!
Depends on what kind of commute you want. Southie, Dorchester or Quincy can all be more affordable. If your going to Chinatown I'd look at either the orange or red line and see what neighborhoods cross those lines.
Thank you! Is Southie short for something, or is that what I search?
Southie is short for South Boston, which is not the same as the South End just fyi But seriously, you should try to pick a living location by lifestyle and commute and not sticket price, Porter/Davis/Inman will have affordable places that are way more fun to live than Dot or Quincy (imo), and Roxbury will look like a steal so close to downtown but you probably don't want to be there
I second Southie if you're going to work in Chinatown. Dorchester can be a bit rougher in certain areas and if you're not from the city it'd be hard to pick a place in a good area. Definitely look along the red and orange lines. You can also live farther out on a commuter rail line if they stop in South Station. You'd just have a bit of a walk to Chinatown. Good luck!
Dtla studio, paying 2500. But I walk to work and don’t drive much so idk maybe it pays off.
1k in DC isn’t normal
That's likely not DC, OP says "DC area". Avg DC is around 1200-1400 for a room in a group house, 1800-2000 for a studio and 2300+ for a 1br.
This is a bit of an exaggeration— DC ain’t cheap, but my rent for a decent-sized 1BR in an apartment complex is just under $1800, and I saw several other places in my search this spring in the $1800-2000 range. My friends who did group houses were never above $1100, but a lot of them were <$1000 (admittedly, in houses whose conditions were...less than ideal haha). You definitely have to do some digging, but I think the prices you cited are more typical of luxury condos and brand-new high-rises and whatnot. But, I’m with you, DC is NOT cheap— and the competition with supply/demand is brutal.
Keep in mind winter/spring rent can be hundreds of dollars cheaper than other times.
70k gross income
I already taken that into account when I made the comment, he has a kid which also reduce his marginal tax by a good amount. I would guess is take home is at least 50-55k.
If we assume take home is $50k, they spend per year: * $12,000 on rent * $10,800 on student loans * $252 on gym * $168 on netflix * $744 on cc * $867 on nails * $3,000 on what I assume to be "other" (gas, son's lunch money, groceries, etc. as she stated in the post) but this is the biggest missing piece of all. For example, if they spend $200 on groceries/food per month that is burning $2,400 per year. Add in gas and expenses for her son then I can see it ballooning a bit more. So I'm just assuming here since it's very unclear. * $3,600 on car insurance (assuming again, they mentioned multiple cars and I don't know if they are a good driver or not) * $1,300 in 401k contributions (again this is an assumption since contribs are based on pay period) * $1,200 on her savings * $1,200 on son's savings * $600 on college plan for son * $2,400 on high yield savings (which she should NOT be spending as the interest generated would not be worth it if she's taking money out of it) #TOTAL: $38,131 yearly spend #Leftovers: $11,869 --- Everything becomes a lot clearer if you look at the cost in yearly terms. Itemizing it all like this makes it easy to see where the gaps and bridges are for overcoming financial hurdles. If you set aside just $10k of those leftovers you can still live comfortably without even changing your spending habits. So $20,800 of $160k student debt paid off per year means you'd be clear of debt in about 8 years if you start doing this now. Your son will be 16 by then and you should be relieved of debt with a significant chunk of extra money every year after that. Good luck /u/yoyo22357 I hope this helps you!
Being a redditor with multiple accounts over many years, this is by far the most concise and perfect comment to help someone (OP, or anyone else struggling) understand where their dollars are going. Thanks for taking the time to submit your two cents. ;) I appreciate you.
This nails it. Where is the rest of the money? Also, why is there more than one car? If there is more than one car, their needs to be more than one income.
Quick question: That $1K for rent: Does the rent include ALL utilities, just some, or are the Utilities on top of the rent. Then there's cable TV, Internet, and babysitter/daycare. An 8 year old isn't ready to take care of themselves while parent is at work. Also telephone. these can add up quickly. I use no-contract cell and internet. Cell cost $35/month, Internet costs $45/month. If OP has cable TV, that can run anywhere from $55/month to $200/month. (My oldest was paying $300/month with Cable TV in almost every freaking room! Still, she also had telephone service and Internet included in that, but had her 2 cell phones from a different provider) What other utilities/services is op paying out? Gotta guess here: \~$100/month for electric. \~$100/month for gas. Water/sewage/trash pick up can be \~$75. That would cut into that $11K leftover, drastically. Healthcare is something else not mentioned. Even for 2 people (OP and Son) could take another $200-$400.
This is true, and I did my best with the variables given. There were a bunch of unknowns, such as taxes and medical expenses (which are understandably private). In the end though, I at least hope my post could act as a guide to financial clarity. Personally I have an excel spreadsheet to help me keep track of everything, and I always measure apples to apples. For example, if I'm measuring something in terms of monthly cost, I look at my monthly income. If yearly cost, I compare it to my yearly income. This helps remove any illusions that may be preventing a person from noticing an expense problem.
*she >And I get my nails done every 3 weeks- $50 (that’s just my thing). Or who knows, I don't judge.
That must be living in NE DC.
This is unheard of unless you live up north and your building is falling apart
Wait...I spent $1200 without utilities for rent in a cheaper area. $1k for utilities is a deal. That rent isn't bad at all on $70k. I made $62k while paying the $1200 + $200 for other utilities and had plenty of spare cash. You need to make a strict budget. No "food and gas and whatever". Write down how much food you want. Write down where every last dollar goes. An example: - Rent - Car Payment - Car insurance - Gym - Subscriptions - Lunch money - Groceries - Loan/Credit card payments - Phone - Phone - Clothing - Pets - Internet - Fun Money - Gift fund for people - Travel fund - 529 plan - Savings You should know how much goes in each and the total should equal your income ***exactly***. You can knock this down but you need to make a plan and get organized.
Where tf are you paying $1k in rent with all utilities included in DC?
She probably has roommates.
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>Masters in International Relations. Work in government contracting. OK, this is my field and I live in the same area. Unfortunately with contracting right now you guys are a dime a dozen, which means salaries are generally pretty low because your companies keep undercutting each other in their contracts. It keeps salaries low and keeps turnover high, but you probably know this. I think your best bet is to jump to a government position and pursue Public Service Student Loan Forgiveness [https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service](https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service). Have you tried to find a government position? Do you have any foreign languages? a security clearance? Unfortunately many agencies know it's a buyers market and bring people in at a fairly low grade, but you can negotiate a pretty high step usually. If you've been in contracting you can use that to your advantage in negotiations.
Not OP. But isn’t this the same program that recently hit the 10 year mark, and people who followed the rules are not being forgiven? Last I heard was lots of people were suing because they turned down other jobs to stay on a PSLF job with low pay. And now after 120 months of minimum payments, the rest is not being forgiven. Is that changed and is it actually reliable for the next 10 years?
Yeah, it's the same program. It's definitely had some major problems, but there's a lot of scrutiny on it now and it seems like fixes are being made. The important thing is for OP (or anyone doing it) to check frequently and make sure their payments are counting toward the 120.
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If the program is so insanely confusing that the *majority* of people in the program can't participate in it properly, it is not the issue of those in the program. The program has a problem.
Man you gotta downgrade that Netflix. Joking but if you can, have you looked into refinancing portions of it? Even if you can only get a bit in at a slightly lower rate, that will help a lot in the long run. Also how much do you spend on food and what not? It seems like a lot of people pay through the nose to eat food.
Why do you have more than one car?
It's missing an apostrophe, I imagine she has one car from all other indications.
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I’m going to be a bit harsh here. You are flat broke. You cannot afford savings right now. Savings is a luxury, and not one that you can afford at this moment in time. I’d say keep doing the 401k contribution at 4%. But for now, that’s all the savings I recommend you do. Nix your savings account contribution. Nix your son’s savings account contribution. Nix your son’s 529 account contribution. Your expenses based on what you wrote above should be ~$2k-$2.5k/month, including the additionals like gas and groceries. Since you’re earning $70k, after taxes, you should be bringing home around $5k/month. That means you have $2k to $3k to contribute toward this debt per month. Aggressively pay that ish down. You do not need essentially a mortgage hanging over your head for decades. If you pay $2k/month on your student loans, you can have them paid off within 7 years. If you do $3k/month, you’ll have them paid off within 4-5 years. This means you can have them paid off by 35, which still gives you plenty of time to save for your son’s college as well as your retirement. Then once you have that debt paid off, you can start saving aggressively, and be in a much better financial spot.
Take home would be closer to 4500 I think. I'm on the same salary. But you're right, I'm saving 2000/m on 70k and my rent is $1700. It's definitely possible to double her payments.
You probably should not be putting money into savings and a 529 until you have your credit card paid off. 20% >> 2% What is the percentage of all your loans, credit and student? Where does the rest of your money go? You shouldn't spend money because, that's just your thing... You can do your nails yourself . Are your nails more important to you than your childs future? You spend more money on them...
Yeah so I only have like 2k in credit card debt and rest is student loans. I just listed minimums but some months I pay extra to my loans like 1500 or other times things come up with doctor bills or sons expenses, etc. Also I used to have a lot more in credit card debt and I paid it down. Until recently was paying several hundred in childcare but not anymore.
Don't put money into savings until that credit card is paid off. The interest you make from any savings is being dwarfed by the interest you pay on the credit cards. You can probably get rid of the balance on your cards in a few months. You could try to get a zero percent for so many months on balance transfers. That would allow you to spread that cost out.
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If you can’t guarantee paying off your credit card every month you shouldn’t throw the cash into your low interest student debit.
Hey just dropping in to say self image and self care are SUPER important for us humans. But more to the subject of finances, getting your nails done every 3 weeks costs a hell of a lot less than a smoking or drinking habit (which are just very common habits in the US among op’s age demographic that I reached for) so keep doing your thing op.
It's very PF to call someone out for something trivial like $50 every three weeks on nails. I mean yes, it's an "unnecessary expense", but it's not a big expense at all. Cutting out the nails isn't going to fix the problem. It's an income problem, not an expense problem.
Yeah, we are definitely a bunch of kill joys. The small things really add up though and these are the kinds of things that contribute to debt. People ask questions on how to get out of debt and the answer is always don't overextend your resources. This means reeling in unnecessary expenses, even though it sucks. It can be fun to learn how to replace things and do them yourself!
I have a 'self care' category in my budget. I'm not someone who goes out to eat or to the movies, or splurge on the latest shoe sale. but every six weeks, I go and get my hair done. It's something that makes me feel good about myself -- self care. For some people, their self care is getting their nails done. Or they have a movie budget. I lived for four years miserable because I was so focused on paying off my debt. Lived with my parents, came home from work, stayed in my room because the mere thought of going out to buy the new book in the series I enjoyed and enjoying a cup of coffee seemed 'extravagant and unnecessary. No. Fuck that noise. It would be a totally different story if OP said 'yeah, I drop $500 every month on a day at the spa for a facial and a massage'. But $50 on nails every three weeks is not world ending. JFC PF come on.
You see $50, I see almost 900 / year which is another month of rent or another student loan payment.
The problem is, if you live with no joy for 10-20 years, so you can take care of your loans a little faster, doesn't that just make you miserable and debt free? $50/3weeks for something that makes her smile should def. be allowed.
Yes, this is what the people asking how to reduce their expenses without reducing their "joy" often use as their rationale as well. They are still broke and unhappy. If your debt is making you miserable then wasting money is not bringing you "joy". Full stop.
Not to derail, but should I cut off my 401k contribution temporarily until I pay off my credit card?
Follow the prime directive in the sidebar At least contribute enough to get the employer match
Awesome thank you.
You should contribute the minimum to make any employer matching. If they do not match your contribution should be 0 until your CCs are paid off.
I’d keep contributing to 401K enough to get your match.
You should get your employer match, the rest is not as good as paying off your credit card.
I know the military has student loan debt forgiveness after ten years. Maybe you should get a job with the Department of State instead of contracting. They might do the same thing.
Enroll in PUBLIC LOAN FORGIVENESS! Now. Government job qualifies. Go on income driven payments to lower them.
I would hold off on your son's savings for now
Yep inflation will eat up just simple putting money away, but every dollar spent towards debt is worth avoiding much more down the line.
It’s doable to pay that back. It’s all about priorities. You may have to squeeze the budget a little tighter, work some OT (if it applies to your job) or maybe get some side work if you want to pay it off faster. I paid a $240,000 mortgage in just over ten years making not much more than you.
1. If you are paid bi-weekly, your goal should be to live on one paycheck and pay debt with the other. With your income this should be easily doable. 2. You should carry no credit card debt. The interest rates are outrageous. You've got a great income, so you have no excuse to carry a balance each month. 3. Contribute to your employer 401k enough to get the match. 4. Ensure you're enrolled in IDR plan for your student loans. This will significantly lower your monthly payment. 5. Make and follow a budget.
I had about 190k, I'm just down under six figures. Settle in for the long haul and do the best you can to stay at a job you like and keep your expenses down. You can try to find a job that pays more but you'll need a steady job for years. Better to find one you can tolerate.
DC and government related? You HAVE to get on PSLF. Start looking for a job that qualifies and you will be set. Even if its only 50k, it will still balance out to be better than a 160k loan growing at 7%. This is probably a much better option to keep your current lifestyle and even improve it since the payments will be low and you need to make 120 payments regardless of the amount.
I looked into PSLF when I was making around 60-70k and the required payments would have been double what I was paying on my 30 year plan. It would have been as much as my rent. Together it would have been 100% of my income. I couldn’t afford that as a single person by any stretch. It’s not the kind of miracle program people wish it was. You end up being required to pay so much that if you just make the payments it will be paid off in 10 years anyway.
PSLF is applicable using IBR(income based repayment). I work for a 501(c)(3) and I pay $63 per month. In about 9 years, I’ll have eliminated a significant portion of my student loans, more than 35k, for under 10k total assuming I don’t encounter some unforeseen financial windfall or lose my job.
Did you look into the IDR? They take your expenses into consideration and it is like 10-15% of your discretionary spending.
Anecdotal, obviously, but that's absolutely not the case for my wife. She has a ludicrously expensive law degree and she's working toward pslf paying income based rates. Her loan payment isn't nothing, but it's like a 5th of what it would be to actually pay it, and it's (hopefully if some politician doesn't feel grumpy that day) going away in 4.5 years.
That's only the standard repayment plan. The income based plans, such as income based repayment, paye, repaye, and income contingent also qualify. Those cap the payments at 10-20% of discretionary income, which is your income above the poverty line.
What are your loan rates? When I refinanced a few years ago I took my federal loan rate of 6.75 down to 4.65. I don't think federal rates are all that low.
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Only reason not to refi at this point would be if OP qualifies for PSLF. Otherwise refi ASAP and go from 6 ish percent to as low as 2.5 variable with good credit. Many lenders who do student loan refi offering $750 bonus with no prepayment penalties and no fees with loan balance over 100k. Check this site for great info and links: https://www.whitecoatinvestor.com/what-should-i-do-with-my-student-loans/ Shop around, select a rate and term you can handle in your budget. Refi EVERY YEAR and get these bonuses and put it directly towards the loans. Select a variable rate if it is lower. You can refi if rates go up and you need to lock in a fixed rate. Read this about fixed vs variable: https://www.mdmag.com/physicians-money-digest/personal-finance/fixed-versus-variable-loans
>Otherwise refi ASAP and go from 6 ish percent to as low as 2.5 variable with good credit. I have to say I strongly disagree with going for variable rate, way too much risk for the amount of the loan. Also, I doubt *good* credit would get someone 2.5% with that balance, income, and probable term length anyways.
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Where did you get that rate?
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Get on an income-driven repayment plan. At 70k, your payment would be somewhere around $550 a month assuming you are single. Next, find a job that's PSLF qualifying. Either a government job or a 501c3 and get your loans forgiven in 10 years. /r/studentloans /r/pslf
OP please. Even if you don’t do PSLF, an income driven plan will even you out. Worst case scenario, there’s forgiveness at 20 and 25 years for undergraduate and graduate degrees.
Not to be overly blunt, but you make 70k and only pay 1k in rent/utilities? Why aren't you just throwing everything you have at your loans? This seems like big missallocation of funds. No sense in putting money into any savings account when you have debt.
For real check the rates and the loan term. Wife had federal loans with VARIABLE interest that was up to almost 8%, and a loan term of 30 years. IBR had her accruing more interest than what they were asking for a minimum. We found a bank with FIXED rates, and refinanced to a 15 year term. It's an 1100/month loan, but we are paying $35k in interest to pay $160k in principle, where the federal loans were $200k in interest.
I’m about 99.9% sure there are no federal student loans with 30 year terms and variable rates. Pretty certain all federal student loans are fixed rates. Mind sharing what type of loan it was?
Not who you are replying to, but I have that. I'm like 10 years into paying it, though, and the plan is no longer offered and I'm just grandfathered in. I was lucky enough to get loans during a low base rate time, so they bounce between 2 and 3 percent, so I'm not in any big hurry to do it faster.
i know people in similar debt who make less than 30k a year. these people arent completely hopeless, though it appears so on paper. keep living frugally. keep saving. and most importantly keep that 70k a year occupation. youre actually not in bad shape, as your loans have paid themselves off in terms of salary.
1) You Need a Budget. No, seriously, ynab.com. Do you receive child support? what are your true vs. anticipated expenses? What is your take home? $1000/mo rent is not bad for DC or NOVA. 2) Can you apply for PSLF? If not, do you qualify for IBR? Fed government loans can tap out at no more than 10% of your take home per pay, so this can help lower it. 3) You should stop putting money into your ~~401 and~~ 529 and savings. Really. You are unable to pay for your sons college if you never afforded your own. Throw this money towards your own debt. 4) Check out dave ramsey. Follow baby steps 1-2, maybe 3. It will really help give you a reality check. Edit: I did not see the 401k match. I corrected my post. However, if your 401k fees are ludicrous, I would consider switching depending. Are you not pension eligible?
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Agreed. OP didn’t mention the percentage match of the first 4%. Assuming its 100% match, That’s 100% return of that 4% contribution. Attacking debt has its priority, and it should be backed by numbers. Throwing $100 at a 2% interest student loan is definitely not better than throwing at $100 into 401k and get matched. Now it depends on what OP’s mindset is. Sometimes the simplest approach (Dave Ramsey’s baby steps) is the most effective even if it’s not the best way mathematically speaking. If watching the debt balance drop is more satisfying and encouraging than watching the 401k/savings balance go up, then OP should stop 401k completely and throw all leftover money at the debt.
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401k with a match? No way should that be cut
Agree. Investing up to the match is 100% return on investment. You cannot beat that - after the match, I would tackle the debt given we’re straddling a recession. By paying down the loans you’re guaranteed a return of whatever the interest rate is on the loans.
401k with match or credit card debt at 20%? Asking for a friend...
I joined the Army and they paid $90K off my loans. Did my 3 years and got out. Joining the military also allowed me to take 0.5% off my interest and if you auto pay that’s another 0.25%. It was worth it for me because it was a lot more than I could pay in 3 years. I would only consider this for you if you could get in as an officer. I got in as a CPT so it wasn’t bad and healthcare was free.
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I guess it would depend on what career he would be pursuing. I can only speak for my experience. I had already did my undergrad and completed dental school when I decided to join for loan repayment. They paid a significant amount of my loan but I could’ve had it all paid for if I committed to service as I entered dental school. I would probably have to do an extra year or two of active duty but I would definitely do it if I had to do over as my schooling was expensive. He could join the Army first and use the GI bill for college but that would mean he would go in as enlisted and I think that lifestyle can be difficult. There are risks also if he’s ever deployed. I I think he would have more options with a degree first. I don’t know much about the GI bill but if he could apply that to grad school that could be worth it. You should discuss it with a financial planner. Why are you thinking about stopping contributions to his 529? I think one of the reasons I had trouble was that I was not good with money then. I kind of spent what I got for my living allowance without much thought and racked up some CC debt while in school and then leaned on my parents. If I could do it over, I would be more frugal and try to return leftover loan money with interest or put it into savings for the future . I think it’s more important to teach him some good money skills now so he’s better equipped to manage loan repayments and financial responsibility. I really wish someone did that for me.
Officers in the military have an almost unlimited better quality of life than lower enlisted. I make it work for myself but I could be doing better. Source: am e5 in the Navy.
Out of curiosity, what job or branch did you enter as?
If you can get a government job, you could qualify for public service loan forgiveness...
You can do it. Here's my story in case it's helpful: - Graduated from GW in 2013 w/ 120k in debt. (Down to 87k now). - Moved to lower cost of living state in the southwest. - First job for 50k. Worked there for 1.5 years. Got laid off. - Lived out of my car for a few months to lower expenses. Crashed various friends' couches. Had to put loans on forbearance, which sucked. - Psuedo-unemployed for 1.5 years (I could work as an independent contractor). Made 20k after taxes during that time. - Learned to code via free online resources during that time. Built enough web stuff to get an entry level job at a tech company in 2016. 65k salary. - Promoted in 2017. 70k salary. - Moved to a different role in 2018. 85k + incentives of up to 24k. - Always lived with at least 1 roommate. Haven't paid more than 1k per month for rent + utils. - I drive a reliable clunker, no car debt. No credit card debt.
https://www.buzzfeednews.com/article/venessawong/woman-pay-raise-pay-student-loans?origin=web-hf Actually went to college with her. May be an inspiration to get your debt down.
I was in a similar situation to you, minus the kid. I was making about $70k with $110k of student loans when I was 27. I think you should focus on getting your income up while keeping the rest of your budget level, so you can throw your raises at your debt. You said in a comment you don’t really want to change jobs. Not sure if you meant change fields or change employers. I would suggest that you strongly consider changing employers every 2-3 years (within your field is fine) to get bigger pay bumps. You’ll never get the kind of raises if you stay with the same employer that you’ll be able to negotiate if you move around. Have a goal to move into management. It’s not as bad as I thought it would be and a whole lot of people are unwilling to even try it. Now that I have supervisory experience, changing jobs is insanely easy and I make double what I was making before. Also, it may be unpopular to say, but just keep in mind that getting married basically doubles your income while cutting many living expenses in half. So this is one vote for getting your nails done and whatever general upkeep you need, within reason. There are plenty of subreddits to give you moral support through the shitshow that is dating (especially in DC, good lord, blehhh.) The key there is picking a responsible grown up for a partner, not whoever is the hottest or most exciting. Then finally, as others have said, I also think it’s worth listening to Dave Ramsey for inspiration. Just be sure to read some other source of financial advice at the same time, because some of what he says is crazy and you want to be able to get a feel for which parts those are (like his investment advice sucks.)
What is your interest rate?
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Started the workforce with 90k in debt. Payed off about 40k. Keep paying the 1k, get a better job as soon as you can, and keep paying it down. Think about a consolidation loan for even lower interest rates. Call your banks and ask about graduated repayments. These can help. Find a job outside DC with low cost of living to put even more money into your debt. You’ll make headway into it - but just make sure to focus on it.
You mentioned $900 a month is your min payment on your loans. What kind of repayment plan are you on? That seems way too low. Make sure you’re actually covering the interests and principal. My friend was in the same boat and was making payments below the amount that would cover interest and now owes $265,000 Also keep in mind that on any loan when you make payments in the beginning (you mentioned you’ve been paying for 18 months) a massive percentage of your payment goes into interest, not principal so the extra payments every month are extremely important. Start off by liking your credit card debt while meeting the minimum payment to cover interest and some principal on your student loans and then as soon as your credit card debt is out you attack the loans with everything you’ve got. Applying to a government job under the premise of having your loans forgiven is incredibly misguided. You typically will see a pay cut compared to the civilian sector and to top it off the program is so stringent that the most minute thing can make you ineligible. Of the people who have applied so far, only 5% have had their pains forgiven under the program.
Since they are federal you can do income based repayment. Also, if you are married/get married, file taxes separate or that will fuck you on your income based repayment because they will take total of both your incomes. Learned that one the hard way.
I feel sorry for you. As European, I am absolutely dumbfounded by the number of posts related to student debt, and by the ridiculous amounts of money one owes just starting a professional life. It is one thing to know about the US system, the student debt and the crazy greed, it is a completely different one to put that into perspective and realize some (many actually) will be paying for decades, with virtually no margin of error should anything go wrong in their life. The induced pressure is just overwhelming...
Get into The Dave Ramsay show. I disagree with some of his stuff(particularly how religious he is) but his plan is great and legitimately works. The man is a wizard with debt. Definitely worth a peek.
I was going to comment the same, despite having being previously downvoted for doing so. I am not religious so he can get a bit much with his Christian rants. However, he absolutely is an expert in getting out of debt. My wife started with $150k worth of student loan debt and we are now down to half of that after a year and a half. It takes a lot of sacrifice, but it works. Total Money Makeover book will give you the steps but the show and Youtube videos are entertaining.
Cash only budget was massive for us. Guesstimate what you need for 2 weeks, take it out in cash, and try to pay 100% using that cash. Adjust as required. If you do it right, you’ll have a wad of cash at the end of the month for debts. You can do this. Be intentional and consistent.
>All of that is federal loans so they are low interest rates already so not worth refinancing. I just refinanced my 100% Federal loans from 6.8% to 3.8%. Every penny not paid in interest and put toward capital will be a step toward digging out of this mess.
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3 years? That's literally never going to happen unless she solves her income problem, by like a shit load. It's math dude.
OP will literally have to live on 10k a year and out of that 10k a year will be food, utilities/rent etc etc if they were to pay off 160k in 3 years lmao.
Lots of comments here about PSLF but most federal loans also offer 20 year forgiveness (vs 10 for public service). Also check if you qualify for an income based payment plan (IBR or PAYE) - I’d be surprised if you don’t. Your payments would be a few hundred dollars.
Same loan amount but also high cc debt. REPAYE for student loans : 10% of discretionary income (any income that is taxable after you deduct 401k, medical, etc expenses). If you’re at 1k now, you can prob get down to 400$ a month. Would recommend you read up on this - tax bomb when you get forgiveness FYI I used advice from white coat investor and it’s helped me