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Hello from California and Seeking Advice / Student Loans
Old 06-07-2016, 10:33 PM   #1
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Hello from California and Seeking Advice / Student Loans

Hello there!

I am finally officially joining this forum after lingering around ever since stumbling on this site a few years ago. I enjoy perusing these forums and have received so much great information just by reading others' posts and responses to them.

A little about our situation. Any feedback is welcome and greatly appreciated, as I feel a bit stuck, and writing out all of our finances makes me incredibly anxious. My fiance and are each 30 years old, getting married this fall. We have been together around 7 years and have lived together for the past 5, sharing household financial responsibilities, et cetera, since then. We each enjoy our careers quite a bit at this point in time so a retirement goal of 55 is sounding nice to us, though I imagine we would each like to continue to do some part time consulting, maybe open a small practice (We are both in the mental health fields) and keeping working part time. I am detailing our basic financial information below:

MONTHLY INCOME:
Monthly Gross Income from Full Time Jobs: $18,410
Monthly Gross Income from Consulting/Side Jobs: $2400
Monthly Gross Income from Rent: $1895

MONTHLY FIXED EXPENSES:
Monthly Rent/Bay Area: $2450
Monthly Mortgage/Taxes/Insurance: $2250
Car Payments: $500
Insurance (Rental Dwelling/Life/Auto/Renters/Professional Liability): $500
Monthly Rent for Fiance's Shared Apartment in Work Location: $200
My Student Loan: $850 (Currently under IBR - see question below)
Fiance Student Loan: $1250 (Currently under IBR and Public Service Loan Forgiveness - slated for remaining balance to be forgiven in 2020)

ASSETS:
Home worth $400,000
Non-retirement brokerage accounts: $4,000
ROTH IRAs: $65,000
401Ks: $31,000
Vested pension with a cash value of $44,000

LIABILITIES:
Mortgage @ $370,000 (not living here now due to a hopefully temporary job relocation)
Credit Card debt of $10,000 (This should be paid off by September 2016).
Car Loans @ $30,000 -- 2 cars, both upside down as we both put a lot of mileage on our vehicles for work
Fiance Student Loan: $220,000 (Slated to be forgiven in 2020 as he is part of the Public Service Loan Forgiveness Program)
My Student Loan: $220,000

My most pressing question is what I should do with my student loans. I am currently paying around $800 a month in Income-Based Repayment, but the balance of the loan rises each month. I have made 2 years of payments so far on IBR, so the remainder is supposed to be forgiven in 23 more years, with possibly a quite hefty tax burden at that time. Additionally, if my income rises, so will my Income-Based-Repayment.

I applied to refinance my student loans for a 20 year term at an interest rate of 3.5% (current rate for federal loans is 6.75%) but was denied unless I had a cosigner, which I won't do. Another option is for me to refinance the loans with my current loanholder for a 25 year term, which would increase the payment to $1600 a month, but the balance would not increase every month, the payment would be set for that 25 years, and I could possibly refinance at a lower interest rate when I got the balance down a bit. It is frightening to me to take on another $800 a month in obligations, but it is also disheartening to see that loan balance rise month after month, even under IBR.

Any advice would be greatly appreciated.

Thanks so much!!!
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Old 06-07-2016, 11:59 PM   #2
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You and your fiance put yourself behind the 8 ball by running up $440k in student loans AND you chose to live in one of the most expensive states in the U.S. Your student loan payments don't even cover the interest and the principal balance is increasing. Then you guys purchased a $400K house that you rent out for much less than the mortgage payment and insurance premium. And you're upside down on cars due to the high mileage living in two places.

While you guys are making good money, you have good reason to be of concern. Such high student loans might be okay for a general surgeon, but
your incomes don't equal the high California cost of living and allow for repayment of your student loan.

Your fiance was smart to get into the Public Service Loan Forgiveness Program. Too bad you too didn't go into that program yourself

The plan of action in your situation is not simple, and early retirement should be addressed after that student loan is paid. Unfortunately, it's going to be a little painful to get out of your dilemma.

Step 1 concerns the house you don't live in. Unless it's in one of those locations that home values are going up 20% or more a year, dump the house.

Step 2 is to cut up the credit cards. If you operate only on a cash basis, you may can begin to pay them down to where interest is not eating you alive. Otherwise, you'll continue to be a slave to your credit cards.

Take good care of those cars, because you shouldn't consider trading for a long, long time.

You should consider going into emergency financial mode until your student loan is paid way down or even better paid off. You and your fiance should go on a budget--and have it in writing. Every facet of your lives and expenses should be curtailed greatly--including eating in restaurants, staying out of coffee shops and don't even think about taking vacations. And stay out of any malls and department stores.

To get out of this situation, it's going to require your fiance be on the plan just as much as you--even though his student loans will be forgiven.

My question is are you willing to do whatever it takes to erase this debt?
Being a young couple is difficult enough without having financial problems to complicate growing old together.

Good luck to you.
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Old 06-08-2016, 12:33 AM   #3
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Thanks so much for the feedback. I have included responses below:

--We have cut up the credit cards
--We are looking at options for getting rid of the house. We bought the house as a primary residence but then an unexpected career move took us out of the area. We definitely don't want to continue losing money on the house month after month.
--I wish I could be in the public service loan forgiveness program! When I was in school, that was the plan. Unfortunately, I was neither good at nor enjoyed the work that would qualify, so I now work in the private sector.

We are definitely motivated and very hard workers. Are you suggesting I do the refinance out of IBR / $1600 per month payment and throw whatever extra money I can toward the principal?

I do appreciate the feedback even though I realize we may not look like ER candidates!

Thanks so much,

Ashley


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Old 06-08-2016, 07:57 AM   #4
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Wow. That's a lot of debt. Will you have to claim your soon to be husband's charged off school debt as income in 2020. If so I would think that will require a significant amount of cash assuming you'll be in the 33% or greater tax bracket that year. Add to that CA state income taxes and that would be a cash nut you should be saving for right now. Regarding your school debt, what was your plan as you were accumulating such a large amount of debt? Were you anticipating earning a salary significant enough to extinguish the debt? If so what happened to that salary? Do you anticipate a significant salary increase in the next few years? If not I don't quite understand what your plan was?
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RE: student loans
Old 06-08-2016, 09:32 AM   #5
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RE: student loans

@Golden Sunsets

Thanks so much for your response. Under the public service loan forgiveness, we won't owe on the charged off student loans from my fiance. They are forgiven without a tax liability.

I was initially enrolled in the same program, so that was my plan as well, but I hated the work and am now in the private sector, hence the student loan question for me. My income should rise over the next 2 years to about 150K. Still, if I had realized there was a possibility that I wouldn't do public service loan forgiveness, I definitely would not have made the decisions I did.

Thank you!
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Old 06-08-2016, 09:37 AM   #6
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Quote:

$220,000 (Slated to be forgiven in 2020 as he is part of the Public Service
Loan Forgiveness Program)
Does that mean that taxpayers will pay off your debt?
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Old 06-08-2016, 09:51 AM   #7
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Hi there - Yes, my fiancé does very dangerous work that the state has difficulty recruiting for, hence the program.

Thanks,

Ashley


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Old 06-08-2016, 10:04 AM   #8
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I had a lot less debt than you 20 years ago and was scared into depression. I ended up getting a second job to pay off credit cards faster, then my car loan. I moved into a small apartment and rented my house, which at the time covered the mortgage and insurance. I eventually sold the house to my tenants. It took a few years but ended up debt free. All I can suggest is find a way to increase your income and reduce your expenses as quickly as you can.


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Old 06-08-2016, 10:04 AM   #9
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Well the good news is you are young enough and have a 2.5 decades ahead of your goal date. Are kids in the picture in the future? If yes, then I'd not be thinking ER given your current position, but more about overall financial health, then revisit long term goals every 5 years or so. Probably do that anyway for short term sanity.

Better to create shorter term milestones that are achievable since your target very far away at this point. For now I would be doing everything I could to find options to refi and reduce those loans, and unload that house.

At your age, I was in debt but nothing like you have. I also had nowhere near the income or upward income ability. I was a financial train wreck in my 20's, barely avoided bankruptcy, but I'm ER'ing on Friday at 47. So it's not insurmountable.
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Old 06-08-2016, 10:27 AM   #10
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@Dash Man and @Aerides:

Thank you both so much for your supportive responses and words of advice. I will call to get the re-fi started on my student loans to a standard repayment rather than IBR. Even though it will be difficult at first, I think it will be more motivating to see those balances decrease month after month.

Thanks again for your input.

Best,

Ashley
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Old 06-08-2016, 10:44 AM   #11
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I've lived in the Bay Area nearly 50 years and if you guys are planning to stay in the area for a few years I would suggest buying a house. (This only makes sense if your planning to stay at least 5 years) Rent and housing prices in the bay area have been going up like crazy the last couple of years especially if you are on the peninsula side. It would be a good tax write off and given your combined income the effective PITI after taxes probably wouldn't be that much higher than renting a similar property. My second suggestion is pay off the student loan as fast as possible. Since there are no risk free investments that currently yield anywhere near 6.75% paying that down would be your best investment.
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Old 06-08-2016, 11:22 AM   #12
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I agree with the others, you have a pretty big debt hole to dig out of. The student loans are the biggest cause of this. No real way to get out of the debt besides trimming expenses as much as you can and paying off the debt. Sell the house since it costs you each month, and sounds like you have no plans to go back to it. Take good care of your cars and use them well past the point they are paid off. Unless you buy a new house to live in, you need to max out your 401k/403b/457 pre-tax to try and save a bit on taxes and also build up the retirement funds. No excuse for the credit card debt, pay that down first since it is probably the highest interest cost.

Being aware of your situation is the first step to making a plan to achieve success. Good job on putting together your situation, many just look at the monthly costs and have no clue about the longer term effects.
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Old 06-08-2016, 03:18 PM   #13
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Originally Posted by 38Chevy454 View Post
I agree with the others, you have a pretty big debt hole to dig out of. The student loans are the biggest cause of this. No real way to get out of the debt besides trimming expenses as much as you can and paying off the debt. Sell the house since it costs you each month, and sounds like you have no plans to go back to it. Take good care of your cars and use them well past the point they are paid off. Unless you buy a new house to live in, you need to max out your 401k/403b/457 pre-tax to try and save a bit on taxes and also build up the retirement funds. No excuse for the credit card debt, pay that down first since it is probably the highest interest cost.

Being aware of your situation is the first step to making a plan to achieve success. Good job on putting together your situation, many just look at the monthly costs and have no clue about the longer term effects.
+1 and I would ask, with the issues you have going on why are you even wondering if you can retire at 55, because that "sounds good" to you. You are putting the cart before the horse. Slow down and worry about todays problems and not ER...
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Old 06-08-2016, 05:20 PM   #14
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Thanks! We are definitely focused on today - I just wanted to throw retirement out there since I'm posting in this forum!

Thanks so much for your post!

Ashley


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Old 06-08-2016, 06:03 PM   #15
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It seems as if you have a spending problem so perhaps try to focus on that first.

I suggest you take another look at the public service loan forgiveness program. I f you are trained and eligible look at every open job that might qualify. You might find one that would work for you.Just settle in and do it till the loan is discharged.

You say you have been lingering and reading here for a few years, exactly what kind of stuff are you reading about?

You have 440K in students loans, how did this even happen? Do you both have advanced degrees?

You bought a home with less then 10% down and aren't even living in it now.
10K in card card debt.
30K in car loan.

Looks like about 4000 dollars in after tax savings.
How expensive of a wedding are your planning?

It looks like you have a money management problem, I suggest you guys have a "come to Jesus" moment where you figure out where to go from here. Re-fi on your loan won't do a thing but kick the can down the road.No ones says you aren't a hard worker and you definitely should be motivated but fixing this is going to take time and pain.
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Old 06-08-2016, 06:12 PM   #16
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A little confused as to why: " refinance the loans with my current loanholder for a 25 year term, which would increase the payment to $1600 a month ... is frightening to me"

Certainly your income can support it
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Old 06-08-2016, 06:37 PM   #17
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+1 on trying to take advantage of the loan forgiveness program - I think working at a job you hated for 4 or 5 years to have that big nut retired (with no income tax implications!) is huge. The (slightly) good news about student debt is that is getting a lot of attention at the national level so maybe there will be additional programs over the next year or two that will help, but if they are just about refinancing to a better rate it won't really help.

I also want to ++1 on the wedding comment that @ivinsfan made. Weddings are a notorious money pit and unfortunately for many people all fiscal common sense seems to leave them for anything that has the word "wedding" in front of it (e.g. "wedding photographer", "wedding cake", etc.) The absolute best present you can give yourselves for your future happiness and sanity is to NOT get any further in debt due to the wedding. Does this mean eloping? Wedding in a park followed by a picnic? Don't know, but please, please, please don't get sucked into the proposition that "nothing is too good for the wedding". That being said, if you are going to get wedding presents anyway, asking for cash to pay down debts instead of a new set of china would be excellent!
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Old 06-08-2016, 06:46 PM   #18
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As other have stated - you guys have significant debt... But you also have decent income.

You have 6k/month fixed costs before you put a drop of gas in the car or buy your groceries.... so your expenses are more than you listed.... but you should have enough income to start paying down some of the debt. I'd work on the car and credit card first... while contributing to your 401ks, Roths, and pension (if you have to contribute part.) The key is to start chipping away at the debt and continue to add to investments/savings.

When I was 30 I had credit debt, a mortgage, a car payment, etc.... and my 401k was pretty small. But I did the snowball on the credit cards (paid off highest interest first, then tackled the next one, rinse and repeat.) Since then I pay CC's in full each month.

Your fiance has a decent deal on his student loan... it's nice that will go "poof" in 2020. But you still need to pay down yours.

Since you're getting married soon - be aware of controlling wedding expenses. It is possible to have a really nice wedding without spending the $50k that some folks spend. Make smart choices there... no need to start a marriage with extra expense from the first day of marriage.

Don't get overwhelmed... just make good choices, watch your spending, contribute to retirement accounts and pay down the debt. You'll be surprised at the differences that you'll see YoY on these balances.
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Old 06-08-2016, 07:15 PM   #19
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I got married in Las Vegas, NV. At the "Chapel of the Fountain" conveniently located right in Circus-Circus.

I was her second husband, she was my first wife. Her parents were not paying and neither were mine.

The wedding complete with flowers, pictures and an audio cassette cost 164 dollars -
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Old 06-08-2016, 07:31 PM   #20
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Thanks for the feedback - our wedding is now "paid for" - but honestly that is where about 5k of the credit card debt came from...the other from our unexpected move where we lacked an appropriate emergency fund. We will definitely not be adding any more. I was all about eloping and fiance wouldn't have it!


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