Author Topic: $600,000/year loads of debt  (Read 7132 times)

DrDebt

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$600,000/year loads of debt
« on: October 02, 2015, 10:27:37 PM »
 ME and my wife are both young Doctors.  As such, we have been forever studying and training and accumulating debt.  We are in our final year of training after 4 years of college ($25,000 of debt for me), 4 grueling years of med school ($400,000 in debt between us, $200k each) and now finishing our 6th year of training in residency and fellowship(hardest years of our lives) making a salary starting in the low $40,000s and now we are around $53,000 each.   All of this while our initial med school debt keeps compounding away.  We have learned the power of compounding the other (wrong) way around.

Life Situation: Married filing joint, 2 kids (3 and 4 y/o). Living in tax free state.

Gross Salary/Wages: $50,000 me and $50,000 my partner

Pre-tax deductions: 403b 4% both monthly

Other Ordinary Income: none

Qualified Dividends & Long Term Capital Gains: none

Rental Income, Actual Expenses, and Depreciation:none

Adjusted Gross Income: This should equal the additions and subtractions above.

Taxes: Federal $16000, and FICA $7500. (for the year)

Take home check : $1600 biweekly each


Current expenses (per month)


Mortgage $1482   
                P 366,  I 817, Taxes 200, insurance $70
              (house bought for $248,000 @ 4% ARM for 7 years)

Daycare: $1400

Netflix: 7.99

Cars
    2003 Highlander $221
    2014 civic $243
Car insurance $190

Gas: $250 (my job is about 20-30 mins away depending on traffic, hers is about 5-10 mins away)

Sprint cell phones: $180  (plans are to get rid of this and switch to republic but they have us tied in there with the lease)

cable/internet: $140   ( I will be calling tomorrow to cut out the cable and just have internet as we don't have time nor like watching tv that much)

Electricity/irrigation/sewage/water: $350  (We are working very hard on bringing this down.  I am spending $90 on irrigation!! that's ridiculous)

grass treatment: $50/mo  (getting rid of this)


Grocery: $1000 ( I don't know how to get this down)

Restaurants: $200/mo

termite/pest control:  $50/mo  (I think i need the termite control or is there another option?)

"fun expenses" (credit cards and such)

$91/mo for $9000 owed to IRS

about $400 min monthly payments on about $20,000 credit card debt. about $12000 being held down at 0% interest but that is ending soon. the other $8000 around 14-17%

$269/mo on Lending Club loan @ 16% (ouch)

$280/mo on private loan (paying only interest for now at around 13%, ouch!!

this comes down to approximately $6,800/mo

Assets: $9000 in retirement account. ONe of the Vanguard index funds 
   

Liabilities: LendingClub  $11,500 initial loan, remaining balance of $10,500 @ 16.99%
Private interest only loan for $30000. paying $280/mo  13%

$400,000 in student loans ranging from 2% to 6.5%. All of them in deferment/forebearance at the moment.


Specific Question(s): Obviously, we have to make some adjustments as we are spending more than we make. I have just started doing some work on the side brining in around $1000-2000 more per month to help pay down this mess. 

Also, we are in our last year of training so that means we are looking for real jobs and we are looking at making $300,000 each full time or around $200000 each part time.  We are "lucky" that we are going into high paying jobs.  I say "lucky" because we have paid with our lives/health/socially to get here. 

It sucks that the taxes are going to be very high  which will delay our plan to be FI.

 I also must mention that $200,000 of debt per person is actually on the lower end of the spectrum. I have many friends who have $400,000-500,000 of debt by themselves which makes me ill.   

Up to this date I see how sad the situation is of most of my mentors who make full salaries and still are not financially independent and will just be working for the next 30-40 years of their lives.  It saddens me that one of our senior staff who is so ill but has been coming to work for the past 45 years instead of retiring and enjoying his/her life.  My wife and I are very clear that we do not want to be them. We don't want to have to come to work because we are slaves to the system.   We plan on doing everything possible to pay all this down and invest as much as possible.  We have been looking into buying rental properties but I don't know if we should pay everything first and then get a couple of rental properties or pay the credit card and personal loans first, then buy rental properties and pay the other student loans.

I think that we have taken the first step in realizing our situation and now we want to make a plan to tackle this as fast as possible.

  I appreciate any feedback/criticism.

Thanks to all and to Mr. Mustache for his awesome blog.
« Last Edit: October 03, 2015, 07:45:11 AM by DrDebt »

thingamabobs

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Re: $600,000/year loads of debt
« Reply #1 on: October 02, 2015, 11:03:49 PM »
Is this a work in progress post? Seems incomplete, what's the question that you're posting?

MDM

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Re: $600,000/year loads of debt
« Reply #2 on: October 02, 2015, 11:11:38 PM »
DrDebt, welcome to the forum.

Some things for you to consider when you come back to finish the OP:
 - $100K income will have $7,650 FICA unless you have a special situation
 - From what is posted so far, your federal tax will be ~$7,200.
 - You can download a good spreadsheet at http://www.vertex42.com/Calculators/debt-reduction-calculator.html for analyzing loan repayment strategies.

DrDebt

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Re: $600,000/year loads of debt
« Reply #3 on: October 02, 2015, 11:24:22 PM »
Is this a work in progress post? Seems incomplete, what's the question that you're posting?

Yes. You should see the final version now.
thanks

DrDebt

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Re: $600,000/year loads of debt
« Reply #4 on: October 02, 2015, 11:33:20 PM »
DrDebt, welcome to the forum.

Some things for you to consider when you come back to finish the OP:
 - $100K income will have $7,650 FICA unless you have a special situation
 - From what is posted so far, your federal tax will be ~$7,200.
 - You can download a good spreadsheet at http://www.vertex42.com/Calculators/debt-reduction-calculator.html for analyzing loan repayment strategies.

Thanks for the comment and the calculator. I'll check the calculator as soon as I get up tomorrow.
I fixed the FICA as I had previously calculated just for one of us.

Federal tax is approximately $15k for us now and has been for the past couple of years. That is why we owe them $9000 which is from one year alone which was only partially covered. Once we start making $400-600,000 it will be a significantly higher percentage.

bacchi

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Re: $600,000/year loads of debt
« Reply #5 on: October 03, 2015, 12:46:55 AM »
Grocery: $1000 ( I don't know how to get this down)

Is this a lot of convenience/packaged foods? Get a rice cooker with a timer.

Quote
Liabilities: LendingClub  $11,500 initial loan, remaining balance of $10,500 @ 16.99%
Private interest only loan for $30000. paying $280/mo  13%

!! I'd snowball these and then start overpaying on the credit cards. Overpaying the student loans can wait, scary as they are.

Why do you pay $221 on a 2003 car? Is that maintenance? Insurance? Surely you didn't buy a Highlander with a loan?

Your termite plan is expensive. Did you have termites in the past? Can you DIY with borax?


Eta: Once the loans and credit cards are paid off, you need to re-fi into a 30yr fixed mortgage.
« Last Edit: October 03, 2015, 12:50:25 AM by bacchi »

okits

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Re: $600,000/year loads of debt
« Reply #6 on: October 03, 2015, 01:22:25 AM »
You sound quite despondent, which I understand, except you are so close to the light at the end of the tunnel!  Make a spreadsheet of what your finances will look like 1-10 years out from now (assume only modest increase in standard of living, aggressive loan repayment.) Earning $600k a year you and DW will rocket out of the debt hole you're currently in.

I'd pay off all debt at over 3% interest before looking into rental properties. 

For your grocery bill, we'd need an idea of exactly what you're eating and buying before offering effective suggestions.  For our household, we shop the sales, waste very little food (DH is thankfully not very picky and will eat thawed leftovers), and if I'm really watching expenditures no money gets spent on empty calories.

I acknowledge the sacrifices you've both made for your careers.  What's gone is gone, so go forward getting the most of what you've achieved.  Heal people.  Earn stupendous income and get yourselves out of debt, then accumulating a huge stash.  Inspire your kids to set and reach big goals.  Give moral support to other young doctors struggling through the same situation.  When you're on solid financial footing, go part time so you can spend your time with family and friends (if you missed their wedding and they're still married now, invite them over for a fabulous dinner!)

former player

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Re: $600,000/year loads of debt
« Reply #7 on: October 03, 2015, 02:18:47 AM »
I get the despondency, but "it gets better".

Don't fuss about missing your child's first and second birthdays.  He/she will have no recollection of them whatsoever.  Birthday parties for children that young are about two things only.  The first is competitive sentimental parenting.  The second is making connections between the parents of children in the same cohort for schools and activities.  You will do well to avoid the first and you have time to make up on the second.

Unless you have a great love for the work of managing property (and I'm guessing not because you are outsourcing the care on your own home), don't bother with becoming landlords until you have both fully retired.  Stick the funds in Vanguard index funds as approved by MMM, and spend your spare time from doctoring looking after yourselves, each other and your child rather than other peoples' homes.

If you can each find jobs near to your current home that would be ideal.  You don't want to be spending time and money commuting any further than you have to, plus commuting when tired because of work or out of hours timing is unnecessarily dangerous.

The White Coat Investor site is your best bet for specific doctor-type financial issues such as disability insurance.

2Birds1Stone

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Re: $600,000/year loads of debt
« Reply #8 on: October 03, 2015, 07:13:05 AM »
Jeebus, SO and I spend $250/month on groceries for 2 adults. That is in a very high cost of living area.

I will echo the other sentiments. The high interest debt is crushing your soul.

I would do everything and anything in my power to pay off any debt that is over 5% interest, 10%+ is straight up emergency status.

Once you are both earning $250k/+ dig yourselves out completely and avoid lifestyle hyperinflation.

Checkout The White Coat Investor, and Bogleheads forum.

mozar

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Re: $600,000/year loads of debt
« Reply #9 on: October 03, 2015, 08:26:14 AM »
So once you pay off your credit card/lenders club it seems like you spend around 60k a year? If you can cut to the bone (like no more restaurants, cancel netflix), and you make 400k+ you should be able to pay this off within 2 years.

StetsTerhune

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Re: $600,000/year loads of debt
« Reply #10 on: October 03, 2015, 08:33:36 AM »
Solution is simple: when you start your future jobs, keep your current lifestyle. All the "mentors" who make that much and are still in debt -- they let their lifestyle match their salary. Write up a budget that involves paying off all your debt in the next 3 years. It's doable and won't let you expand your lifestyle. Then keep that for another 3 years and you'll be completely independent financially.

cincystache

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Re: $600,000/year loads of debt
« Reply #11 on: October 03, 2015, 12:01:30 PM »
Solution is simple: when you start your future jobs, keep your current lifestyle...

+1
Congrats on making it through the med-school process, that is difficult enough for one spouse, let alone both (I don't speak from experience)

Don't stress about your current financial situation, just focus on not burning out in your medical career. By far, the most important thing is that you both finish your training healthy and are ready to work for a few more years with phenomenal incomes. The only thing that will mess you up is if you get burned out now and quit practicing medicine.

Your debt sucks, especially the debt above 10%, but you will be able to pay that 10%+ debt off in <2 months once you have your high salaries even if you ignore it between now and then (1 year). For 99% of people, this would be a nightmare/emergency, you are in the 1% where this is actually not worth losing sleep over, so don't. Just keep your mind right and focus on your medical career.

Now... once you start making 600k per year; this is what I would do (and many others have already suggested similar strategies)

0. Keep your lifestyle spending where it is.  This is plenty for a family of 4 and I don't include debt payments in this figure except your mortgage. Recall, MMM spends less than 30k.

With a rough calculation, I'm guessing you are going to take home about 30,000 per month. If you spend 7,000 (your current take-home pay) you have 23,000 per month worth of extra ammunition to attack your debt and build your FI machine.

Just pause and realize how awesome that is....

With that 23K excess per month I would do the following in the future:
0. Set aside 23k in cash for emergencies (1 month)

1. Max out any 401k/403b accounts because you will be in a super high tax bracket (this will take <1 months worth of salary since it's pretax)

2. Pay off the IRS, lending club, credit cards and cars (2-3 months)

3. Pay off your student loans starting with the highest interest rate first (This will take 18 months assuming 400k @6.5% paying 23k per month.

At this point your are debt free except your house..... It has been 23 months since you started working .....


4. Take advantage of any HSA or other tax advantaged accounts you can (stay away from whole life insurance and financial advisors, the salesmen will be after you very hard given your higher salary, just ignore them...)

5. Start putting the 23,000 per month into low cost index funds at your desired asset allocation (80/20 stock/bond is good enough).

If you return a modest 4% in your portfolio and keep putting that 23k in every month, here is what your net worth will look like...
5.5 years from today --- 1 million net worth
8.4 years from today --- 2 Million net worth
11 years from today ---- 3 million net worth
13.5 years from today ---4 million net worth
15.6 years from today --- 5 million net worth

You will be on the right side of compound interest.

Do you see how irrelevant it is to count your pennies and worry about part time jobs and rental properties right now?

Yes, I'm an advocate of living frugally and there are some details that I haven't captured but this will get you 90% of the way there.

Good luck and keep us posted.
 

Goldielocks

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Re: $600,000/year loads of debt
« Reply #12 on: October 03, 2015, 12:10:34 PM »
My opinion, you are trying too hard now,  with only a year left and kids in the mix.

1. Quit side hustle unless it gives you personal energy, not detract from it.

2. Slow down to make more food from scratch and eat together when ever possible. 

3. Look for lower interest rates... Maybe a relative?  With your final year, you are a great bet for any investor now.

4. Any federal loan forbearance you can key up now is worth it.  You hopefully are at your lowest income levels, and getting a repayment schedule that is tied to income is what you need. I believe the ones you are looking for are pay for xx years at a set ( now) rate, then they are forgiven for remaining amount...

Oh, and unless you figure out how to slow down for family, chances are one of you may choose to not remain a full time doctor, which would hurt even more... So take a moment to figure out quality of life.




Midwestache

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Re: $600,000/year loads of debt
« Reply #13 on: October 03, 2015, 02:11:44 PM »
You are doing fine, and I wouldn't worry about canceling netflix with a 600K salary. I would worry about lifestyle inflation which is the biggest problem for physicians. So don't upgrade your cars, keep them, they are damn good cars. Second I would pay off all the loans starting from the highest interest rate ones first. Third, enjoy that you will make an excellent salary and not over consuming.

Abe

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Re: $600,000/year loads of debt
« Reply #14 on: October 03, 2015, 04:09:25 PM »
What specialties are you going into, and where are you looking to work? Depending on circumstances the hospital (or, if very big, the medical group) may help pay for some student debt in lieu of a signing bonus. Also, how did you determine your future salaries? Starting salaries for most specialists is a bit lower than the average you see in surveys, as those averages may include partners. Keep in mind you may have a big upfront expense to become partner if you choose to do so. I'm sure you've looked into all that but keep that in mind when budgeting for future years.

Regardless, you will easily crush your debt in the next few years if you stick to the plans outlined above. Live like residents until you don't care about living like attendings. Don't bother with side businesses, they will be unlikely to earn as much as your primary job unless they become your main business, which defeats the point of all this training we are doing.

If people in your programs say it's impossible, my wife has earned enough to pay off all the school debts to our parents in the first two years as a family physician. We live off my residency salary and used her earnings for that purpose. Now we spend what we want, but turns out that fits nicely within my salary anyway!

MarciaB

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Re: $600,000/year loads of debt
« Reply #15 on: October 03, 2015, 09:38:49 PM »
+1 to these two very important concepts:

1) Keep your lifestyle moderate and don't inflate with new higher salaries.

2) Stay away from financial advisors and others who want to "help"you manage your money and arrange your (new, more lucrative) affairs. Just say NO.

You are close to that light at the end of the proverbial tunnel (Go towards the light!)

Best of luck to you, you have endured a very arduous and financially draining road, good for you (both of you).

DrDebt

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Re: $600,000/year loads of debt
« Reply #16 on: October 04, 2015, 09:25:12 PM »
What specialties are you going into, and where are you looking to work? Depending on circumstances the hospital (or, if very big, the medical group) may help pay for some student debt in lieu of a signing bonus. Also, how did you determine your future salaries? Starting salaries for most specialists is a bit lower than the average you see in surveys, as those averages may include partners. Keep in mind you may have a big upfront expense to become partner if you choose to do so. I'm sure you've looked into all that but keep that in mind when budgeting for future years.

Regardless, you will easily crush your debt in the next few years if you stick to the plans outlined above. Live like residents until you don't care about living like attendings. Don't bother with side businesses, they will be unlikely to earn as much as your primary job unless they become your main business, which defeats the point of all this training we are doing.

If people in your programs say it's impossible, my wife has earned enough to pay off all the school debts to our parents in the first two years as a family physician. We live off my residency salary and used her earnings for that purpose. Now we spend what we want, but turns out that fits nicely within my salary anyway!


Thanks for the response. That's our plan.  Keep costs as they are now and pay everything as fast as possible and then invest as much as we can.

I know the starting salaries in our area since our public hospital posts them online and also I have a couple of friends starting in the area in the same specialty in different hospitals and they are starting at around $300k. However, there are no signup bonuses in our area.

Abe

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Re: $600,000/year loads of debt
« Reply #17 on: October 05, 2015, 12:50:25 PM »
That's good news. You'll be fine then! Don't worry about finances, just get through residency.

honeybbq

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Re: $600,000/year loads of debt
« Reply #18 on: October 05, 2015, 01:23:51 PM »
Won't you be moving after your training is done? Forget the rental business. You need to concentrate on your primary gig and forget all others; you won't need them when you are through with residency.

Check out the white coat investor.  It's recommendations are specifically for high income earners such as yourself, with special attention to physicians.

Physicians are notoriously bad with their financial decision making. Sounds like you are in hot water but at least you know it. Once you get out of training you will have the finances to get out of debt quickly and start making better decisions. Don't cancel netflix. All of that is small potatoes. Keep the big ticket items small (house, cars, etc), and the rest is just noise. Life style creep will be huge for you once you are working with other physicians, you'll find out where THEY live and how big THEIR house is, how THEIR first class flight to Paris was... you will have to make a lot smart choices in the future. Luckily, you have options! Good luck.

Bob W

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Re: $600,000/year loads of debt
« Reply #19 on: October 05, 2015, 01:24:52 PM »
My daughter and son in law are pretty much in the same boat.    You  will be making 300K and hopefully the wife as well === so 400K after taxes.  (remember to fully fund IRAs and 401Ks etc.)   Live like you have been and inflate to a 100K lifestyle if you like.  Refi the loans to 4%.   Pay the minimum and put 300K per year in investments.  (Vanguard indexes).   In 10 years you'll have 6 million earning 240K at 4%.   You can retire in style while the kids are young and pick up some odd Doctor jobs as you desire.   Or just keep on working for 30 years and retire at that time with 50 -75 Million. 

You'll want to devise a wealth transfer strategy around year 5-10 in order to keep the money moving to the kids and grand kids. 

Either way you are set,  so don't stress your current situation.   The long haul is worth for you!  Just don't fall into the pent up "I earned it"  trap and go hog wild when the first earnings year comes around.   100K can provide a very nice lifestyle. 

mm1970

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Re: $600,000/year loads of debt
« Reply #20 on: October 05, 2015, 01:41:06 PM »
My daughter and son in law are pretty much in the same boat.    You  will be making 300K and hopefully the wife as well === so 400K after taxes.  (remember to fully fund IRAs and 401Ks etc.)   Live like you have been and inflate to a 100K lifestyle if you like.  Refi the loans to 4%.   Pay the minimum and put 300K per year in investments.  (Vanguard indexes).   In 10 years you'll have 6 million earning 240K at 4%.   You can retire in style while the kids are young and pick up some odd Doctor jobs as you desire.   Or just keep on working for 30 years and retire at that time with 50 -75 Million. 

You'll want to devise a wealth transfer strategy around year 5-10 in order to keep the money moving to the kids and grand kids. 

Either way you are set,  so don't stress your current situation.   The long haul is worth for you!  Just don't fall into the pent up "I earned it"  trap and go hog wild when the first earnings year comes around.   100K can provide a very nice lifestyle.
I'm echoing this and the other folks who said the same thing.

Just don't change the lifestyle when you start working.  Don't get a new house, don't get a new car (unless you replace the gas guzzling Highlander with a used Civic or something).

It will all work itself out. I  totally feel you though.  That much work, and that much debt.  I'm not a doctor, neither is my spouse (though he has a PhD).  Kids and work and school can be brutal.  We've got doctor friends, and sure, they make a bunch of money - but when you are payoff off $400k in loans, you need it.

Rosy

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Re: $600,000/year loads of debt
« Reply #21 on: October 05, 2015, 01:56:41 PM »
My daughter and son in law are pretty much in the same boat.    You  will be making 300K and hopefully the wife as well === so 400K after taxes.  (remember to fully fund IRAs and 401Ks etc.)   Live like you have been and inflate to a 100K lifestyle if you like.  Refi the loans to 4%.   Pay the minimum and put 300K per year in investments.  (Vanguard indexes).   In 10 years you'll have 6 million earning 240K at 4%.   You can retire in style while the kids are young and pick up some odd Doctor jobs as you desire.   Or just keep on working for 30 years and retire at that time with 50 -75 Million. 

You'll want to devise a wealth transfer strategy around year 5-10 in order to keep the money moving to the kids and grand kids. 

Either way you are set,  so don't stress your current situation.   The long haul is worth for you!  Just don't fall into the pent up "I earned it"  trap and go hog wild when the first earnings year comes around.   100K can provide a very nice lifestyle.

^^^ Exactly that and if you haven't come across i,t there is a website called whitecoatinvestor which has tons of great information for young - up and coming doctors like you.
Don't flip out now - you are very near the end. Drop that sidehustle and regenerate yourself instead, you need your strength. You will be fine!

Argyle

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Re: $600,000/year loads of debt
« Reply #22 on: October 05, 2015, 02:07:13 PM »
Why are you paying $50 a month for termite protection.  My house had termites a lot of termites.  As I remember, the termite eradication was around $300.  Then they offer a deal where they come once a year and inspect for termites again, and eradicate them again if they find any, for $125.  But the original eradication is supposed to last for five years.  What are you paying $600 a year for?  They shouldn't need monthly attention unless the original eradication was very inept, in which case get the whole 5-year procedure done again. 

charis

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Re: $600,000/year loads of debt
« Reply #23 on: October 05, 2015, 02:16:38 PM »
You are in better shape than you think.  I've been pretty glum about our student loan debt at first, but once I accepted and developed a plan of action, my mood improved.  We have $95K in SL debt on $120K income (first year at this level) with two kids.  So we have a slightly higher debt to income ratio, but a relatively inexpensive lifestyle.  And we hope to keep it that way.

thingamabobs

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Re: $600,000/year loads of debt
« Reply #24 on: October 05, 2015, 02:35:12 PM »
I didn't see anyone mention this, what is the status of your student loans? You said deferment/forbearance but you're a PGY 6 and your income most likely is over the amount allowed for deferment. If you're in forbearance, my question is why when you should be in IBR or PAYE (or repaye whatever the new thing is). Given your income and family size, the payments should be manageable the gov't continues paying the interest on subsidized loans. The other thing is, I recently had a chat with a co-worker who basically ignored his SL during residency and is now paying $6k/month as good faith payments to make up for his deliquency!!! Plus his loans ballooned like crazy when they capitalized his interest.

I agree with others, you should have no problems paying your loans once you start your attending job. I would even argue that if one of you wants to work part-time so the kiddos get more parent time, it's possible. Especially since the new guy/gal usually gets more calls than the ones with seniority in the practice. Keep the expenses low and plug away at the loans and you'll be fine.

dess1313

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Re: $600,000/year loads of debt
« Reply #25 on: October 05, 2015, 09:08:41 PM »
Stop.  Breathe.  Relax.  you're at the end of the tunnel and all those payments will look like nothing once you're making full salaries. 

Avoid life style inflation.  You don't need that fancy car or other shit i see all the residents getting/driving/wearing.  Stay sane and live like you are going to be now for a few more years and you'll be in good shape

Don't worry about being land lords yet.  Settle your own house first.  That's a lot of work and you're not settled in permanent jobs yet it seems like.  Not sure if you'd have to follow jobs to another place or not.  Wait until you're both settled and working and know where you will be for several years

Trim all the things you've been mentioning.  One thing is if something like a cleaning service helps you spend more time needed in work to finish or at home with kids, it might be worth it due to less stress.  Get a slow cooker, and do some batch cooking.  Might help with the food costs.  start looking at what you buy and see what the majority of the cost goes to.  Get a costco card and shop sales as possible

Congrats on getting so far.  Its a rough road but sounds like you've done well for yourselves!