Author Topic: Reader Case Study - what to do with $115k in Student loans on $5000/mo income  (Read 21953 times)

Mazzinator

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I also am trying to put our federal SL on IBR so i might be able to help.

Which ones are federal?
What will your 2013 AGI be?
Does you or your wife have an IRA?

You can still contribute to 2 traditional IRAs for 2013, which will lower your AGI, which could help!

Good luck!

NinetyFour

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  Absolutely no need to spend any kind of money on a fancy pricy blender.  I'd suggest that this is the mindset that's been keeping you in debt.

I'd go even further and say that nobody NEEDS a blender at all.  Period.  And with the hair on fire debt situation of the OP, he should not even be thinking about it, unless someone delivers a free one to his door.

Just eat your fruits and veggies.  Your body can do the blending.

bradleylsmith

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oh gosh I just mentioned the blender as a joke I knew you guys would not like it, I'm not getting a blender.

Federal Loans for me:

$11,186 @ 6.55%
$13,777 @ 6.8%
$8000 @ 6.8%

My Wife:
$2939 @ 6.8%
$3033 @ 6.8%


I don't know if it matters who they are under but thought I'd clarify that. I think my wife may have one more considered federal through nelnet that's the $13,425 @8.25%

It's serviced by nelnet but the loan I believe is from the dept. of education.

our AGI is $43,000 or so.

I have a roth IRA with like $50 in it. My wife has nothing opened.


Mazzinator

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oh gosh I just mentioned the blender as a joke I knew you guys would not like it, I'm not getting a blender.

Federal Loans for me:

$11,186 @ 6.55%
$13,777 @ 6.8%
$8000 @ 6.8%

My Wife:
$2939 @ 6.8%
$3033 @ 6.8%


I don't know if it matters who they are under but thought I'd clarify that. I think my wife may have one more considered federal through nelnet that's the $13,425 @8.25%

It's serviced by nelnet but the loan I believe is from the dept. of education.

our AGI is $43,000 or so.

I have a roth IRA with like $50 in it. My wife has nothing opened.

My quick calcs show that if you put these on ibr, the total monthly payment would be about $100/month. (Not sure about nelnet??) The best part is the excess interest is forgiven* so for the next 3 years you could focus on the private loans, then back to these. You're currently paying about $220/month just in interest!!!!!

Seems like your AGI is low enough already that the benefits of contributing to a tIRA and/or 401k type don't apply to you, yet. Some people have higher AGIs so if you contribute to those, it lowers your AGI. Like pp said, it's a win-win. If you didn't have so much in private loans, then you could send some money to the tIRA/401k and it could bring your payments down to $0.

I would probably go ahead and put those loans on ibr. You will need to call the loans comapnies and do more research first as this was just a quick calc by me.

Good luck!!!

http://studentaid.ed.gov/repay-loans/understand/plans/income-based

http://www.aie.org/managing-your-money/finance-tools/daily-interest-calculator.cfm

http://www.ibrinfo.org/calculator.php

https://forum.mrmoneymustache.com/ask-a-mustachian/should-we-change-sl-repayment-plans/msg138447/#msg138447





*Interest payment benefit—If your monthly IBR payment amount doesn’t cover the interest that accrues (accumulates) on your loans each month, the government will pay your unpaid accrued interest on your Direct Subsidized Loans or Subsidized Federal Stafford Loans (and on the subsidized portion of your Direct or FFEL Consolidation Loans) for up to three consecutive years from the date you began repaying your loan under IBR.
« Last Edit: January 15, 2014, 01:52:04 AM by Mazzinator »

quilter

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Just wanted to add that your wife has a big job being a mother, especially with two little ones and people tramping through the house all day.  I can understand the whole issue of wanting a life outside the home, for mental stimulation as well as financial reasons.  But it is a huge leap from photography to hands on patient care.   Is there any possibility of getting some exposure to the field before making this huge step?  The medical field is well paying and a noble profession, but taking on more debt is a very serious thought.  I would think spending a little more time outside the house with friends is way cheaper than accumulating more student debt or deferring the loans.

Obviously the both of you have made some decisions that have gotten you into this mess that you might have made differently if you knew then what you know now.   But that does not mean you can't move forward. 

chopper41

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I would stop teaching piano and replace that time with doing more web development.  That will bring make you an extra ~$27/hour.  This will also eliminate all of the random people in the house.  Your wife should see if she can find one kid to babysit along with your two during the day.  This will bring in some good extra-income.  If I were her, I would not go back to school, until the kids have started school and you don't have to pay for day-care.

bradleylsmith

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awesome, okay I will look into the IBR with my wife over the weekend and report back what we find. Thanks for the help!

Right now I'm still trying to fill up the working hours of the day with web development work. Heck, if I could just do that and not work on my own projects / prospect so much then I would have a much higher income. $65 / hour x even just 12 paid hours (I work 8 and my employee works 8) is around $10,000 a month after paying him. I'm also working on raising that rate. I have a few clients at $100 / hour.

Till I fill my working hours during the day, teaching during the night is really needed.

TomTX

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taking trash to the dump is $54 here, so it probably wouldn't save us any money. We have a LOT of trash and it's piling up in the garage, so I anticipate having a service come with the excess trash every 6 months or so and that costs around $60.

Are you friendly with your neighbors? Could you ask one of the low-trash ones if you could toss a bag in to their can?

We rarely fill up our trash can, and I routinely offer the space to neighbors. Costs the same whether I have one bag in the can or 5.

Melody

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Is taking lots of trash to the dump a sign of over consumption?

My household of two fills about 2-3 small grocery checkout bags a week (equivalent to one of those big brown grocery sacks). We don't compost. We aren't especially careful.  [We do recycle beer bottles and stuff like that.] We do however buy lots of veggies and less processed food. We don't buy lots of stuff (and when we do buy it's often used from Gumtree, which is like craigslist) this significantly cuts down on packaging. When we are done with stuff it often gets resold on gumtree (higher value items) or donated to charity (lower value items like clothes). As a result what we actually have to throw away is minimal. Too much trash would generally indicate overconsumption especially of new stuff and packaged food... perhaps spend a week thinking about what you throw away and it should indicate where you can save money.

bradleylsmith

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Oh how much can change in just a short amount of time. One of my clients liked me enough to hire me full time. I'm now making $130,000 a year living in silicon valley, and these two student loans are paid off in full:

$6800 @ 10.5%
$23000 @ $9.75%

this brings us to around $90k left in debt to pay.

the house brought in around $24,000 and the rest we've been able to pay off with the higher income. I'd like to do another case study because life is completely different now. Should I update this one or start a new one?


theonethatgotaway

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Does your $10 health care cover your kids?! How'd you get such a low rate with high income??

bradleylsmith

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I wasn't making $130,000 until ~ May of this year, I'm sure we no longer apply for the subsidy and will have to pay back the subsidy we've taken on health care. We'll be paying around $500 / mo going forward.

former player

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Oh how much can change in just a short amount of time. One of my clients liked me enough to hire me full time. I'm now making $130,000 a year living in silicon valley, and these two student loans are paid off in full:

$6800 @ 10.5%
$23000 @ $9.75%

this brings us to around $90k left in debt to pay.

the house brought in around $24,000 and the rest we've been able to pay off with the higher income. I'd like to do another case study because life is completely different now. Should I update this one or start a new one?

Congratulations on the new job, that's an awesome change.  I've just read your thread, and honestly right at the start I was worried about you working 12 hour days with a family to keep and such big debts hanging over you.

I'd do a new thread with a new title that fits your new financial status, putting in a link to this one to show where you've come from.

Captain and Mrs Slow

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OK can't be arsed to read the whole thread but in case no one mentioned it No More Harvard Debt went through the exact same deal, 100 grand in debt gone in 1 year.

What I really liked about his blog is he really walked through the whole process, his triumphs, his failures, his struggles etc.

very good!

aj_yooper

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Wow, what an improvement on your income and debt reduction! 

LennStar

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Congratulations!
Good luck is with the busy ;)

Open a new thread, put in your situation and talk with your partner about a savings goal, considering what is important for you now. Can you do a 50K saving a year? After taxes that should amount to about 2/3? I dont know the tax rates at yours.
Put that goal on a chart where you see it daily and update it every month. 
Since she seems to want to be at home for the kids(?) think about something she can do from home that brings in a bit of money. It is always nice to have 2 incomes, even if the second is very small. You are free now to trying - if it does not work, no problem.

plank

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Congratulations.  Your hard work paid off handsomely.

The very first thing I would do is max 401k contributions and Roth if available.  Don't think of yourself as someone who makes 130k/year, think of yourself who makes $x/month, where x is your income per month or 4 weeks, whichever you prefer.  That mental shift will make a big difference in getting yourself set up for retirement, and give you a more realistic look at how much money you actually have to work with. 

If you think of yourself as someone who makes 130k/year, you have a much higher liklihood of getting yourself in debt trouble in the future vs. if you think of yourself as someone who has $5,000/month to cover expenses. 

It's just a mental shift, but an important one.