Author Topic: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?  (Read 13764 times)

intlstacher

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CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« on: April 10, 2015, 02:22:23 PM »
I found MMM about three weeks ago. I've been an avid reader but am no where near catching up, but I've already learned so much and am starting to be very mindful of all purchases. I am not sure if FIRE is going to be a reality for us since we are starting a little late, but who knows. If anything it would be nice to retire around 50, so maybe another 20-22yrs of work for me? Anyway, here is our situation. I'm a bit scared to post but I really need help and advice. I had a fellow teacher at my school tell me that I am the new 21st century teacher nightmare....

Life Situation:
Married, filing joint, qualifies for Foreign Earned Income Exclusion
Me, 27yrs old, DH 33 years old, no kids
Currently living overseas in Saudi Arabia. I am an overseas teacher. We get pretty lucrative contracts (compared to teachers in the US). DH has been a trailing spouse/house husband for the last 3 years. He was going to school online to finish his BA. He went to school late, but better late than never right? He just landed his first job post-degree at the school where I work. He is considered a local hire, so not quite the same benefits as me or salary as me, but it’s going to put us in a much better place than we have been the last three years on a single income.
We’ve been in very bad places financially. We moved overseas because it was a dream of mine, but also because we knew that it would put us in a great situation to save and pay down debt. You will see that we have a lot, but where we started three years ago was much worse! Neither of us came from families that were good influences when it came to finances so we’ve had to teach ourselves a lot and learn from bad mistakes.
Our salaries and most expenses are in Saudi Riyals, but I will put amounts in dollars for ease.

Gross Salary/Wages:
Me: $3742/mo  - raise starting in Sept - $3880/mo
H: $1597 (April pay),  $2447/mo for May and June (to finish 2014-2015 school year), raise starting in August - $2170/mo 
Combined Total:
April: $5339
May and June: $6189/mo
July: $3742 (no pay for DH, these previous 3 months salary is weird since he is started at the end of a school year, so the salary is prorated for the number of days worked)
August onward: $6050/mo (we will each get 4% yearly raises that will start each August)
Sorry that had to be so difficult…darn school years instead of calendar years.

Pre-tax deductions/Taxes: none of this since we are expats. Our salary is tax free. We don’t have 401ks since we work for a local company, not a US company.

Current expenses:
Rent/Utilities: $0 - housing and all utilities, including internet covered by school
Phone: $40
Maid: $106 (ready for face punches on this, but we both have pretty demanding jobs and this is something we each value)
Transfer fees: $15 (for our international salary transfer to the US)
Groceries: $650 (we eat mostly fresh meats and vegetables. Paleo/Whole30 style. Also, things are not cheap here like they might be in the US)
Fuel: $16 (thankfully gas is dirt cheap in Saudi)
Eating out: $130
Miscellaneous: $130 (vet visits, skype credits, turbo tax – this was much higher because our cat was a kitten and we had to do shots/spay/etc., we expect this to be fairly low)
Clothing: $0 typically, but we buy clothes in the US when we are there in the summer. This goes much higher at that time of year.
Debt:
Student loans: $155
Credit Card: $108 (old closed account in payment plan at 0% interest, to be pay off Aug of this year)
TOTAL: $1350
Income after expenses: $4839


Assets:
Checking account balances: $6635 (this is saving up for summer expenses. We travel to the US during the summers to visit family which usually eats a lot of money. Our family is scattered so we rent a car, no one has space for us to stay or the willingness to host us, so we rent an AirBnB and we stock up on American necessities to bring us through the year. Since finding MMM, we think we will make extreme efforts to be less consumer minded during the summer to help save some here)
Credit cards:
DH – 0$ bal, limit $1000
Me –
1.   0$ bal, limit $3500
2.   0$ bal, limit $12200 (local bank CC)
2006 Volvo S40 – paid for

Liabilities:
Student Loans (this is where we are in serious trouble and confusion)
ME:
1)   Balance: $1018  Interest: 8.25%  Payment: $50 (Private loan)
2)   Balance: $8059  Interest: 10%   Payment: $105 (Private loan)
3)   Balance:  $135,087 Interest: 6.88%   Payment: $0 (IBR, since I have no AGI because of FEI, they give me a 0$ payment) does cover an AA, BA, and MA
H:
Combination of subs and unsubs for 4-5 years of school. Just finished school, will probably consolidate these.
   Total balance of all: $56546
   Interest rates: Ranging from 3.4% - 6.8%
   Payment: still in grace period

Total student loans between both of us: $200,710


Questions:
We are just starting out on the savings path. We know that planning for FIRE is not realistic right now, but we want to know next steps and where we should put our excess money.

We really want to start investing. We don’t have any retirement savings at all between the two of us. But we live overseas, so this is really confusing to me about how to do. I’ve tried researching about it and a lot of it really just goes over my head. I think I am not eligible for Roths because we don’t earn US wages. We don’t have 401ks because we work for a foreign company so I think our only option is investments.

Then of course there is the student loan problem but this is where the water gets muddy. First, if we can just ignore the two huge loans and look at the two small private loans. I really want to get these paid off since the interest is really high. DH thinks we should start an investment account first, but MMM basically says that if your interest is higher than the rate of return, you should pay the debt instead, so that’s why I think we should work on tackling those two private loans.
Once those are taken care of, we don’t know if we should pay off the other loans, or put all the other savings into investments. The thing is, I am on Income Based Repayment and DH will be too. Our payments for these astronomical loans are $0/mo because we have zero taxable income in the US, so our AGI is 0. I assume it will remain this way indefinitely until it’s forgiven after 25 years? I asked the rep on the phone if I could make payments anyway and she said if I did then I would pay myself out of the program…so we don’t make payments. Realistically, we don’t know if we will ever return to live in the US, but we may. Do we worry about these loans when that happens? Do we wait for it to be forgiven and pay the taxes? Do we hope something changes in America in the next 25yrs to help? The other thing is that if we do decide to tackle these loans aggressively, then it is at the expense of investing. It will take probably at least 5-10 years to pay them, which means nothing going towards investments and retirement.

We also want to have kids in the next 2-3 years, hopefully and don’t know how that fits into all this. I am really serious about being financially ready with some sort of retirement going before having kids. DH would have kids today if I said yes…

I expect to get lots of flaming for the loans. Yes, it’s terrible. Life happens. I had no parental support. Raised by a single mom, my mom is a waitress who barely gets by. In fact, right now she is unemployed and on unemployment. I got where I am because I worked hard and had determination and took out student loans, and yes, at high rates. I had no support and not even parents or family to be able to cosign for me. Help me dig myself out of this ever-growing hole? I am really new at all this too, so I don’t understand a lot of the investment terminology, so if you can explain or keep it simple, that would be awesome!

Thanks for any and all help!

Follow-Up Questions:
- We seem to be leaning towards aggressively attacking the loans and getting rid of them in the next 5ish years.
       - But when it comes to DH's loans - do we consolidate all the small subs and unsubs into one consolidation loan, or do we leave them be and put an extra money towards his high interest loans and then go from there?

- If we decide to do half loans and half investments with our excess money (or after loans are gone), where should we start with investments? I was looking at betterment because it seemed to be more user friendly for absolute investing newbs and vanguard seems more individually driven with less support. However, I know betterment has fees. Is Vanguard easy to figure out even if you are really new to the investment world and don't have a lot of time to manage your portfolio?

-What would taxes look like on investments with zero taxable income? This is where I get so confused because when people start talking tax laws, I really get lost. So hard to comprehend.
« Last Edit: April 11, 2015, 07:03:06 AM by intlstacher »

MDM

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #1 on: April 10, 2015, 02:43:18 PM »
Income after expenses: $4839

1)   Balance: $1018  Interest: 8.25%  Payment: $50 (Private loan)
2)   Balance: $8059  Interest: 10%   Payment: $105 (Private loan)

Questions:
First, if we can just ignore the two huge loans and look at the two small private loans. I really want to get these paid off since the interest is really high. DH thinks we should start an investment account first, but MMM basically says that if your interest is higher than the rate of return, you should pay the debt instead, so that’s why I think we should work on tackling those two private loans.

Yes, pay the two private loans ASAP.  Meanwhile, investigate questions such as "I assume it will remain this way indefinitely until it’s forgiven after 25 years?" until you know (not assume) the answer.

Welcome to the forums, and good luck going forward!

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #2 on: April 10, 2015, 03:12:58 PM »

Yes, pay the two private loans ASAP.  Meanwhile, investigate questions such as "I assume it will remain this way indefinitely until it’s forgiven after 25 years?" until you know (not assume) the answer.

Welcome to the forums, and good luck going forward!

Everything I can find basically says that unless my income changes, the payment will stay the same. The IBR term is 25years.

Since my income will always be excluded, my AGI will always be zero. Therefore, if I remain in the IBR program, my payment will remain 0$.

The only problem with this is that the amount that is forgiven after 25years is taxed. Which, if I never paid, it would be a huge amount to be taxed on...

If I didn't do IBR though, my regular payments would be really high and would definitely not allow for any savings and would make me scared for any emergency situations.

justajane

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #3 on: April 10, 2015, 03:16:40 PM »
Have you calculated what your tax bill on that magnitude of loans will be in 25 years? My guess is that it could be huge.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #4 on: April 10, 2015, 03:31:09 PM »
Have you calculated what your tax bill on that magnitude of loans will be in 25 years? My guess is that it could be huge.

yes, roughly. I know it would be huge. Probably $100k+

That's why I have no idea what to do. The loan rep said I can't make payments on a 0$ IBRpayment. If I don't do IBR I think the payment would be quite high to make me feel uncomfortable about my monthly spending.  I wish they would give me an IBR payment based on my actual salary instead of the AGI.

Maybe I'll call them to find out what my payment would be if I dropped IBR. And if I can go back to it if I got into a financial emergency. 

But is it worth it to pay all my extra income on these loans and have no investments,  savings and retirement? That's where I'm really torn. I hate these loans and really want to get rid of them, but I also want a retirement fund.

justajane

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #5 on: April 10, 2015, 03:43:25 PM »
Have you calculated what your tax bill on that magnitude of loans will be in 25 years? My guess is that it could be huge.

yes, roughly. I know it would be huge. Probably $100k+

That's why I have no idea what to do. The loan rep said I can't make payments on a 0$ IBRpayment. If I don't do IBR I think the payment would be quite high to make me feel uncomfortable about my monthly spending.  I wish they would give me an IBR payment based on my actual salary instead of the AGI.

Maybe I'll call them to find out what my payment would be if I dropped IBR. And if I can go back to it if I got into a financial emergency. 

But is it worth it to pay all my extra income on these loans and have no investments,  savings and retirement? That's where I'm really torn. I hate these loans and really want to get rid of them, but I also want a retirement fund.

You're in a difficult situation to be sure. Perhaps you should start a secondary taxable investment account and call it your "IBR Tax Account". Automate it to put a certain amount of money in per month. Choose one that can be converted into an admiral shares account at Vanguard or where ever with lower fees once it reaches a certain amount. Let the power of compounded interest work in your favor. After all, you do have 25 years before Uncle Sam comes knocking, if he comes knocking at all. And if you never have to pay? This will just be money you have saved for later in your life.

I will say, however, that you are in a position to pay this off if you don't want it hanging over your head for the next 2+ decades. You do not have one of the highest expenses in most peoples' lives -- housing and utilities. They are even paying for your internet! This is awesome. A few years of deprivation, and you could be well on your way to paying them off.

You might or might not find here that many people have strong opinions on MMM about IBR - many pro, many against. :)

MDM

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #6 on: April 10, 2015, 04:12:05 PM »
Have you calculated what your tax bill on that magnitude of loans will be in 25 years? My guess is that it could be huge.
yes, roughly. I know it would be huge. Probably $100k+
Would it?  Do you have to pay tax on the accumulated interest, or only the principal? 
From http://www.irs.gov/publications/p4681/index.html#en_US_2014_publink1000192022, "If you use the cash method of accounting, you do not realize income from the cancellation of debt if the payment of the debt would have been a deductible expense."

Of course, as justajane mentioned, you'll have to decide the ethics of paying only a fraction of the debt you incurred while getting the education that allows you to have the income you do....

midweststache

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #7 on: April 10, 2015, 04:15:13 PM »
Current expenses:
Rent/Utilities: $0 - housing and all utilities, including internet covered by school
Phone: $40
Maid: $106 (ready for face punches on this, but we both have pretty demanding jobs and this is something we each value)
Transfer fees: $15 (for our international salary transfer to the US)
Groceries: $650 (we eat mostly fresh meats and vegetables. Paleo/Whole30 style. Also, things are not cheap here like they might be in the US)
Fuel: $16 (thankfully gas is dirt cheap in Saudi)
Eating out: $130
Miscellaneous: $130 (vet visits, skype credits, turbo tax – this was much higher because our cat was a kitten and we had to do shots/spay/etc., we expect this to be fairly low)
Clothing: $0 typically, but we buy clothes in the US when we are there in the summer. This goes much higher at that time of year.
Debt:
Student loans: $155
Credit Card: $108 (old closed account in payment plan at 0% interest, to be pay off Aug of this year)
TOTAL: $1350
Income after expenses: $4839


It might be worth it to create a "Trip Home" budget category to more appropriately plan for your trips back to the US. Other than that, I think this looks pretty good, especially since you'll have the CC paid off soon...

Assets:
Checking account balances: $6635 (this is saving up for summer expenses. We travel to the US during the summers to visit family which usually eats a lot of money. Our family is scattered so we rent a car, no one has space for us to stay or the willingness to host us, so we rent an AirBnB and we stock up on American necessities to bring us through the year. Since finding MMM, we think we will make extreme efforts to be less consumer minded during the summer to help save some here)
Credit cards:
DH – 0$ bal, limit $1000
Me –
1.   0$ bal, limit $3500
2.   0$ bal, limit $12200 (local bank CC)
2006 Volvo S40 – paid for

Do you have any options for retirement accounts where you are? If you invest as expats/foreign workers, would you have to pay capital gains taxes? A Roth sounds like it would be the best venue for initial investments. Do you have anything in the way of retirement accounts? If not, you should set one up as soon as you have the private loans paid off.

Liabilities:
Student Loans (this is where we are in serious trouble and confusion)
ME:
1)   Balance: $1018  Interest: 8.25%  Payment: $50 (Private loan)
2)   Balance: $8059  Interest: 10%   Payment: $105 (Private loan)
3)   Balance:  $135,087 Interest: 6.88%   Payment: $0 (IBR, since I have no AGI because of FEI, they give me a 0$ payment) does cover an AA, BA, and MA
H:
Combination of subs and unsubs for 4-5 years of school. Just finished school, will probably consolidate these.
   Total balance of all: $56546
   Interest rates: Ranging from 3.4% - 6.8%
   Payment: still in grace period

Total student loans between both of us: $200,710

Pay off the private loans first. With the surplus of income you have each month, it should only take three months to do this. So you'll have to the two private loans and your CC paid off by August. That gives you an additional $263 each month.

If I were you, I would find a balance between paying off your large loan and saving for retirement. If your federal loan compounds daily, as many do, you're accruing $25/day in interest. Compounded over 25 years is going to result in a crazy-huge tax bill. If you pay even $1,000/month right now, which you clearly have the cash to do, it would pay off your monthly interest and a bit of principle.

If you could bop that up to $2,000/month (again, seemingly fairly easy on your salaries after August) you could have your principle down $25,000 in two years (and that still leaves $2,000-$3,000/month surplus for savings and retirement, children, etc.) And this is leaving A LOT OF LEEWAY--obviously you're in a place where you could pay off more aggressively, but with nothing in the way of retirement vehicles I understand your desire to invest.

So your new monthly budget could look like this:

Income: $6,050
Expenses: $2,050 (accounting for future childcare costs, like a nanny)
Surplus: $4,000
-->Investments/Retirement: $2,000
-->Student Loans/Debt: $2,000 (minimum payments on husbands below 6.8%, all extra toward the high-interest loans)

At that rate you should have your loans paid off well before IBR. You can make good on the contract you entered into when you took out the loans, AND you'll have the peace of mind knowing that if you ever do end up back in the States that you'll be square with Uncle Sam (you never know what could happen to bring you back to the US).

Again, it's probably worth it to run it through a bunch of loan calculators to get more specific numbers and pay off dates, but I don't think there's any reason you can't find a happy balancing between paying off loans and investing.

Personal caveat: I have a lot of ethical problems with loopholes that allow people to subvert the SL system and avoid paying anything--especially since those loopholes are made for people who do want to pay their loans and simply CANNOT at their current income. Is the student loans system broken and highly problematic, and does it need significant reform? Sure. But we knew that when we signed up for our loans. When we take out student loans, we make a contract in good faith and should do our best to honor that contract.

^This sounds attack-y and it's not meant to be! It's more a general commentary on some of the larger approaches to student loans I've seen on the forum.

frugaldrummer

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #8 on: April 10, 2015, 08:51:59 PM »
You took out the loans, you got the education, you owe that money. Period.
Now....with $4800 per month leftover after expenses, I would suggest the following:
_ save 3 mos living expenses in an emergency account.
_ then put $4000 per month away to pay off loans

You could have your loans paid off in four years. Then you could go to town on the retirement savings.

Just buckle down and do it, you'll feel great when it's done

Blonde Lawyer

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #9 on: April 10, 2015, 09:47:59 PM »
With IBR, public service jobs like teaching are forgiven (tax free) in 10 years.  I don't know if teaching outside the U.S. counts though.  If you want to get out of IBR but lower your required monthly payment you could refinance.  If you go with a private refinance, however, you will lose the option of IBR.  Research that very carefully.  Even with the lower balance, it might be worth refinancing your 10% interest one and still shooting to pay it off in a year.

Spondulix

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #10 on: April 10, 2015, 11:12:54 PM »
Can you guys tutor for extra cash?

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #11 on: April 11, 2015, 12:52:15 AM »
Have you calculated what your tax bill on that magnitude of loans will be in 25 years? My guess is that it could be huge.
yes, roughly. I know it would be huge. Probably $100k+
Would it?  Do you have to pay tax on the accumulated interest, or only the principal? 
From http://www.irs.gov/publications/p4681/index.html#en_US_2014_publink1000192022, "If you use the cash method of accounting, you do not realize income from the cancellation of debt if the payment of the debt would have been a deductible expense."

Of course, as justajane mentioned, you'll have to decide the ethics of paying only a fraction of the debt you incurred while getting the education that allows you to have the income you do....

I'm not sure. The tax wording is confusing. But I did do a lot of google searching and it seems like the final balance is what will be charged as taxable income.

However, I did find that Obama's 2015 budget proposal is trying to get all debt that is cancelled under IBR to be considered forgiven and therefore not taxable. That would definitely be helpful.

But you're right and I did expect to get some comments about walking away from debt that I chose to take. I don't really want to do that.

But I feel like for us at 27 and almost 34 with zero retirement is a serious problem. I'm actually surprised that I haven't heard much about this. I feel like this is a bigger emergency than the student loan debt, but maybe I need to change my mindset.

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #12 on: April 11, 2015, 01:15:03 AM »
Intlstacher -- I highly recommend doing  the actual math to determine what the tax will be. $100k+ is an extremely rough estimate, need to get closer. That way you know fully well what it would entail.

Also, research whether 10year IBR loan forgiveness would apply to you. My guess is probably not.

The good part is that now both of you have a very high savings rate. That should at least help with either paying down the loan or growing the stash.

Best of luck. It is a tough decision but doing the math maybe illuminating. 

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #13 on: April 11, 2015, 01:24:18 AM »

It might be worth it to create a "Trip Home" budget category to more appropriately plan for your trips back to the US. Other than that, I think this looks pretty good, especially since you'll have the CC paid off soon...


You're right. We need to work on this. It's always our best intention, but we end up just throwing all our excess money in a checking account and letting it sit with everything. We have CapitalOne360, and I play on opening up some savings accounts with them. I could allocate one of those to a summer budget.

Do you have any options for retirement accounts where you are? If you invest as expats/foreign workers, would you have to pay capital gains taxes? A Roth sounds like it would be the best venue for initial investments. Do you have anything in the way of retirement accounts? If not, you should set one up as soon as you have the private loans paid off.

We don't have anything and there is nothing available here. That's why we think we should just start some investments. From what I've heard/read, (it's all hard to decipher) is that I am not eligible to open an IRA, roth or otherwise, since I have no US earned income.





So your new monthly budget could look like this:

Income: $6,050
Expenses: $2,050 (accounting for future childcare costs, like a nanny)
Surplus: $4,000
-->Investments/Retirement: $2,000
-->Student Loans/Debt: $2,000 (minimum payments on husbands below 6.8%, all extra toward the high-interest loans)

At that rate you should have your loans paid off well before IBR. You can make good on the contract you entered into when you took out the loans, AND you'll have the peace of mind knowing that if you ever do end up back in the States that you'll be square with Uncle Sam (you never know what could happen to bring you back to the US).

Again, it's probably worth it to run it through a bunch of loan calculators to get more specific numbers and pay off dates, but I don't think there's any reason you can't find a happy balancing between paying off loans and investing.

Did some student loan calculators.
My payment under a Standard Repayment would be $899, with a loan term of 30years, 3 years in.
DH's Standard payment is $606, with a loan term of 10 years
That total is: $1505, which leaves us an extra $500 to put at one of these based on your advise of $2000/mo.
If we put the extra $500 towards mine, it will be paid off July 2027. So 12 years from now. This would mean always paying minimum payments on DH's, unless we ever starting paying more monthly. But once his is gone in year 10, we could add his $600 to mine, and maybe get it gone one year sooner.

Pretty awesome that we could have it gone in 11ish years if we paid $2000 per month. I just worry that we won't always be able to do that because who knows what the next tens years have in store for us, but also that we'll be paying this until I am 38 and he is 45.

We do eventually want to invest in some sort of real estate somewhere in the world so that we would have a home base when we retire.

But still, I guess it's worth it and important for us to just start paying $2000/mo at these and see where it goes.

Personal caveat: I have a lot of ethical problems with loopholes that allow people to subvert the SL system and avoid paying anything--especially since those loopholes are made for people who do want to pay their loans and simply CANNOT at their current income. Is the student loans system broken and highly problematic, and does it need significant reform? Sure. But we knew that when we signed up for our loans. When we take out student loans, we make a contract in good faith and should do our best to honor that contract.

^This sounds attack-y and it's not meant to be! It's more a general commentary on some of the larger approaches to student loans I've seen on the forum.
Didn't sound attack-y at all actually. I expected to hear this and you're totally right about this program being for people who can't pay at all. When they gave me a $0 payment, I argued with the lady on the phone for a long time. I really didn't want a 0$ payment when I have an income. She probably thought I was crazy. But she said if I start paying on it when I'm being given the 0$ payment, that it would pay me out of the program, so I got scared to make any payments.

I am too afraid to refi these loans because I would be scared to lose these income based benefits. If we ever did move to the states, as a public school teacher, I would never be able to afford $2000/mo on student loan payments.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #14 on: April 11, 2015, 01:28:26 AM »
You took out the loans, you got the education, you owe that money. Period.
Now....with $4800 per month leftover after expenses, I would suggest the following:
_ save 3 mos living expenses in an emergency account.
_ then put $4000 per month away to pay off loans

You could have your loans paid off in four years. Then you could go to town on the retirement savings.

Just buckle down and do it, you'll feel great when it's done

You're right. That would be awesome! I just calculated that it could be paid off October 2018. But that's barring any financial emergencies and assuming we keep earning this same amount and having the same situation.

Is it not worrisome though that if I did this, we wouldn't start any retirement until ages 32 and 39?

With IBR, public service jobs like teaching are forgiven (tax free) in 10 years.  I don't know if teaching outside the U.S. counts though.  If you want to get out of IBR but lower your required monthly payment you could refinance.  If you go with a private refinance, however, you will lose the option of IBR.  Research that very carefully.  Even with the lower balance, it might be worth refinancing your 10% interest one and still shooting to pay it off in a year.

Teaching outside the US doesn't count. If I moved back and worked in a low-income, high needs school, this would count.

I'm too scared to ReFi and lose all the governmental benefits.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #15 on: April 11, 2015, 01:59:16 AM »
Intlstacher -- I highly recommend doing  the actual math to determine what the tax will be. $100k+ is an extremely rough estimate, need to get closer. That way you know fully well what it would entail.

Also, research whether 10year IBR loan forgiveness would apply to you. My guess is probably not.

The good part is that now both of you have a very high savings rate. That should at least help with either paying down the loan or growing the stash.

Best of luck. It is a tough decision but doing the math maybe illuminating.

I really am not sure exactly how to do this, so if anyone has advice, I'd love it.

Here is what I did do.

I used this calculator http://www.free-online-calculator-use.com/loan-balance-calculator.html
and it said that my balance in another 23 years, with zero payments is $368, 211

Then I plugged that into a salary calculator because I don't really know how to find the taxes on that another way. The taxes were $108, 316.

But obviously that is cannot be exactly accurate. Really there is no way to know for sure. Who knows what the tax rate will be in 25 years. Maybe loan cancellation won't be considered taxable. Plus when I was trying to find a calculator for this 1099-c "income" all I could find was how to get out of paying taxes on it...so who knows. But I would just assume for now that it would be that amount.

Plus that number was only off of my amount. I didn't put in DH's, so that would change it by quite a bit.

Plus we don't know if we will be living out of the US for the next 25yrs. Right now we don't have plans to go back, but we aren't against it either and have no idea where life will take us.

If everything remained the same as it is, we'd owe something like $108k on my loans. But if we are throwing all our money at investments for the next 25 years, I would hope we would be able to have money to pay that?

Really as I go through this, it seems much easier to work on paying it. My only hesitation was as I said before about not having a good retirement/investment plan.
« Last Edit: April 11, 2015, 02:53:00 AM by intlstacher »

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #16 on: April 11, 2015, 05:56:23 AM »
I just did the calculation for the final balance by hand. The formula is

P*(1+i)^n
P = principal
i = interest rate
n = number of years

For your loan: 135087*(1+.0688)^23 = 624068
For H assuming average rate of 5%: 56546*(1+.05)^25 = 191485

Assuming current taxes continue, using the free online taxcaster at
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
Tax owed by you: 189343
Tax owed by H: 35179
I assumed your loan would be due in 23 years and H's loan in 25.

Total taxes = 224522


rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #17 on: April 11, 2015, 06:09:54 AM »
I agree with others that if you were able to somehow bear down and pay about 4k a month, you will be able to pay it off in around 5 years. You would be 32 and H would be 39. That is not old at all. You'd be debt free at that point. And your mustachian muscles would have become strong. Do you think that you have the job stability over the next 5-6 years to be able to do that?

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #18 on: April 11, 2015, 06:27:19 AM »
I agree with others that if you were able to somehow bear down and pay about 4k a month, you will be able to pay it off in around 5 years. You would be 32 and H would be 39. That is not old at all. You'd be debt free at that point. And your mustachian muscles would have become strong. Do you think that you have the job stability over the next 5-6 years to be able to do that?

Consider this idea....

Instead of putting $4000 per month on the loans for the next five years, what if we put this $4000 in investments.

Assuming a 7% rate of return, after 5 years we will have $291,734

The loans, if we make 0$ payments for the next five years, would be at $260,574 based on the formula you listed.

After five years, we could take the investments out, pay off the loans, and still have 30k in investments?

Does this seem correct? Worth it in the long run? or better to just pay at the loans because we'd save interest? I am not sure about that.

I can't say for sure about my job stability for the next 5-6 years. Things are great right now, but life is ever changing, especially here in the Middle East....

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #19 on: April 11, 2015, 06:31:39 AM »
Over the short term, there are no guarantees in the stock market. You might get 7% or -7%. It is a gamble. As the famous saying goes: Do you feel lucky? ;)

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #20 on: April 11, 2015, 06:41:00 AM »
Can you research more if you can make extra payments  occasionally rather than regularly that apply to principal under your IBR plan?

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #21 on: April 11, 2015, 06:42:29 AM »
Over the short term, there are no guarantees in the stock market. You might get 7% or -7%. It is a gamble. As the famous saying goes: Do you feel lucky? ;)

Good point. I don't know why I didn't even think of this.

I think I just need to adjust my frame of reference and realize that by paying off our loans, we are essentially gaining $200k+ in investments, because that debt is gone.

It just so hard for me to think that I will be working my a** off and paying $48000/yr on loans (more than my actual salary) and at the end of five years, I still have zero dollars to my name.

But, then I won't have a negative net worth. That's what I need to tell myself. I really just want to be at a point where I am seeing money grow, instead of debt decline....seems silly, but makes sense in my head. Hahah.

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #22 on: April 11, 2015, 06:51:12 AM »
Welcome to the Insight!

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #23 on: April 11, 2015, 06:52:32 AM »
Can you research more if you can make extra payments  occasionally rather than regularly that apply to principal under your IBR plan?

Two things....

I found this....http://www.ibrinfo.org/faq.vp.html#_send_extra_money

"If I sign up for IBR, can I occasionally send in extra money to pay down the principal of my loan?

Yes. Tell your lender in writing, along with the payment, that you want the extra money applied to the principal, and follow up to make sure the payment was properly applied. "

but also this, which makes a lot of sense why I was getting a way different number than you when calculating what the balance would be after 25yrs of no payments.

"How does IBR treat interest? Does it still accrue?

If your reduced payment under IBR does not cover the interest on your loans, the government will pay that interest on your Subsidized Stafford Loans during your first three years in IBR. After three years, and for all other loan types, the interest will accrue but not compound. That means it will be added to your principal, but interest will continue to accrue only on the original principal amount. Anything you still owe after 25 years of qualifying payments will be forgiven. For more information on this topic, see Question 35 of the Department of Education's IBR Q&A. "

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #24 on: April 11, 2015, 06:58:37 AM »
In that case, the formula I posted does not apply as it is for compound interest.

Excellent job on finding about prepayments. Continue doing more research. See if you can get more official documentation. How are they applied?

midweststache

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #25 on: April 11, 2015, 07:05:02 AM »
Over the short term, there are no guarantees in the stock market. You might get 7% or -7%. It is a gamble. As the famous saying goes: Do you feel lucky? ;)

Good point. I don't know why I didn't even think of this.

I think I just need to adjust my frame of reference and realize that by paying off our loans, we are essentially gaining $200k+ in investments, because that debt is gone.

It just so hard for me to think that I will be working my a** off and paying $48000/yr on loans (more than my actual salary) and at the end of five years, I still have zero dollars to my name.

But, then I won't have a negative net worth. That's what I need to tell myself. I really just want to be at a point where I am seeing money grow, instead of debt decline....seems silly, but makes sense in my head. Hahah.

Also, this supposes that you and DH don't end up back in the States. Wouldn't it be nice to know that you can return (if you want and choose) 6-7 years from now without that debt hanging over you, rather than knowing you have to stick out the 25 years because of the IBR plan? If anything that's what MMM is about - freedom to do what you want. It's hard to pursue what you want when debt is hanging over you and effecting your choices.

It's a hard road, but worth it. We don't have quite the excess income you guys do, but every time I put an extra $250-$500 toward our loans, I get excited knowing we'll be debt-free that much sooner.

rpr

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #26 on: April 11, 2015, 07:15:13 AM »
midweststache -- you make an excellent point.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #27 on: April 11, 2015, 07:29:30 AM »
Also, this supposes that you and DH don't end up back in the States. Wouldn't it be nice to know that you can return (if you want and choose) 6-7 years from now without that debt hanging over you, rather than knowing you have to stick out the 25 years because of the IBR plan? If anything that's what MMM is about - freedom to do what you want. It's hard to pursue what you want when debt is hanging over you and effecting your choices.

It's a hard road, but worth it. We don't have quite the excess income you guys do, but every time I put an extra $250-$500 toward our loans, I get excited knowing we'll be debt-free that much sooner.

Touche. A good point for sure. Thanks for that!

As we get posts/advice here, I share them with DH and something he keeps bringing up, that I didn't put into our budget is traveling. Honestly because I didn't want to get yelled at for traveling(spending) with all this debt....but everyone has been really nice and helpful thus far.

One goal we had when moving overseas was to travel and see the world while we are nearby everything and it's a lot cheaper than it would be if we were traveling from the US. The reason we don't have any big savings as of yet is because we did travel the last 2 years. This year we haven't, except for a trip back to the US for Christmas because we hadn't been home for Christmas in three years and it was something we really wanted.

Anyway, my question is, Is there a way to balance this with still doing at least small trips here and there? I'm so torn on this and right now I'm really gung-ho about killing debt, but DH makes good points about being able to travel when we are young and taking advantage of our central location.

So, I'm thinking we maybe decide to take one trip for max $5000 per year (could be less), not counting our summer trip. Our school pays our flights for that, so we get that trip home, it's just the spending while in the US that is the problem.

This would bring down our potential debt payoff by only $5000, which is only 1.25 months less per year. Over five year's, it's an extra 4 months of paying.

I hate this. I do want to travel. And I want to do it when we are young and when we have no kids. But our financial situation is always looming over my head. I tend to me more of the voice of reason between the two of us...

justajane

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #28 on: April 11, 2015, 07:37:25 AM »
I know little to nothing about Saudi Arabia, but 25 years is a long time. What if the political, social, or cultural situation changes and you don't want to stay there in the future? What if you have children and decide you absolutely can't bear being away from your family and friends? Or what if you decide you want to raise them in an English speaking environment? I guess you could seek employment in another country abroad, but that has a lot of costs and variables.

To maintain your $0 IBR status, you basically have to decide where you are going to live for the bulk of your adult life. In your twenties, this is a huge thing to do, as you really have no idea who you will be in 10 years, in 20 years.

I still don't understand why you can't open a Roth. When I opened mine, I didn't have income at all. I was a SAHM; yet I have easily able to open a Roth with my social security number at Vanguard. Then I just set up an automatic transfer from my bank account. Why would it matter that your bank account is in another country? I could set up any checking account to deposit the money in my Roth.

If it turns out you could open one, why don't you hedge your bets and contribute to a Roth or taxable investment account, while also accelerating your loans? Say, $2500 to loans and $500 a month to retirement?

The "I" part of FIRE is not just about having money in the bank or retirement vehicles; it's also freedom from debt, and even if you are paying $0 a month, this debt is yours for 25 years. You will worry about whether Congress will do something to alter the program. You might end up paying the same amount or more if Congress makes it taxable. If you search on here, you will find plenty of discussions on here and people who are perfectly confident that the odds will be in the favor in 25 years. No one really knows. You just have to know if you can handle the uncertainties. I personally couldn't, but I'm not you. I would rather "suffer" in the short term and feel that incredible weight lifted when it was over. But I'm not you.

Edited to add that a discussion very similar to my point was occurring while I was typing. Great minds think alike :).

caliq

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #29 on: April 11, 2015, 07:38:36 AM »
I would hold off on the travel until you have some of the highest interest loans paid off.  $5000 seems like a lot for one trip, especially considering you're describing it as significantly cheaper.  Especially considering it won't actually be your only trip (free plane tickets to the US are great, but that's not the only thing you spend money on while traveling...).

Maybe you can churn credit card sign up bonuses to get free miles and reduce the costs of travel that way?  There's a lot of people around here that do that so I'm sure someone can provide you with a lot more detail than I can.

If I was in your situation (and I kind of am, still paying off debts and being faced with decisions to continue a 'luxury' spending item that is very, very, very important to me), I would sacrifice the luxury for the short term (say the next year or two), because it's a short enough time that you can see the light at the end of the tunnel, you'll still be young when your self-imposed sacrifice term ends, and that extra 10k will make a much larger impact the earlier you apply it to the loans.  That's what I'm doing and it really really sucks but being in debt forever would suck more!

Edit: I don't know where you are in Saudi or how long you've been there (sorry, I think you might have said this upthread somewhere), but is there any way you can do some local traveling/exploring?  Like, even in the city you're living in, spending time checking out all the cultural attractions and stuff?
« Last Edit: April 11, 2015, 07:40:27 AM by caliq »

Blonde Lawyer

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #30 on: April 11, 2015, 07:42:23 AM »
Over the short term, there are no guarantees in the stock market. You might get 7% or -7%. It is a gamble. As the famous saying goes: Do you feel lucky? ;)

Good point. I don't know why I didn't even think of this.

I think I just need to adjust my frame of reference and realize that by paying off our loans, we are essentially gaining $200k+ in investments, because that debt is gone.

It just so hard for me to think that I will be working my a** off and paying $48000/yr on loans (more than my actual salary) and at the end of five years, I still have zero dollars to my name.

But, then I won't have a negative net worth. That's what I need to tell myself. I really just want to be at a point where I am seeing money grow, instead of debt decline....seems silly, but makes sense in my head. Hahah.

Also, this supposes that you and DH don't end up back in the States. Wouldn't it be nice to know that you can return (if you want and choose) 6-7 years from now without that debt hanging over you, rather than knowing you have to stick out the 25 years because of the IBR plan? If anything that's what MMM is about - freedom to do what you want. It's hard to pursue what you want when debt is hanging over you and effecting your choices.

It's a hard road, but worth it. We don't have quite the excess income you guys do, but every time I put an extra $250-$500 toward our loans, I get excited knowing we'll be debt-free that much sooner.

Just playing devil's advocate here.  They could still return to the US.  They would just make IBR payments on what their income is here.  That likely means they would have some payment but it is capped.  Their debt would still be forgiven after 25 years if congress doesn't change things.  This is not a plan I'm using nor one I was comfortable banking on but IBR does not require them to stay out of the US. 

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #31 on: April 11, 2015, 07:52:56 AM »
I know little to nothing about Saudi Arabia, but 25 years is a long time. What if the political, social, or cultural situation changes and you don't want to stay there in the future? What if you have children and decide you absolutely can't bear being away from your family and friends? Or what if you decide you want to raise them in an English speaking environment? I guess you could seek employment in another country abroad, but that has a lot of costs and variables.
That's what we are unsure about. This is actually our first year year. We've been overseas for three years now, but this is our third country. Things change quickly in the intl teaching world and sometimes for the worse, which is what has caused us to move twice already. If we did end up being ready to leave Saudi, we would more likely move to another country internationally rather than back to the US. The salary could be very different. For now, things are good here, so we will ride this out as long as we can.


I still don't understand why you can't open a Roth. When I opened mine, I didn't have income at all. I was a SAHM; yet I have easily able to open a Roth with my social security number at Vanguard. Then I just set up an automatic transfer from my bank account. Why would it matter that your bank account is in another country? I could set up any checking account to deposit the money in my Roth.

If it turns out you could open one, why don't you hedge your bets and contribute to a Roth or taxable investment account, while also accelerating your loans? Say, $2500 to loans and $500 a month to retirement?

I don't really know. Every time I have tried to read about it, it all goes over my head and I can't really understand it. There is lots of stuff out there about the restrictions of Roths with expats.

Here's this http://thunfinancial.com/iras-roth-iras-and-the-conversion-decision-for-americans-living-abroad/
Quoted "merican citizens not resident in the U.S. may contribute to an IRA.  However, they must have earned income that is not excluded by the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion (FHE).  For example, an American citizen employed abroad by a foreign corporation earning $85,000 a year who is able to exclude all of her U.S. income from taxation under the FEIE will have no “non-excluded” income from which to make an IRA contribution, and therefore cannot contribute."

The "I" part of FIRE is not just about having money in the bank or retirement vehicles; it's also freedom from debt, and even if you are paying $0 a month, this debt is yours for 25 years. You will worry about whether Congress will do something to alter the program. You might end up paying the same amount or more if Congress makes it taxable. If you search on here, you will find plenty of discussions on here and people who are perfectly confident that the odds will be in the favor in 25 years. No one really knows. You just have to know if you can handle the uncertainties. I personally couldn't, but I'm not you. I would rather "suffer" in the short term and feel that incredible weight lifted when it was over. But I'm not you.

Edited to add that a discussion very similar to my point was occurring while I was typing. Great minds think alike :).

You're right. Thinking about letting it sit there for 25yrs gives me knots in my stomach.

justajane

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #32 on: April 11, 2015, 07:57:42 AM »
The information you posted makes sense. You are not paying American taxes on the money you earn, whereas the money we deposited in the Roth was post-tax - just not earned by me.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #33 on: April 11, 2015, 08:01:23 AM »

Edit: I don't know where you are in Saudi or how long you've been there (sorry, I think you might have said this upthread somewhere), but is there any way you can do some local traveling/exploring?  Like, even in the city you're living in, spending time checking out all the cultural attractions and stuff?

Yes, there are some local trips we would like to do. However, with Saudi getting a little more volatile lately with the Yemen stuff, it does limit us. Where we live is really safe, but the more rural areas are where Americans tend to get attacked. While this is rare, it's something that holds us back from all of the local travel that we could/would do otherwise.

For example, there are these islands off the coast that are supposed to be incredible, but they are really close to Yemen, so travel there right now is highly discouraged.  http://www.tripadvisor.com/Attraction_Review-g293991-d1023178-Reviews-Farasan_Islands-Saudi_Arabia.html

I make Saudi sound terrible. It's really not that bad, but there have been an increased amount of Westerners getting attacked in the past year, and driving through the desert makes us a little weary.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #34 on: April 11, 2015, 08:53:22 AM »
Everyone here has been so nice and helpful! I really expected to get a lot of slack for our financial choices and it hasn't been that way at all. I know I've made mistakes and am just starting to grow my frugality muscles, so I am trying to notice when certain thoughts are not fitting in with my goals. Thanks everyone for all the help and advice.

Follow-Up Questions:
- We seem to be leaning towards aggressively attacking the loans and getting rid of them in the next 5ish years.
       - But when it comes to DH's loans - do we consolidate all the small subs and unsubs into one consolidation loan, or do we leave them be and put an extra money towards his high interest loans and then go from there?

- If we decide to do half loans and half (or even just a small amount) investments with our excess money (or after loans are gone), where should we start with investments? I was looking at betterment because it seemed to be more user friendly for absolute investing newbs and vanguard seems more individually driven with less support. However, I know betterment has fees. Is Vanguard easy to figure out even if you are really new to the investment world and don't have a lot of time to manage your portfolio?

-What would taxes look like on investments with zero taxable income? This is where I get so confused because when people start talking tax laws, I really get lost. So hard to comprehend.

Catbert

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #35 on: April 11, 2015, 11:04:57 AM »
I'm surprised that more posters haven't pointed out that people with this much debt can't afford to take months long trips every summer.  Yes, you're teachers and have the time off.  Yes, it's to visit family.  But ultimately it's still a vacation.

Stay home (Saudi Arabia) this year.  Try to get a side gig (tutoring?).  Put all the extra money towards the 8% and 10% loans.

MDM

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #36 on: April 11, 2015, 01:00:22 PM »
Follow-Up Questions:
- We seem to be leaning towards aggressively attacking the loans and getting rid of them in the next 5ish years.
       - But when it comes to DH's loans - do we consolidate all the small subs and unsubs into one consolidation loan, or do we leave them be and put an extra money towards his high interest loans and then go from there?
Depends on the consolidation terms.  Use something such as http://www.vertex42.com/Calculators/debt-reduction-calculator.html to compare different options.  Paying extra toward the high interest ones will be better - unless you get a good deal on the consolidated interest, in which case consolidating will be better.

Quote
- If we decide to do half loans and half (or even just a small amount) investments with our excess money (or after loans are gone), where should we start with investments? I was looking at betterment because it seemed to be more user friendly for absolute investing newbs and vanguard seems more individually driven with less support. However, I know betterment has fees. Is Vanguard easy to figure out even if you are really new to the investment world and don't have a lot of time to manage your portfolio?
Vanguard is easy to figure out...although I as type this, thoughts about "is that true for expats?" go through my head...so you might want to take $1K and see how easy/difficult it would be to invest that into, say, https://personal.vanguard.com/us/funds/snapshot?FundId=0699&FundIntExt=INT.

Quote
-What would taxes look like on investments with zero taxable income? This is where I get so confused because when people start talking tax laws, I really get lost. So hard to comprehend.
The answer is in the question: zero taxable income means no more than zero in taxes.  You could get a copy of TaxAct or TurboTax and enter some what-if? scenarios to check.  Note: wait a week and the software price will likely drop....

ShoulderThingThatGoesUp

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #37 on: April 11, 2015, 08:16:04 PM »
I think you should really ask yourself if you're going to be OK raising the children you want that far from family and Western culture - especially Saudi Arabia. I can't imagine raising a daughter in Saudi Arabia even living in an expat compound.

Even if this loophole is real, which I think you should ask a lawyer about (the consequences of being wrong are EXTREME!), it makes you an exile.

potm

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #38 on: April 11, 2015, 08:40:35 PM »
What is preventing your DH from earning as much as you do?
If you are able to achieve that, tackling the debt will be a much less substantial task.

mozar

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #39 on: April 11, 2015, 09:01:42 PM »
Just some support, I paid off 120k worth of loans over five years. That's 2000 a month. I made 55k gross. I really don't know how this works or if it still does but when I started making 2k payments toward the principle they would consider me "paid up" for a few months so I started having no regular payments (premiums?). So my monthly was 500 but when I paid 2k in principle they said I was paid up for four months which meant I could put that extra 500 toward principle.
By the way I had to mail a check with my social security number and a note that said principle ONLY and sometimes they still misapplied it. Since it's so rare to pay off your debt early most employees don't know how to help you. you just have to keep on trying. I also put some of my loans in deferment which helped to. Once I paid off 120k (out of 135) of my high interest debt I started investing at 31.

My parents promised they would help me but conveniently forgot when I graduated. That's life I guess. I work on focusing on the positive.

larmando

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #40 on: April 12, 2015, 07:52:29 AM »
Please don't invest while having high interest debt: it's a lose lose situation: think about how you'd feel if you have invested enough to pay your debt back and then the market crashes. Payment of debt guarantees you the return. At least kill your private debt. I have no opinion on the forgiveness aspect (I'm not American and haven't investigated it at all).

Fuzz

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #41 on: April 12, 2015, 11:11:22 AM »
I would focus on what you can control and take care of that. I think working on what you can control makes you happier and gives you freedom, which is part of FIRE for most people.

Here's how that would apply to your situation:

Pay off the debt and don't worry about IBR. Just pay it off. It will suck...for years. And then it will be done and you will be in a better place.

I graduated with debt and went into a public interest job, where I would have qualified for 10 years of repayment. At my first job, there were many co-workers in the same position, and they all mentally committed to the public interest job 10 year term. They gave up other jobs, relationships, housing, opportunities to continue in that same position for 10 years. They gave these things up slowly, and then all at once these opportunities were gone. I think they were unhappy/stressed because of it. They told themselves, daily, over years, that "this isn't what I want to be doing; I'm only doing this because I can't figure out a better way to deal with the mistakes I made in my 20s; I am meant to do something else."

That kind of self-talk is toxic. The situation would be completely different if they had started out their journey wanting the public interest job, and planned on staying in the those jobs for the rest of their lives. But they didn't. The longer they stayed there, the more they had invested in the IBR route, the more their debts grew, the harder it was to walk away. What I think they really sacrificed is their potential and self-respect. They had to think of themselves as someone who was incapable of earning a lot of money, because otherwise they would have made the wrong decision. They had to believe that their financial IBR cage was the best choice for them. So they told themselves things like I can't get a better job because I don't have the right connections. Or, those successful guys are all miserable cause they work hard.

Come drink the kool aid. You can pay that shit off. You have a life to live. You can do lots of things as a teacher in Saudi Arabia (and elsewhere) that will make you lots of money. Believe in what you can do, focus on what you can control. Pay it off.

In 10 years, maybe you'll find out that the math would have worked out better the other way. Or maybe not. But the math is only one piece of it.




penguins4everyone!

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #42 on: April 12, 2015, 04:35:35 PM »
I would focus on what you can control and take care of that. I think working on what you can control makes you happier and gives you freedom, which is part of FIRE for most people.

Here's how that would apply to your situation:

Pay off the debt and don't worry about IBR. Just pay it off. It will suck...for years. And then it will be done and you will be in a better place.

I graduated with debt and went into a public interest job, where I would have qualified for 10 years of repayment. At my first job, there were many co-workers in the same position, and they all mentally committed to the public interest job 10 year term. They gave up other jobs, relationships, housing, opportunities to continue in that same position for 10 years. They gave these things up slowly, and then all at once these opportunities were gone. I think they were unhappy/stressed because of it. They told themselves, daily, over years, that "this isn't what I want to be doing; I'm only doing this because I can't figure out a better way to deal with the mistakes I made in my 20s; I am meant to do something else."

That kind of self-talk is toxic. The situation would be completely different if they had started out their journey wanting the public interest job, and planned on staying in the those jobs for the rest of their lives. But they didn't. The longer they stayed there, the more they had invested in the IBR route, the more their debts grew, the harder it was to walk away. What I think they really sacrificed is their potential and self-respect. They had to think of themselves as someone who was incapable of earning a lot of money, because otherwise they would have made the wrong decision. They had to believe that their financial IBR cage was the best choice for them. So they told themselves things like I can't get a better job because I don't have the right connections. Or, those successful guys are all miserable cause they work hard.

Come drink the kool aid. You can pay that shit off. You have a life to live. You can do lots of things as a teacher in Saudi Arabia (and elsewhere) that will make you lots of money. Believe in what you can do, focus on what you can control. Pay it off.

In 10 years, maybe you'll find out that the math would have worked out better the other way. Or maybe not. But the math is only one piece of it.

This is an excellent point.  Listen to this guy.

JustGettingStarted1980

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #43 on: April 12, 2015, 07:24:53 PM »
I would focus on what you can control and take care of that. I think working on what you can control makes you happier and gives you freedom, which is part of FIRE for most people.

Here's how that would apply to your situation:

Pay off the debt and don't worry about IBR. Just pay it off. It will suck...for years. And then it will be done and you will be in a better place.

I graduated with debt and went into a public interest job, where I would have qualified for 10 years of repayment. At my first job, there were many co-workers in the same position, and they all mentally committed to the public interest job 10 year term. They gave up other jobs, relationships, housing, opportunities to continue in that same position for 10 years. They gave these things up slowly, and then all at once these opportunities were gone. I think they were unhappy/stressed because of it. They told themselves, daily, over years, that "this isn't what I want to be doing; I'm only doing this because I can't figure out a better way to deal with the mistakes I made in my 20s; I am meant to do something else."

That kind of self-talk is toxic. The situation would be completely different if they had started out their journey wanting the public interest job, and planned on staying in the those jobs for the rest of their lives. But they didn't. The longer they stayed there, the more they had invested in the IBR route, the more their debts grew, the harder it was to walk away. What I think they really sacrificed is their potential and self-respect. They had to think of themselves as someone who was incapable of earning a lot of money, because otherwise they would have made the wrong decision. They had to believe that their financial IBR cage was the best choice for them. So they told themselves things like I can't get a better job because I don't have the right connections. Or, those successful guys are all miserable cause they work hard.

Come drink the kool aid. You can pay that shit off. You have a life to live. You can do lots of things as a teacher in Saudi Arabia (and elsewhere) that will make you lots of money. Believe in what you can do, focus on what you can control. Pay it off.

In 10 years, maybe you'll find out that the math would have worked out better the other way. Or maybe not. But the math is only one piece of it.

This is an excellent point.  Listen to this guy.

Totally agree -> one of the things MMM most emphasizes is that THINGS ARE UNDER YOUR CONTROL, very well said Fuzz

RobinAZ

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #44 on: April 13, 2015, 10:57:46 AM »
I would focus on what you can control and take care of that. I think working on what you can control makes you happier and gives you freedom, which is part of FIRE for most people.

Here's how that would apply to your situation:

Pay off the debt and don't worry about IBR. Just pay it off. It will suck...for years. And then it will be done and you will be in a better place.

I graduated with debt and went into a public interest job, where I would have qualified for 10 years of repayment. At my first job, there were many co-workers in the same position, and they all mentally committed to the public interest job 10 year term. They gave up other jobs, relationships, housing, opportunities to continue in that same position for 10 years. They gave these things up slowly, and then all at once these opportunities were gone. I think they were unhappy/stressed because of it. They told themselves, daily, over years, that "this isn't what I want to be doing; I'm only doing this because I can't figure out a better way to deal with the mistakes I made in my 20s; I am meant to do something else."

That kind of self-talk is toxic. The situation would be completely different if they had started out their journey wanting the public interest job, and planned on staying in the those jobs for the rest of their lives. But they didn't. The longer they stayed there, the more they had invested in the IBR route, the more their debts grew, the harder it was to walk away. What I think they really sacrificed is their potential and self-respect. They had to think of themselves as someone who was incapable of earning a lot of money, because otherwise they would have made the wrong decision. They had to believe that their financial IBR cage was the best choice for them. So they told themselves things like I can't get a better job because I don't have the right connections. Or, those successful guys are all miserable cause they work hard.

Come drink the kool aid. You can pay that shit off. You have a life to live. You can do lots of things as a teacher in Saudi Arabia (and elsewhere) that will make you lots of money. Believe in what you can do, focus on what you can control. Pay it off.

In 10 years, maybe you'll find out that the math would have worked out better the other way. Or maybe not. But the math is only one piece of it.

This could have been written for me.  Thank you.  Thank you, thank you, thank you.

Fuzz

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #45 on: April 14, 2015, 11:25:44 AM »
@penguins4everyone!, justgettingstarted1980 and @robinAZ: thanks! this gives me the fuzzies. Good luck all and OP.

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #46 on: April 17, 2015, 08:13:51 AM »
Sorry everyone, I wasn't able to respond during the week. Here are some answers to the questions posed while I was away.


What is preventing your DH from earning as much as you do?
If you are able to achieve that, tackling the debt will be a much less substantial task.

He is hired as a local hire. I am an overseas hire. It's two completely different contracts and therefore different salary offers. If we moved to another location, we might be able to get him a job as an overseas hire, but it's difficult when working in schools. We are very lucky to have him working now at my current job. It is something that we could look into when my contract is up, but we are also really happy here, so I am not sure that we would consider moving.

Just some support, I paid off 120k worth of loans over five years. That's 2000 a month. I made 55k gross. I really don't know how this works or if it still does but when I started making 2k payments toward the principle they would consider me "paid up" for a few months so I started having no regular payments (premiums?). So my monthly was 500 but when I paid 2k in principle they said I was paid up for four months which meant I could put that extra 500 toward principle.
By the way I had to mail a check with my social security number and a note that said principle ONLY and sometimes they still misapplied it. Since it's so rare to pay off your debt early most employees don't know how to help you. you just have to keep on trying. I also put some of my loans in deferment which helped to. Once I paid off 120k (out of 135) of my high interest debt I started investing at 31.

My parents promised they would help me but conveniently forgot when I graduated. That's life I guess. I work on focusing on the positive.
That makes me feel good. I think once we start actually tackling it, we will feel good about it. We are going to pay off the high interest loans first and then start in on that giant loan. Your story was helpful, so thanks for sharing.

I would focus on what you can control and take care of that. I think working on what you can control makes you happier and gives you freedom, which is part of FIRE for most people.

Here's how that would apply to your situation:

Pay off the debt and don't worry about IBR. Just pay it off. It will suck...for years. And then it will be done and you will be in a better place.
.....

Come drink the kool aid. You can pay that shit off. You have a life to live. You can do lots of things as a teacher in Saudi Arabia (and elsewhere) that will make you lots of money. Believe in what you can do, focus on what you can control. Pay it off.

Thanks for your insight. It was good to hear. I definitely don't want to be stuck in the 10yr pay off either. I have bigger goals than teaching kindergarten til I am 65. Getting out from under this year will be very motivating, I hope.

We are working on changing the budget that I initially posted to see what we can do about the debt. We want to kick the debt.

Thanks for everyone's support.

9ft5wt

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #47 on: April 17, 2015, 04:05:19 PM »
I taught overseas for 6 years along with my wife and was able to pay off some massive SLs and save a nice chunk of cash. Look in to benefits that your school offers. We were offered an interest free loan of up to 10% of our salary each year. I took that and just threw it at my student loans.
My advice would be to live monastically for a few years and hammer your loans to dust. It's an incredible feeling to crawl out from under a load of debt like that.
Regarding filing your US taxes while overseas, TurboTax Delux works fine for us.

tight lines

pagoconcheques

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #48 on: April 17, 2015, 04:29:29 PM »
live monastically for a few years and hammer your loans to dust

Do this.  Odds are you will want to return to the US when you start a family. 

Also, do the math based on what your incomes would be with your jobs in your likely USA location if you moved back now.  It might not be any worse than it is now. 

intlstacher

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Re: CASE STUDY: Newbie, No Savings, Huge SLs, Where to Start?
« Reply #49 on: April 18, 2015, 01:18:24 AM »
live monastically for a few years and hammer your loans to dust

Do this.  Odds are you will want to return to the US when you start a family. 

Also, do the math based on what your incomes would be with your jobs in your likely USA location if you moved back now.  It might not be any worse than it is now.

We have no plans of ever moving back to the US at this point in time. In fact, we've talked about how if we did have kids abroad, we would want to stay abroad until they were at least 18, so they get the benefit of this lifestyle - as in, becoming global citizens, bi/tri-lingual, culturally aware. Plus, my contract, no matter where I am at, offers free tuition for my children, so they would get tuition free private education at an international school. So odds are, we won't move back to the US to start a family.

I always leave that in limbo though because we never know where life will take us.

Also, our incomes would be much, much less in the states. Have you checked teacher salaries lately? ....Also, we would then be paying housing, utilities, car expenses, etc. if we lived in the states. That is what would really bring our income lower.