Author Topic: College Grad- with a job but with some debt!  (Read 4179 times)

alex109

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College Grad- with a job but with some debt!
« on: June 13, 2012, 08:04:45 PM »
Hi Everyone,

I spent the last two days nearly reading every blog post and I definitely want to model my life the mustache way! Now heres the skinny... I am 22 and I will be teaching in Baltimore for the next two years with teach for america. My take home pay after taxes will be around $31000 a year and this is factoring that I am not working during the summer ( I'll try to find a job next summer to make additional income). So my situation now is that, I am unsure if I want to pay off my student loans or start investing my money ? I dont want to spend four years paying off my student loans, and then have no savings. Can I do both?

Heres my financial expenses per month.... $1100

Rent $250 (living in a small room with a group of 20 somethings in a townhouse)
Car Payment $200 (car payment on a LEASED car... yes... I know... but it gets 40mpg)
Cell Phone+Internet $75
Auto Insurance $75
Gas $150 ( I will drive to and from school about 16 Miles R/t)
Utilities $50
Groceries $200
Health Insurance $50



My income per month... (after taxes) $2600


Debt
$27000 (Federal Loans... I have a two year grace period since I am in Teach For America) So I dont think I am going to start paying them off early since Teach For America also pays for the interest that develops during the two years.

$21000 Parent Plus Loans @ 7.9 Interest Rate. My parents are legally obligated to pay, but of course, they took the loan out to finance my education, so I have to pay them back. I can either pay off the loan in 10 years @ $256 per month or try to pay it off before my other loan kicks in two years... but that will put me at payments of nearly $800 a month.

$2500 Credit Card Debt. Interest does not kick in until August 2013. So I plan on paying it off with monthly payments once I receive my first pay check this August. I mainly used the credit card for transitional cost of moving in, buying furniture, teacher certification costs, and other job related things.

So what should I do?
Should I pay the Parent Plus Loan aggressively? Or should I milk the loan payments and use that money toward stocks, a down payment for a mortgage (So I can rent it out), or just pay off the debt? Any help will be greatly appreciated. I am really just looking to making my money work for me, but I am unsure how.



gooki

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Re: College Grad- with a job but with some debt!
« Reply #1 on: June 13, 2012, 08:07:43 PM »
Should I pay the Parent Plus Loan aggressively?

Yes, yes you should.

gooki

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Re: College Grad- with a job but with some debt!
« Reply #2 on: June 13, 2012, 08:18:08 PM »
PS I know you weren't asking for advice about this, but can you get out of you car lease? and is biking to school an option?

alex109

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Re: College Grad- with a job but with some debt!
« Reply #3 on: June 13, 2012, 08:32:00 PM »
Getting out of the lease is not really an option. And I *Need* a car because my girl friend still goes to college out in the country where there is no public  transportation and she does not have  a car. So essentially, If I do not have a car, it will be really hard to keep the relationship viable. :)

gooki

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Re: College Grad- with a job but with some debt!
« Reply #4 on: June 13, 2012, 08:51:23 PM »
Wasn't suggesting getting rid of a car altogether. Just getting out of the lease and saving a bit of gas.

If you can drop you monthly gas bill to $75, own a car outright, and shop around for a more appropriate insurance deal you would be saving $300 a month, which could put you in a position to pay down the loan quick smart, and then save for a down payment on a house, all within your two year timeframe.
« Last Edit: June 13, 2012, 08:55:07 PM by gooki »

Skinnyneo

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Re: College Grad- with a job but with some debt!
« Reply #5 on: June 13, 2012, 09:23:50 PM »
I think gooki has great advice about freeing up some more cash from your paycheck by changing the car situtation.  That will be very valuable capital.

Should you pay off the debt and try to save?  I wouldn't do that personally.  I would bite the bullet and start paying off that Parent Plus Loan now if they are charging you interest.  7.9% is quite high and if you are trying to save and invest you will need something that makes at least 7.9% just to be breaking even. 

My advice pay down that PPL as aggressively as possible.  I would next attack the credit card as I am assuming that's going to have a really high interest rate once the 0% promotional period ends.  After that it would depend on the interest for your student loans.  If the market is doing well it might be worth it to start investing and paying the minimum on the loans.  If you are like me I hate debt and felt I couldn't start investing until I was out of debt no matter what the market (this ended up costing me actually as I missed out on the stock sales of the last few years). 

Any other funds you can free up from doing things like gooki suggested, or working 2 summer jobs for example, will just get you closer to debt free that much faster.

Trust me it seems like a long road at the first step but I was was basically in your shoes 4 years ago.  I'm now debt free and investing every month.  Stay the course.

gooki

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Re: College Grad- with a job but with some debt!
« Reply #6 on: June 13, 2012, 09:55:50 PM »
Trust me it seems like a long road at the first step but I was was basically in your shoes 4 years ago.  I'm now debt free and investing every month.  Stay the course.

I agree with it seeming like a long road.

Have you also considered refinancing that 7.9% loan. If you could borrow $21,000 at 5% that'll make a decent difference in the total interest you pay.

fruplicity

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Re: College Grad- with a job but with some debt!
« Reply #7 on: June 14, 2012, 05:47:21 AM »
I know i'm anti-mustachian on this topic but psychologically I need to be saving something at the same time as I'm paying down my student loans to feel sane. It doesn't feel great to continue to have debt long after I know I could have paid it off, but I just feel "safer" knowing I have cash ready to go in the bank, earning 2% thanks to a local rewards checking deal (started at 4% in '08 and has slowly gone downhill from there).

Not encouraging you to do the same, since the math does prove that debt repayment makes more sense than saving. Just letting you know it's what works for me.

tooqk4u22

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Re: College Grad- with a job but with some debt!
« Reply #8 on: June 14, 2012, 08:25:46 AM »
Your budget is great, keep it up and you will be fine even with the car payment.  Getting out of the lease as others suggested would be good but may not be easy or beneficial if you don't have the funds to replace your car (even with a beater).  However, you are in an urban area so look into car share services such as zipcar.

Here some suggestions
1st - save enough that you can pay off the credit card before the interest starts - that rate will be higher than the others so you NEED to have the cash for that.

2nd - you need to save a small emergency fund.

3rd - check with TFA about loan forgiveness programs, sometimes certain districts will pay off your loans if you agree to work for a specified timeframe.  You'll still have to make the monthly payments but in the end get the bulk of the principal paid will be the better trade.

4th - if you don't plan on getting a job that will wipe out your debt per above then aggressively pay off the parent loan as 7.9% is a heck of return.


alex109

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Re: College Grad- with a job but with some debt!
« Reply #9 on: June 14, 2012, 01:39:44 PM »
Thanks for the advice everyone!

Also, I forgot to say, the interest does not start kicking in for the parent plus loan until November. So that gives me time to aggressively pay of the credit card debt before hand. Also, If I teach in a low-income school district for 5 years, around half of my 27K of federal loans will be forgiven. Additionally, I am getting a free masters at John Hopkins in education for the next two years. (Essentially free, I have to pay about $2000-3000, but thats a bargin for a masters degree).

Currently, I am "pregnant" with my car, however, I love it. I am not liable for any mechanical failures  since its under warranty and the only thing I am responsible is for oil changes and so on. Plus, it gets 40mpg since its a smart car. i did the math aggressively, and it is cheaper than my older Volvo S70 which got 17MPG in the city and was prune to mechanical problems. Hind-sight-20/20, would a geo-metro be more practical, yeah. But the damage has been done. 

Plus, depending on my workload, I can probably find a 2nd job on weekends and use that toward loans. Also, I realized that Baltimore has great real-estate for renting. For example, many small townhouses can be had for $75000 and there are many students (John Hopkins) and I could also network with future teach for america teachers for tenants. So thats what I would love to do in 3 years time. Is it practical? I guess I would need to save at least 15-20k for a downpayment on the mortgage.

grantmeaname

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Re: College Grad- with a job but with some debt!
« Reply #10 on: June 14, 2012, 02:39:59 PM »
Can you get the PLUS interest deferred or paid by your region while you're doing TFA/grad school?

alex109

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Re: College Grad- with a job but with some debt!
« Reply #11 on: June 14, 2012, 03:02:04 PM »
Parent Plus loans are tricky. The obligation to pay the loan all falls under my parents. Who make enough to not qualify for deferment. Meh...