Author Topic: Long time Reader, First time Poster.  (Read 5029 times)

Echonomical

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Long time Reader, First time Poster.
« on: May 21, 2014, 08:09:09 PM »
Hi all. As a brief background: I'm a mid-twenties, FT worker that attends graduate school at night in the New England area. Additionally, I work a part-time job on the weekend. I graduate at the end of this year. Unfortunately, I chose a very antimustachian major which will likely not result in a substantial income increase upon graduation. At least, not immediately. I live with my SO who contributes half to the household. She is open to the ideas of mustachianism but isn't as eager as I am to start building for tommorrow.

Assets are as follows:
13k Cash
2k Car
5k Car
3k 401k plan after about 10 months investing the maximum amount that my employer matches.

Liabilities are as follows:
0k CC Debt (Pay it off at the end of every month)
0k Auto Loan (both cars were bought cash)
72k @ 6.8% Student Loan (With about another 10k coming this fall in order to finish my degree)

Here's my monthly income:
FT Job (after health insurance, 401(k), and taxes)   $1,970
PT Job (under the table) $624

Total: $2594

Expenses:
My half of the Household Expenses    $635.00. This includes:
Rent $355 (we share a studio/loft type apartment a 10 minute walk from the train station)
Internet $25 (no tv, just internet.)
Electricity $25
Food $120
Liquor $60
Eat Out $50

Train Pass $275.00
Cell Phone $43 (I use Straight-Talk's Unlimited Everything Plan of $45 per month and I purchase Wal-Mart Gift cards in advance off of Cardpool.com in order to save an additional 3%)
Gas to get to PT Job $25

Total: $978

Net Savings: $1616 or ~60% of my income.

My goals:
1. Pay off the student loans in 5 years or less so I can get on with my life.
2. Become FI by 40, preferably earlier.
3. Become FI with my own hard work, not any inheritances.

Things I already know:
1. Sell the cars. Working on that this summer.
2. The student loan debt is a giant, flaming emergency.
3. Send the cash to the student loans. I'm waiting until after I graduate/consolidate/deferment/etc.
4. Don't drink/eat out so much, if at all.
5. Republic wireless could lower the phone bill.

Things I am considering:
1. My SO and I moving to a nearby state with a more favorable income tax scheme and where my graduate major is in higher demand. Waiting for her to finish her degree as well.


I just wanted to see if anybody had any ideas for me. I'd like to think that I live pretty bare bones as it is. Obviously my personal budget spreadsheet is more complex with this, budgeting for items such as haircuts, shaving products, etc., but you should be able to get the gist of it with the above.

Thank you for any and all input.
« Last Edit: May 21, 2014, 08:48:44 PM by Echonomical »

Gin1984

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Re: Long time Reader, First time Poster.
« Reply #1 on: May 21, 2014, 08:14:50 PM »
Why are you maxing out your 401k, if you are taking 6.8% loans out right now?

Echonomical

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Re: Long time Reader, First time Poster.
« Reply #2 on: May 21, 2014, 08:21:50 PM »
Why are you maxing out your 401k, if you are taking 6.8% loans out right now?

The 6.8% is actually the highest rate out of all of the loans. Some of them are in the 5.4% area and inbetween. The feds keep changing the rates every year. I guess we could call it an average of more like 6%....

As I understand it, based on mustachian principles, because the market increases at a rate higher than the debt's interest rate: the money should be invested instead of used to pay off debt. Am I wrong? Is that because of the compounding interest or is it more the whole "6% in the hand is worth more than 7% in the bush" kind of logic?

Also, my employer matches. Wouldn't failing to take advantage of that fact just be leaving money on the table?

kiwichick

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Re: Long time Reader, First time Poster.
« Reply #3 on: May 21, 2014, 08:34:00 PM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

Echonomical

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Re: Long time Reader, First time Poster.
« Reply #4 on: May 21, 2014, 08:45:56 PM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more. So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.

Hamster

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Re: Long time Reader, First time Poster.
« Reply #5 on: May 21, 2014, 09:11:21 PM »
I only contribute enough to get the maximum my employer matches and not a penny more. So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
You can't beat the immediate 100% return on your matched contributions, plus the tax benefit. Keep up the matched contributions.

Not that it makes a huge difference, but you area also paying loan origination fees of ~1% on Direct Loans if I'm not mistaken  (another $100). If you're going to pay it off in 3 months anyway, that's like adding 4% to your APR.

If you have a credit card with a $10k limit, you can always use that as your emergency cushion. Not quite as safe as having $10k in cash, but maybe better than throwing away $250 for loan origination fee plus interest for just 3 months worth of security.

Hamster

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Re: Long time Reader, First time Poster.
« Reply #6 on: May 21, 2014, 09:14:27 PM »

5. Republic wireless could lower the phone bill.

You could actually save a lot more with other plans if you can control your usage. It's relatively easy to get to $10 per month or less with other MVNOs, especially since you have home internet. I'm on Airvoice (AT+T towers), and there are other options as well. You just have to own your phone, but Republic Wireless isn't the cheapest option there, either.

Gin1984

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Re: Long time Reader, First time Poster.
« Reply #7 on: May 22, 2014, 07:11:51 AM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more.
So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
Then I rescind my question!  I agree that you should be investing given you are getting a match!  :)
People here might give me a facepunch, but have you looked at private loans to get rid of the 6.8% ones?  There are some private loans at about 5-5.5% fixed (lower for variable).  It will save you just a little bit, but little bits add up.

Mint Chip

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Re: Long time Reader, First time Poster.
« Reply #8 on: May 22, 2014, 07:33:16 AM »
Am I correct in assuming at you plan to move from MA to NH? If so, be prepared to pay ridiculous electric and oil bills, and drive absolutely everywhere - in short, the cost savings that you anticipate may not be as significant as you think.

homeymomma

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Re: Long time Reader, First time Poster.
« Reply #9 on: May 22, 2014, 08:27:03 AM »
I understand the desire to have a cash cushion, but don't forget about the loan fees. They alone may make it worth not taking the extra 10K out if you're planning to pay it back immediately anyway. Assuming this new loan is again at 6.8%.
Also I'd wonder about the wisdom of selling both cars unless you're completely sure you won't need one for a job after you graduate.

hybrid

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Re: Long time Reader, First time Poster.
« Reply #10 on: May 22, 2014, 08:34:28 AM »
Your field is what exactly? Kind of odd you've shared so much except that part.

Gin1984

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Re: Long time Reader, First time Poster.
« Reply #11 on: May 22, 2014, 10:23:07 AM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more.
So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
Then I rescind my question!  I agree that you should be investing given you are getting a match!  :)
People here might give me a facepunch, but have you looked at private loans to get rid of the 6.8% ones?  There are some private loans at about 5-5.5% fixed (lower for variable).  It will save you just a little bit, but little bits add up.

This is absolutely something that I've looked into, but every refi servicer that I've found (including SoFi) has denied me for some unexplained reason. Perhaps it's because they aren't in repayment yet?

At any rate, I agree that it's something to consider and revisit in the future.

I have a question:
-Graduate Loans disbursed after June 1, 2014 (in my case mine will be disbursed in like September) are at a 6.21% rate.
-Some of my earlier 2011 loans are at 6.8% interest.
Is it worth taking the 1% loan origination hit to take out 20.5k at 6.21% in order to pay off (or in essence, refinance) the 6.8% loans? Does anybody have a calculator that could do this?

If I'm not mistaken:
20.5k + 1% = 20.705k, for a loan fee of $205
Per http://www.finaid.org/calculators/scripts/loanpayments.cgi,
20.5k@6.8% is $28,310.01 after interest.
20.5k@6.21% is $27,571.18.

The difference being more than $205, so the "refinance" is the better deal, even after an origination fee. Right?
That is why I said private loans.  Most of those don't have origination fees.  You would not do a refi, just contact discover/sallie Mae and get a loan for the $20.5.  That will mean that it goes through your school (half in Spring and half in fall) but it may be worth it for you.   For some people private loans can suck because there is not as much flexibility but I assume most of us will be paying the debt off quickly.

Echonomical

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Re: Long time Reader, First time Poster.
« Reply #12 on: May 22, 2014, 10:26:59 AM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more.
So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
Then I rescind my question!  I agree that you should be investing given you are getting a match!  :)
People here might give me a facepunch, but have you looked at private loans to get rid of the 6.8% ones?  There are some private loans at about 5-5.5% fixed (lower for variable).  It will save you just a little bit, but little bits add up.

This is absolutely something that I've looked into, but every refi servicer that I've found (including SoFi) has denied me for some unexplained reason. Perhaps it's because they aren't in repayment yet?

At any rate, I agree that it's something to consider and revisit in the future.

I have a question:
-Graduate Loans disbursed after June 1, 2014 (in my case mine will be disbursed in like September) are at a 6.21% rate.
-Some of my earlier 2011 loans are at 6.8% interest.
Is it worth taking the 1% loan origination hit to take out 20.5k at 6.21% in order to pay off (or in essence, refinance) the 6.8% loans? Does anybody have a calculator that could do this?

If I'm not mistaken:
20.5k + 1% = 20.705k, for a loan fee of $205
Per http://www.finaid.org/calculators/scripts/loanpayments.cgi,
20.5k@6.8% is $28,310.01 after interest.
20.5k@6.21% is $27,571.18.

The difference being more than $205, so the "refinance" is the better deal, even after an origination fee. Right?
That is why I said private loans.  Most of those don't have origination fees.  You would not do a refi, just contact discover/sallie Mae and get a loan for the $20.5.  That will mean that it goes through your school (half in Spring and half in fall) but it may be worth it for you.   For some people private loans can suck because there is not as much flexibility but I assume most of us will be paying the debt off quickly.

Okay. I'll look into private loans. However, there appears to be legislature contemplated that would allow borrowers with loans at older interest rates to refinance to the fed's current interest rate. However, it's not yet enacted.

Echonomical

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Re: Long time Reader, First time Poster.
« Reply #13 on: May 22, 2014, 10:28:42 AM »
I understand the desire to have a cash cushion, but don't forget about the loan fees. They alone may make it worth not taking the extra 10K out if you're planning to pay it back immediately anyway. Assuming this new loan is again at 6.8%.
Also I'd wonder about the wisdom of selling both cars unless you're completely sure you won't need one for a job after you graduate.

That's a good point, maybe just sell the one that's worth more. I know cars so it shouldn't be a problem to keep the cheap one running until it has had enough.

Echonomical

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Re: Long time Reader, First time Poster.
« Reply #14 on: May 22, 2014, 10:48:20 AM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more.
So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
Then I rescind my question!  I agree that you should be investing given you are getting a match!  :)
People here might give me a facepunch, but have you looked at private loans to get rid of the 6.8% ones?  There are some private loans at about 5-5.5% fixed (lower for variable).  It will save you just a little bit, but little bits add up.

This is absolutely something that I've looked into, but every refi servicer that I've found (including SoFi) has denied me for some unexplained reason. Perhaps it's because they aren't in repayment yet?

At any rate, I agree that it's something to consider and revisit in the future.

I have a question:
-Graduate Loans disbursed after June 1, 2014 (in my case mine will be disbursed in like September) are at a 6.21% rate.
-Some of my earlier 2011 loans are at 6.8% interest.
Is it worth taking the 1% loan origination hit to take out 20.5k at 6.21% in order to pay off (or in essence, refinance) the 6.8% loans? Does anybody have a calculator that could do this?

If I'm not mistaken:
20.5k + 1% = 20.705k, for a loan fee of $205
Per http://www.finaid.org/calculators/scripts/loanpayments.cgi,
20.5k@6.8% is $28,310.01 after interest.
20.5k@6.21% is $27,571.18.

The difference being more than $205, so the "refinance" is the better deal, even after an origination fee. Right?
That is why I said private loans.  Most of those don't have origination fees.  You would not do a refi, just contact discover/sallie Mae and get a loan for the $20.5.  That will mean that it goes through your school (half in Spring and half in fall) but it may be worth it for you.   For some people private loans can suck because there is not as much flexibility but I assume most of us will be paying the debt off quickly.

Okay. I'll look into private loans. However, there appears to be legislature contemplated that would allow borrowers with loans at older interest rates to refinance to the fed's current interest rate. However, it's not yet enacted.

It's not looking great.
Discover's rate is worse than the Fed's.
Capital One has stopped doing student loans.
Citizens offers a 5.5% rate but only on 5 year term loans

It's starting to seem pretty obvious that I should just pay cash for my final semester and look into refinancing my current balance upon graduation. Thanks for all of the help on the student loan problem.

How do my expenses and everything look?

Gin1984

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Re: Long time Reader, First time Poster.
« Reply #15 on: May 22, 2014, 10:54:30 AM »
You've got it right - contribute to your 401K plan to get the employer match.

You say you're taking out another $10K to cover the rest of your studies, yet have $13K in cash. I would use those savings instead of taking out further loans. Though this of course depends on how small a savings cushion you are comfortable with.

I only contribute enough to get the maximum my employer matches and not a penny more.
So basically 1/2 of my 401k is free money.

It's more of a savings cushion thing. Either I take out a $10k loan for tuition and pay $10k cash after I graduate 3 months later or I just use my $10k cash to pay for tuition. Tomayto, tomahto (this phrase doesn't work too great on the internet...). The differences in end results is what, $150 in interest paid? Ehh, I can see where you're going with that. Maybe it could teach me to be a little less risk-averse in order to save $150... Thanks for the input.
Then I rescind my question!  I agree that you should be investing given you are getting a match!  :)
People here might give me a facepunch, but have you looked at private loans to get rid of the 6.8% ones?  There are some private loans at about 5-5.5% fixed (lower for variable).  It will save you just a little bit, but little bits add up.

This is absolutely something that I've looked into, but every refi servicer that I've found (including SoFi) has denied me for some unexplained reason. Perhaps it's because they aren't in repayment yet?

At any rate, I agree that it's something to consider and revisit in the future.

I have a question:
-Graduate Loans disbursed after June 1, 2014 (in my case mine will be disbursed in like September) are at a 6.21% rate.
-Some of my earlier 2011 loans are at 6.8% interest.
Is it worth taking the 1% loan origination hit to take out 20.5k at 6.21% in order to pay off (or in essence, refinance) the 6.8% loans? Does anybody have a calculator that could do this?

If I'm not mistaken:
20.5k + 1% = 20.705k, for a loan fee of $205
Per http://www.finaid.org/calculators/scripts/loanpayments.cgi,
20.5k@6.8% is $28,310.01 after interest.
20.5k@6.21% is $27,571.18.

The difference being more than $205, so the "refinance" is the better deal, even after an origination fee. Right?
That is why I said private loans.  Most of those don't have origination fees.  You would not do a refi, just contact discover/sallie Mae and get a loan for the $20.5.  That will mean that it goes through your school (half in Spring and half in fall) but it may be worth it for you.   For some people private loans can suck because there is not as much flexibility but I assume most of us will be paying the debt off quickly.

Okay. I'll look into private loans. However, there appears to be legislature contemplated that would allow borrowers with loans at older interest rates to refinance to the fed's current interest rate. However, it's not yet enacted.

It's not looking great.
Discover's rate is worse than the Fed's.
Capital One has stopped doing student loans.
Citizens offers a 5.5% rate but only on 5 year term loans

It's starting to seem pretty obvious that I should just pay cash for my final semester and look into refinancing my current balance upon graduation. Thanks for all of the help on the student loan problem.

How do my expenses
and everything look?
You are doing better than me! :)
I think paying cash would be good and if an emergency comes up, you can get loans then.  I'd keep one month's expenses in savings, personally. It looks that even once you finish you can pay all your bills and pay the debt down even with your current job.  Personally, I think you are doing great!