Net worth of -200k due to student loan debt.... not even sure where to begin

[jessopresso]

Hi all,

I am a 30 yo female working as a Physician Assistant. Single, no kids. I currently live in Nevada. I will preface this post by saying that prior to this year I was willfully ignorant of my finances and have **just recently** become acutely aware of the dire situation I am in.

Income-
AGI: $108,000

Debt:
180k Stafford/GradPlus student loans
20k private student loans
8k credit card debt

Savings:
~$1500 (mainly an emergency fund...)

No money towards retirement. Currently I pay $1200 towards student loans (minimum payments only basically). I lease a new car. Basically my whole life is antimustachian. I have been using YNAB for the past month, which has been incredibly sobering. I feel trapped in a life I don't want. I am willing to do whatever it takes to turn this ship around, but am not sure where to start.

My question is this- where do I start putting my money? Credit cards? Then do I save for retirement or put all the money towards loans? My loans are currently not refinanced, and I can get a 6-7% fixed rate without a co-signer currently.

Any advice would be much appreciated.

[Lews Therin]

We'll need a lot more info, write a case study, and you'll be able to get detailed information on how to best get a handle on your finances.

http://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

[marty998]

Cancel lease on car if you can and go carless, pay off credit cards ASAP.

We need to know rates on student and private loans to give proper advice there.

1st step is always to stem the bleeding.

[ShoulderThingThatGoesUp]

You make a lot of money, so this is very doable. Post your expenses in a case study and you'll have a plan figured out soon.

[cincystache]

Agreed that full case study is needed

Your chosen profession is awesome, as is your income. You can essentially get a job anywhere you want.

A lot of rural or under-served areas are hungry for qualified doctors and PAs. Many offer student loan repayment in return for a 5 year commitment. This isn't public service loan forgiveness, I'm talking make a deal directly with a hospital system, get it in writing.

I would consider moving to a very low cost, rural area for at least 5 years to take advantage of student loan forgiveness programs.
Rent a super cheap apartment(under $700 per month) within walking distance to your workplace (no car)
Cut your expenses to a bare minimum (I'm thinking 2,000 per month or less)
If you need a car occasionally to visit family or whatever just rent one for a weekend.

Max out your 401k and IRA during these 5 years and put the rest of the money towards paying off your credit cards and whatever loans won't be covered by your employer.

In 5 years you will be completely debt free, have about 120,000 in retirement accounts plus or minus market gains/losses and a huge income.

Not as bad as it feels but you need to make some drastic changes. You have a ton of good options to get ahold of your finances.

[Del Griffith]

Just wanted to add -- the fact that you are bringing yourself to this awareness already puts you ahead of the game. This would be a great spot to bury your head in the sand, but you aren't. It takes time and effort and sacrifice and dedication but it is absolutely doable. A snapshot of your finances right now is going to look drastically different than a snapshot in five years if you take action now. It's not the easiest of roads, but it will be so worth it as your see your balances go down and then eventually go away. Keep at it -- good luck!

[MishMash]

Just a word of encouragement, I also had 6 figures in student loans when I started out (in the 100's range) and a much lower income at first.  I still managed to pay them off so it's fully possible with some changes!

[Laura33]

Case study!  We can't really tell you where to put your money or cut back without more details.  Like what are the interest rates on your loans/CCs?  How long are you locked into that car lease for?  Are you eligible for any public service loan forgiveness programs?  Etc. 

With no other data, I would say:

1.  Knock out the credit cards ASAP.
2.  Pile up the emergency fund to cover (a) a potential move (assuming you are in a $$$ apartment and/or may want to consider relocation) and (b) a cheap-ass car as soon as your lease is over.
3.  Make sure you have disability insurance.  Check your loan terms to make sure they are discharged if you die -- if you have cosigners, they might be on the hook, in which case a cheap term life insurance policy would be good.
4.  Do 401(k) match.
5.  Knock out private student loans -- nothing good can come from them.

But YMMV -- there is a specific payment/investment order that folks here tend to advocate.

[jessopresso]

First- thank you so so so much for your help and feedback. It gives me hope and courage on this journey! Here it goes:

Assets:
Job: Primary Care Physician Assistant in Nevada.
Income: $115,000 (pre-tax)
AGI: $108,000
- I currently do not have an IRA or a 401k. My current employer also does not offer one or contribute a match. I do not have any investments. I am eligible for loan forgiveness- total of $50,000 for a two year commitment in an underserved area as a PA. I have not fully explored my options before (I valued living in an overpriced city more than paying off my loans, tbh), but am now willing to do so.
- Total savings: $1,500
Total money coming in per month after taxes: $6,888

Debts:
Student loans:
Private student loan (undergrad) : ($170/month- current payment)
     - $21,000 @ 5% variable interest rate
Federal student loans (PA school): ($1059/month- current payment on an “extended” payment plan)
     - $111,700 @ 7.65% variable interest rate
     - $69,900 @ 6.5% variable interest rate
Car: leased Mini Cooper S 2015 (face punch I know.....) with monthly payments of $362. The lease total is for 40 months- which will be on April 28, 2018. I AM willing to sell this car/ do a lease takeover. Total lease payoff currently Feb 2017 is $24,430.65.
Personal Loan: $6,000 @ 10.96% APR, monthly payments of $280/mo
Total Debt: $233,031

Month-to-Month Spending:
Rent: $1,175
Cable: $40
Cell phone: $90
Student Loan payments: $1,229
Car Insurance: $136
Car Payment: $362
Personal Loan: $280
Variable Spending (gas, groceries, medical): $500
Luxury spending: $550 (eating out, nails, makeup, hair, travel, vacations, clothes, etc.)  Am currently tracking in YNAB to get a better picture on where all my money seems to go....
Personal Growth
Spending: $500 (therapy, books, etc.)
Total monthly spending: $4,862

I am 30, single, and have no kids.

My question is- which loans should I prioritize paying down first? Should I save for retirement too or just focus on paying my loans down? I am also in the process of looking into moving to an area where I can decrease my cost of living and apply for a job where I am eligible for the $50,000 loan forgiveness in exchange for 2 years of work. This is not an option for me until July 1, 2017. I know that luxury and personal growth spending really have to go.

Any feedback appreciated!!

[The Happy Philosopher]

Physician here. Your first step it to learn everything you can about student loans and figure out what the best course of action is. RePAYE, refinance, consolidate, etc. Do not pass go, do not collect $200 until you know student loans better than anyone else on this forum and can teach them what to do. Your loans are your biggest expense by far, give them all your attention. Here is a good place to start.

http://whitecoatinvestor.com/what-should-i-do-with-my-student-loans/

WCI has dozens of articles on student loans. Read them all.

Next, figure out cheaper transportation. Get out from under this one and get a 5-10k used car that is new enough to be reliable (as a PA you need a decent reliable car most likely, unless you can walk or bike to work) but old enough to be depreciated a bit.

Next knock out that personal loan.

Next start building your assets. At 115k I would do a traditional IRA. I find it unbelievable though that your employer doesn't offer some sort of retirement plan. If you get the money in by tax day you can call it a 2016 and take the deduction.

Good luck.

[aschmidt2930]

Put your extra cash towards the highest interest loan and work your way down.

With rates like these, I'd focus on the debt before doing any investing.  The good news is, your income is strong and since you live in NV, I'm assuming it's a fairly LCOL area.

The luxury spending and personal growth spending needs to be cut quite a bit.  For the books, try the library, most have a surprising amount of personal growth books.  Can the rent be reduced?  Seems a bit high for NV.  Look into Republic Wireless for your cell phone if Sprint gets good coverage in your area.  It seems like you realize the car is a problem. If it's feasible to get out of the lease, do it.

[clarkfan1979]

I'm surprised that so many people are suggesting to move to a low cost of living area. I don't think it's that simple.

You get points for living in Nevada with no state income tax. Good job.

I don't think you have to move. However, if you do decide to move, I would move to a HCOL area to maximize your salary potential. When it comes to rent, get a roommate. You will also have to shift your activities to free activities. Many free activities in big cities.

Besides rent and the car, I would reduce your personal growth category to $100/month. The most important thing for personal growth at the moment is to pay down your debt to a manageable level.

Congratulations! Your life just dramatically changed by finding MMM.

[Lews Therin]

Ok. Very first step. 90$ on cell phones?!!

Look up I.P. Daley communication sticky on the different options, you should be able to cut that down to 10-20$ a month without any issues.

The car is the second point, You are not in a good enough shape to go for a 25k car, start looking at a reasonable car at 10-12k max to buy.

For the student loans, adding a 25k per year to your salary (debt forgiveness) is a huge bump in salary, and if you can find a position with anywhere close to your current salary (or around 10k difference) it will be extremely useful to switch to a position that would allow the forgiveness. Changing for a older & Cheaper car will both lower your payment and your insurance costs. You need that reduction.

You should not be saving anything (apart from a small emergency fund, and I mean small) since you have no matching funds from your company.

You have loans at 11% (#1 priority for repayment) - So it is exactly the same as a 11% guaranteed return on your investment.

next is the 7.5%; and so on starting with the highest %%% not the ones that can be removed the fastest. With 230k in debt, you want to optimize every dollar spent, so using the "snowball" (removing the easiest loans) is not the way you should go.

Right now, If you can put your head down for two months, you can kill the CC bill. You are saving 2 grand a month without any cuts, so with the cuts, and reducing the spending for 2 months you'll be able to get out from under the CC and re-evaluate what you are willing to go without until these debts are more reasonable.

Keep giving updates with the car/cell phone and more detailed spending as you track them.

Finally, just to give some motivation, you already are "saving" almost half your salary. With your high salary and some changes, you'll be able to get out from all this debt!

[ringer707]

I know you've already said luxury spending/eating out expenses need to be slashed, so I won't restate the obvious there. I would take the money saved from cutting those expenses down and throw that towards the personal loan with the highest interest rate. Obviously the car situation needs to change, which you know as well. Your car insurance seems high to me though; perhaps just because it's a new car or the area you're in? I'm paying $75/mo for full coverage on two cars- 2012 and 2013 Hyundais. Maybe there are some cheaper options available or this will go down naturally once you have a different car.

In the meantime, are your federal loans eligible for income-based repayment? It may be worth it to switch to an income-based plan, which should save you a little money each month, while you clear out the personal loan and solve the situation from the car. Obviously, this would not prevent you from putting extra money towards the principal of those loans once you've gotten rid of the personal loan, or you could just switch back to a different plan then.

I would triple-check the rules on your loan forgiveness though before doing that. I know that for my loan forgiveness, I'm required to be on an income-based plan. I wouldn't want to steer you on to the wrong track!

[OthalaFehu]

It is not about the size of the debt, it is about debt management.

Kill your smallest loans first, accept that you federal loans are a mortgage payment, you just don't get a house :)

Keep reading PF blogs, there are lots of stories, my own included, of people overcoming hugs amounts of student loans

Know that you chose well, PA is a good career move and worth the $ in the long run.

Breath, it will all be OK

Unless you start to obsess about FIRE don't worry about spending money on eating out or making yourself feel like you look good, those things have value even if mustachians make fun of you for it.

Setup some automatic plans (deposits & payments, both in and out) autopilot is a great way to start dealing with debt.

[J_Stache]

I agree with Clarkfan.  Moving to an under served area may result in a pay cut that makes the $50,000 loan forgiveness less appealing. 

[Laura33]

First, do what frugaldoc says:  investigate all the requirements for those loans -- and the debt forgiveness options.  If you can knock out $50K for 2 years of work, that will clearly work in your favor even if you have to take a small paycut.  But until you figure out your real options, you don't want to do something that will limit you.  This is your top priority -- it sounds like you have a few months before you could move, which is enough time to really dive in and figure out your best options and apply for new jobs if appropriate.  And don't worry:  if the loan forgiveness options don't work out financially, you make *plenty* of money to tackle this on your own!  You will get there!

In the meantime, you list both a credit card and a personal loan.  Those are going to have the highest interest rates and would not be affected by any loan forgiveness, so your goal before any move is to get both of those paid off.  They are leaching the blood right out of you.  Throw all available cash at them -- no eating out, no treats, until they are gone.

Once you have a decision whether to stay or go, your next task is to set yourself up with as low fixed costs as possible.  You are probably spending $2K/mo. on housing and transportation, once you factor in gas and maintenance.  That's a lot of dinners out, you know?  If you want to be able to afford the small luxuries, you can't afford the big ones of a cool car and fancy apartment -- and vice-versa (and right now, you can't afford either! :-)).  So look at other apartment options for when your lease is up and see if you can cut a few hundred bucks off that lease.  See if you can find one close to work so you don't have to drive as much.  On the car, I don't know if it makes financial sense to get rid of the car right away -- do the math on that.  If not, then I'd say once you get the credit card and personal loan gone, throw $1K/mo. into a car fund for 5-6 mos. so once the lease is up you can afford a reliable beater.  And then throw the rest at your highest-interest-rate loan.

I think a year from now, you will see a huge difference -- you will be set up with low fixed expenses, you will have a plan and be tackling that debt, and you will feel like you can breathe again.  So just stick with it -- you're on the right track here!

[AlmstRtrd]

Lots of good advice so far. In your situation I would make building up an emergency fund a top priority along with opening (and funding) a 2016 traditional IRA. That will help reduce your taxes for 2016. Next step is to kill the CC debt which is likely costing you 18% interest or so.

The reason I would put the emergency fund so high on the list is that with only $1,500 saved, you are essentially living paycheck to paycheck.

The good news is that you have a great income and you are not waiting until it's too late to deal with this. Good luck! Once you pluck a lot of the low-hanging fruit, I think you'll be amazed at how quickly your financial situation starts to look a LOT better.

[Kansas Terri]

I see that other people are giving you great advice on how to save, but I also see that not many people are telling you a FAST way to save money.

A FAST way to save money starts with the kitchen. This is also known as "How to eat well without eating fast food"

So. To start with, let's look at thick, meaty sandwiches. With lettuce and tomato and onion and such. All you need to do is to bake up an inexpensive ham or an on-sale roast or whatever, slice it thinly, and keep it in the fridge so that you can conveniently make sandwiches in the AM. Also make salads a mixing bowl at a time so you can put veggies on the sandwich and also have an easy salad at night. Because nobody really feels like cooking when they get home and their feet hurt.

Speaking of dinner, some folks swear by crockpots, though I never quite got the hang of it. You put the food in in the morning and you come home to stew.

Since I was cooking for a family I always put a big chunk of FROZEN meat in the oven and set the timer. It takes HOURS for a big chunk of meat to thaw, an then the oven comes on. That way the meat never has a chance to even BEGIN to spoil, and leftovers are just a meal I do not have to cook. I would come home to a hot main  course and then I would microwave a bag of frozen veggies or some potatos.

Shop at inexpensive places. Aldi's Is great for that, but the selection is poor. So I shop at Aldi's some weeks and other weeks at a different store.

Lastly, keep some instant meals for those days when every thing goes wrong. For instance, I am painting a bedroom so we had frozen pizza last night There WILL be days when you cannot make a home cooked meal.

[jessopresso]

Wow guys. Thank you so so much for you helpful responses.

frugaldoc- love your website! Thank you for all the information and links. Goals now- become an expert on the in-and-outs of my student loans, as well as potential options for repayment/loan forgiveness.

Will post an update in about 6 months once I am able to pay down the high interest loans first and establish a three month buffer of living expenses by aggressively cutting costs!!

Jess

[pbnj]

Your take home pay is $6888 and expenses listed $4862, where is the other $2026?  Did I miss something?

[Sid Hoffman]

Cancel lease on car if you can and go carless, pay off credit cards ASAP.

Maybe you can do that in Australia, but in the USA a lease is a contract.  You cannot "cancel" a lease except by buying the car from the lease-holder or transferring the lease to someone else.  So some ways to do that are to buy it outright for cash, buy it with a car loan, or trade it in to a dealer, thus the dealer buys the car and rolls untold thousands of dollars of negative equity into your next car loan.  There's websites like SwapALease or Leasetrader to try to find someone to take over your lease, but there's no guarantee with those that you'll find anyone to take over your lease.

Bottom line: you can't just cancel a lease.  She's only 14 months from fulfillment and the payment isn't totally unreasonable for a small, sorta fuel efficient car under warranty.  It may be worth shopping for a new car but often you'll take a more painful hit to trade a lease in early than to just ride it out.  She's still going to need a very reliable car and that could be $200/month between payments and calculated maintenance.  Remember that a leased car is under warranty and generally costing you $0 in maintenance and repairs.  A used car, even if it's $150/month in payments, could easily cost you $50/month in upkeep and repairs when amortizing expenses over the long multi-year picture.

So the difference between $200/month for an old used car and the $362 lease payment is $162/month, or a total of $2268 over the next 14 months to lease-end.  I view $2268 as a small amount relative to the >$200k total debt picture.  The way I see it, she'll have enough change going on already and leaving the car alone for now gives the ability to come back to that next March/April when the lease is up and she won't have as much going on financially-speaking, so it will be easier to make a solid long-term decision, either old used, CPO, and just a cheaper new car to keep for the long term, like a $19k Corolla that you keep 15 years.

[Paul der Krake]

Totally doable.

You could have living expenses of $2,500 that give you a somewhat cushy lifestyle, and drop every single extra dollar in the debt repayment bucket. You can be done in 8-10 years. Faster if you really go to town on those bad boys.

[Beriberi]

It can be hard to get good salary information in the medical field, especially when you are new and don't have personal contacts.  However, a few things I have learned -

COL does not correlate with the salary of medical jobs the way it does for many other careers.  I work in a HCOL area and make far less than I could in a more rural environment. At least for physicians, city jobs are hot commodities, and they can pay far less.

The fact that you have no retirement makes me think you are an independent contractor.  You need to learn how to work your status.

[Beriberi]

I got interrupted writing that.

I have worked both as an IC and as an employee.  I don't think most people understand how to make the IC status work well for them (all the deductions) and it ends up being far less lucrative than employee status.  There are compliance costs (filing your quarterly returns and possibly paying someone to prepare them.) You can SEP-IRA, which gives you a lot of room to save for retirements, but no more than 25% of your salary.

Also, loan repayment has never seemed that great to me. It is income, you are taxed on it. I have had offers with 10-20k/year of repayment. However, those offers seem to be 10-20k lower than similar offers.

Anyway, when you look for new positions, really try to get an idea of the value of the whole package, not just the hourly rate.

[opah]

At 115k I would do a traditional IRA.

While the tIRA is normally great advice for people without a 401k or employer matching, this is probably not going to work for the OP.

Tax-deductible tIRA contributions phase out way, way before this income level for a single person. For 2017, the phase out begins at $62k AGI and ends at $72k. Even if the OP maxed out an HSA and 401k, none of their tIRA contributions will be tax-deductible.

At this income, it's better to do a 401k if available, and then the Roth IRA.

https://www.fool.com/retirement/2016/11/05/ira-income-limits-for-2016-and-2017.aspx

[WackyTomato]

Month-to-Month Spending:
Rent: $1,175
Cable: $40
Cell phone: $90
Student Loan payments: $1,229
Car Insurance: $136
Car Payment: $362
Personal Loan: $280
Variable Spending (gas, groceries, medical): $500
Luxury spending: $550 (eating out, nails, makeup, hair, travel, vacations, clothes, etc.)  Am currently tracking in YNAB to get a better picture on where all my money seems to go....
Personal Growth
Spending: $500 (therapy, books, etc.)
Total monthly spending: $4,862

I don't want to sound like an a-hole but... seriously?...

Honestly, it's more about controlling yourself than anything else.  "Luxury spending" of approx $550 and "spending" of $500 a month when you are -200k in debt??  $90 cell phone?

I have minimal sympathy for you, honestly...

[NoStacheOhio]

At 115k I would do a traditional IRA.

While the tIRA is normally great advice for people without a 401k or employer matching, this is probably not going to work for the OP.

Tax-deductible tIRA contributions phase out way, way before this income level for a single person. For 2017, the phase out begins at $62k AGI and ends at $72k. Even if the OP maxed out an HSA and 401k, none of their tIRA contributions will be tax-deductible.

At this income, it's better to do a 401k if available, and then the Roth IRA.

https://www.fool.com/retirement/2016/11/05/ira-income-limits-for-2016-and-2017.aspx

No deduction limit for singles who aren't covered by an employer plan

https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

[DirtDiva]

Fellow PA here.  Have you thought about a second job to make a bigger dent?

I've had some cushy second job gigs that made it much easier to save and to pay off student loans.   Check the websites of nearby hospitals and inpatient psych units. 

[The Happy Philosopher]

Month-to-Month Spending:
Rent: $1,175
Cable: $40
Cell phone: $90
Student Loan payments: $1,229
Car Insurance: $136
Car Payment: $362
Personal Loan: $280
Variable Spending (gas, groceries, medical): $500
Luxury spending: $550 (eating out, nails, makeup, hair, travel, vacations, clothes, etc.)  Am currently tracking in YNAB to get a better picture on where all my money seems to go....
Personal Growth
Spending: $500 (therapy, books, etc.)
Total monthly spending: $4,862

I don't want to sound like an a-hole but... seriously?...

Honestly, it's more about controlling yourself than anything else.  "Luxury spending" of approx $550 and "spending" of $500 a month when you are -200k in debt??  $90 cell phone?

I have minimal sympathy for you, honestly...

Did she ask for sympathy?

[opah]

At 115k I would do a traditional IRA.

While the tIRA is normally great advice for people without a 401k or employer matching, this is probably not going to work for the OP.

Tax-deductible tIRA contributions phase out way, way before this income level for a single person. For 2017, the phase out begins at $62k AGI and ends at $72k. Even if the OP maxed out an HSA and 401k, none of their tIRA contributions will be tax-deductible.

At this income, it's better to do a 401k if available, and then the Roth IRA.

https://www.fool.com/retirement/2016/11/05/ira-income-limits-for-2016-and-2017.aspx

No deduction limit for singles who aren't covered by an employer plan

https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

Ah, thanks! Forgot about that!