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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: burkenstash on June 03, 2013, 10:07:39 AM

Title: Newbie w/ large debt; new job on horizon
Post by: burkenstash on June 03, 2013, 10:07:39 AM

I've been reading through all the great info on the site for several weeks now, and wanted to introduce myself, ask for help, and seek encouragement to keep going (growing?). 

I'm a 26 year old with a BSME, currently in a Sales Engineering position.  My lovely wife, also 26, has a psychology degree, and works for a non-profit.  I've always been smart with my money for the most part, and under normal circumstances, I like to think we'd be well on our way, but for a large amount of student debt.  In my struggle to stay afloat, I've scoured 'net, and now i'm here. 

Current Salaries: 46,800 (his) / 28,600 (hers) = 75,400
Student Loan Debt: 32,000 (his) @ 2.93% / 97,000 (hers) @ avg. of 5.5% = 129,000

This is the part that really kills me.  4 years at separate private universities, and here we are; headed nowhere fast.  The thought of still paying off our loans in 20 years sickens me. 

Savings: ~$11,000 cash.  No investments. 
Our monthly take-home is ~$4,300

Rent:  $924
Student Loans: $875 -- 300/mo. to mine, and the remainder is interest only for my wife's loans. 
Grocery: $550 -- we eat as cleanly as possible; mostly paleo (fresh product/meat/nuts/fruit only)
Fuel: $450 -- we both drive ~30 min. to work in opposite directions each day. 
Gym: $233 -- i'm prepared to be scolded for this one.  We both go to a CrossFit box 6 days a week,  and take advantage of discounts for both being a couple, and paying 3 months in advance.  (233 = $700/3).  Between eating cleanly and training hard, I am strong, lean, and extremely healthy.  This is a tough one to put a price tag on ... but we'll see.  I'm open to suggestions!
Auto Payment: $220/mo. on my wife's Jeep. 
Mobile: $190 -- 3 smartphones on a shared date plan + discount through work (wife, myself, family member)
Utilities: $110/mo. average -- electric for cooking; heating
Vehicle Service: $70 -- i build this in each month, and roll over the balance to cover oil changes, etc.
Insurance: $75 for 2 cars
Internet: $65 covers both high speed internet and basic cable.  Cancelling cable only would cause this to go up.  (thanks, Comcast). 
Alcohol: ~40/month.  I brew my own beer, and we will occasionally buy a bottle of wine once a month or so

Tithe, personal care, eating out once a month (@ ~40 for sanity), cat food/litter, hair cuts, etc. brings the total to ~$4,000 in expenses each month. 

My wife drives a 2007 Jeep Liberty.  [We owe $4,300 @ 7.38%]
I drive a 1992 BMW 325is.  [this one owes me nothing at all] 

I currently have a new job on the horizon that would potentially give me a 15% bump in pay, in addition to better benefits.  The downside is it's ~75 miles from our current apartment, as opposed to the ~25 miles that I drive now.  Moving closer to the new job would obviously be better, but i'll never be within biking/walking/close distance without my wife leaving her current job. 

I estimate that the commute from our current location would cost me at least 150/wk., and would eventually require that the Bimmer be replaced.  She's at 218k, and would need some work to keep going for longer than another year or so.  I can handle the labor, but the repairs would soon be nearing the total value of the car. 

I feel very trapped, and somewhat at a loss.  I have no qualms with biking, but there are no foreseeable jobs in a field worth pursuing in my area that are close enough to bike to.  Moving would also require that both my wife and I get new jobs at the same time, which is difficult to orchestrate.  I yearn to have a house, where I can flex my engineering mind, and diy skills to their fullest, but given the current size of our student loans, I just don't understand how a down-payment can ever happen.  Clearly, the only way to get out of this debt is to either earn more, and/or spend less.  I'm working on spending less, but it seems as though earning more creates more problems when you factor in a commute, or move to a higher cost-of-living area. 

Any thoughts, words of encouragement, and help is greatly appreciated!

Title: Re: Newbie w/ large debt; new job on horizon
Post by: ghaynes on June 03, 2013, 10:33:03 AM
Your main issue is your wife's income. Is there potential for this to rise quickly in the future? Seems crazy to take out $97K in student loans to get a job that pays ~$13/hr. High school students are making more than this. I would really work on seeing what else is available for her since you are going to have a hard time paying down this student loan debt.
Title: Re: Newbie w/ large debt; new job on horizon
Post by: Rebecca Stapler on June 03, 2013, 10:41:11 AM
We are currently working ourselves out of very high SLs. The first thing that strikes me is that you are paying interest only on your wife's loans, which is not just a bad idea in and of itself but is compounded by the fact that, because she is working for a nonprofit, she could get those loans forgiven in 10 years if she's on the right repayment plan. For any of those loans that are federal loans, get them on Income-Based Repayment ASAP. Start the process tonight. It might take 3 months, so the sooner you start the better. If the loans aren't already consolidated, it might actually take 6 months to get her going on IBR. The benefit to you is a little forbearance on the payments while the loan servicer gets its act together to get her on the plan. This is going to raise your monthly expenses, but if you really really need to pay interest-only on a loan, it should be yours -- because you won't get the PSLF benefit. Although, I would cut the CrossFit before paying interest-only on my SLs.

The other big issue, which you already identified, is your car situation. You are each driving an hour RT to/from work. What is the gas mileage on that Jeep? Does your wife really need a Jeep? I'm not sure what the road conditions are like where you live, but our Prius does fine in the snow when we have snow tires on her. It might be wise to look into another car -- particularly because the car payment at 7% is high.

The third budget item that can be trimmed are your groceries. If either of you have an interest in "couponing," you can put a big dent in that budget and maybe be able to afford that CrossFit membership while still paying down some loan principal. Start with Stephanie Nelson's The Coupon Mom's Guide to Slashing your Grocery Budget. We are a "clean"-eating family, and save 30-40% off our groceries each trip. For a family of 3, we spend $520/mo in our HCOL area. Guessing from your rent, I'd say you don't live in a HCOL area, so you can do better than us!

As to feeling stuck, I totally get it. We also feel really stuck because of our loan payments. We also felt stuck geographically, but we had a robust emergency fund that allowed us to move when only my spouse had a job. I picked up work 2 months after moving, and finally landed a permanent FT job that pays the bills + a little more 9 months after that. Now, we slashed our budget and are working our asses off to get the loans paid down. (although, my spouse also works for a non-profit, so that federal loan is hopefully going to be paid off in 8 years by the PSLF program)

You can do it -- and putting your spending into a budget is a great start.
Title: Re: Newbie w/ large debt; new job on horizon
Post by: Rebecca Stapler on June 03, 2013, 10:43:05 AM
Your main issue is your wife's income. Is there potential for this to rise quickly in the future? Seems crazy to take out $97K in student loans to get a job that pays ~$13/hr. High school students are making more than this. I would really work on seeing what else is available for her since you are going to have a hard time paying down this student loan debt.

Actually, her low income might be a big benefit to you if you don't mind filing taxes separately. Weigh the pro's and con's -- the lower taxes if you file jointly versus the savings on IBR payments if you file separately.

Also, does her school or non-profit, or your state, offer loan repayment assistance for people working in public service?
Title: Re: Newbie w/ large debt; new job on horizon
Post by: TrulyStashin on June 03, 2013, 10:48:21 AM
I have massive student loan debt (law school) so I get it.  But honestly, there's plenty of fat here that you can cut if you work toward "constant optimization." (search for MMM's post on that).

First, if you get the new job then you guys need to move to within biking distance of the new job.  Wife should job hunt to be within biking distance of a new job for her too. 

Second, sell both cars and get one of the Top 10 Cars for Smart People (or something like that -- see blog post here). I recently switched from my 2001 Maxima (26 MPG) to a 2007 Prius (45+ MPG) and am saving at least $120/ mo just in gas.  That's $21625 over 10 years at 7% investment return.  You should have only one car.  The BMW might be paid for but repairs on those sucker-cars are a nightmare.  Ditch it.

Third, ditch the expensive cell phone plan.  There's lots of info here on how to do that.

Fourth, I'm a family of 3 and my son is 16.  My grocery budget is $350/ mo and I stick to it.  We eat well.  If I can feed a 16 year old boy on that, you can certainly trim yours.

Fifth, (or maybe first) ditch the Crossfit.  That's a luxury and when your in a boiling pot of lava, you can't put your money into any luxuries.  Besides, when you're bike commuting, you won't need Crossfit.

That's a solid start on the no wussiness MMM way of living.  Good luck!
Title: Re: Newbie w/ large debt; new job on horizon
Post by: Another Reader on June 03, 2013, 10:53:42 AM
In your shoes, I would pay off the Jeep yesterday.  You can re-build the emergency fund from the savings.  I would say the Cross Fit has to go, I can't afford that right now.  I would do what I could to cut the groceries and other expenses.  The phones are too high, and subsisizing a relative is not in the budget.

I agree with getting your wife's income up.  Are there no other better paying jobs for her skills and experience?  Can she and/or you get some type of side work to make up for her anemic salary?

Moving to an area where the pay is better should be explored.  Doubling the wife's income and upping yours by a lower percentage would make a huge difference.  Give this some thought.
Title: Re: Newbie w/ large debt; new job on horizon
Post by: mlipps on June 03, 2013, 10:56:32 AM
For as much driving as you do, you could probably save a lot by trading the Liberty for something more fuel efficient, and also have the benefit of getting something more reliable. Jeeps aren't exactly known for reliability & typically get worst in class fuel mileage. We sold our Liberty and got a Toyota Matrix a few months ago and are SO happy with the decision.
Title: Re: Newbie w/ large debt; new job on horizon
Post by: burkenstash on June 03, 2013, 11:36:18 AM
Wow! Such great replies in no time at all.  Thank you all.

Firstly, all but ~7k of my wife's loans are unfortunately private, and held by Sallie Mae.  We are currently exploring loan forgiveness programs, but unfortunately a Bachelors alone in Psych. puts her in a difficult spot.  The nature of the loans also limits what government options are out there.  We have another 1.5 years of Interest-Only repayment before our total moves up closer to $1,400/mo. 

My loans are also private, as my alma mater does not participate in receiving any federal funds (large case back in the 80's, Title IX, etc ...).  Using direct debt, I was able to get under 3%, so these have moved to the bottom of the list of priorities. 

We've absolutely discussed a higher-paying career for my wife.  She is looking for something that fits her background, but does not require a Masters, or additional schooling.  Taking on more debt makes me very, very uneasy at this point. 

Groceries -- I've been gradually trying to cut this down, however when i saw we eat "clean", I am referring to seasonal vegetables, meat, fish, avocados, eggs (oh, do i eat eggs), sweet potatoes, fruits, and some nuts.  These types of foods typically fall outside the realm of coupons, however I do stick to whatever is currently on sale.  Lately, i have been able to add back in some cheap staples for energy -- such as oatmeal, and brown rice on occasion.  I will continue to do this more and more.  Fall/Winter also opens up large batches of stews, soups, etc, which help me cut down and use the cheapest of cuts. 

The Jeep is absolutely on the top of my list.  I've been playing with the numbers, trying to decide how much to take from savings and put towards the loan.  We're a little nervous to get too low, however, since we're looking maybe at job changes for both of us in the very near future.  I want to get it paid off, then look towards selling/trading. 

How low is safe for safety/emergency fund purposes?  3k? 5k?

The BMW is old, but i know the car like the back of my hand.  I can perform all of my own repairs, and parts are readily available for really not much money. The e36 chassis is a joy to work on as an engineer, so i'd like to keep it on the road as long as possible.  It will also allow me to save money to pay cash for my next vehicle -- since I thought the idea was not to purchase any car via a loan?

The cell phones can definitely be cut after our plan runs out.  We pay my mother's portion of the cell plan mostly as a thank you, and general repayment for her being awesome, birthing me, paying half my college tuition, and putting me up for 2 years after college.  Say what you want, but picking up her small cell phone tab is the least of what I owe to her.  But point taken. 

Any resources on researching filing separately for tax purposes?  I would most certainly evaluate the pros/cons. 

I estimate housing will increase by ~$300 if we moved closer to a new job (Philly suburb), however the fuel/vehicle costs should easily outweigh this. 

Title: Re: Newbie w/ large debt; new job on horizon
Post by: MorningCoffee on June 03, 2013, 12:24:37 PM
Focus on what's in your control right now. All you're doing is treading water, with a net worth of -$122,300. With only $300 monthly left after spending, it would take you well over 30 years just to get to a positive net worth, never mind any retirement savings. You need to figure out how to reduce your cost of living. Once you decide on the new job, move close to work, find cheaper rent, cut car expenses and luxuries until you're back in control of your finances. You can't afford your current lifestyle.