Author Topic: Reader Case Study-- Should I pay my Husband's Student Debt?  (Read 24507 times)

LilithPaul

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Reader Case Study-- Should I pay my Husband's Student Debt?
« on: August 11, 2014, 10:48:27 PM »
My husband accrued substantial debt before we met. In order to achieve our financial goals, is it necessary for me to help him to pay his student loan debts?

His student loan debt is comprised of four private loans, totaling at about $60,000, each borrowed at 4%. The minimum monthly payments on all four loans is $469.

Our budget is attached.

N

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #1 on: August 11, 2014, 10:55:37 PM »
I dont know if its necessary.
You dont know what your goals are yet, really.

But I wonder why you  wouldnt help pay them.

Do you currently keep your own incomes to yourself and spend only on yourselves?
Do you currently agree on how to spend both of your incomes?

If your husband got a raise, or say, doubled his income, would you expect him to share that income with you?

If you decide to be home with your future children, or you cannot work for a health reason, should he support you?

If he decided to be home with the children, would you support your family? Would you pay him a salary or give him an allowance?

What vision do you have for your financial relationship? For your future?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #2 on: August 11, 2014, 11:06:12 PM »
Do you currently keep your own incomes to yourself and spend only on yourselves?

Yes.

Do you currently agree on how to spend both of your incomes?

It's evolving. We meet our obligations every month, and then we decided individually what to do with our discretionary income. This may have to change if we want to buy a house or have kids.

If your husband got a raise, or say, doubled his income, would you expect him to share that income with you?

Not under our current arrangement.

If you decide to be home with your future children, or you cannot work for a health reason, should he support you?

Being a stay-at-home mom isn't in the cards for me, considering our income bracket ($72,000). If we had major health issues, oh boy. I do have a very good death and dismemberment policy through my workplace.

If he decided to be home with the children, would you support your family? Would you pay him a salary or give him an allowance?

If I COULD support the family, I would. I doubt I could do it on $37,000.

What vision do you have for your financial relationship? For your future?

I'd like to buy a house and have a child within the next five years, but I'm having a difficult time figuring out how to get there.


N

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #3 on: August 11, 2014, 11:19:46 PM »
Thats just a totally different mindset and way to operate from how I do it, that I guess my advice wont be useful in your situation.

Maybe there are other people on the forums who maintain private finances within their marriages who can share how that works for them.


KMMK

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #4 on: August 12, 2014, 04:44:32 AM »
If you're not sharing income I wouldn't share personal debt either - it has to be both. I didn't support my husband when he went back to school (financially) and he doesn't pay a higher percentage of the bills now with his higher salary. Our arrangement was to keep individual risks separate.

Bbqmustache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #5 on: August 12, 2014, 04:46:26 AM »
We maintained separate checking accounts for the first 7-8 years of our marriage.  Hesitatingly, with a lot of worries, we combined forces.   Now, we would not have it any other way.  Marriage for us is a partnership in every way.  This step might be scary, but I highly recommend it for the long term health of your marriage.

Other posts have covered my answer to the original question much better than I could have done.

chasesfish

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #6 on: August 12, 2014, 05:31:38 AM »
I'm not going to be good advice here either, my spouse and I merged our finances 10 years ago.  We jointly paid the student debt regardless of who was working how much and income levels. 

I personally believe in treating everything as joint and then making financial decisions directed at maximizing net worth.

wtjbatman

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #7 on: August 12, 2014, 05:53:04 AM »
So he currently has a lot of student loan debt, and one day you would like to buy a house and have children, but his substantial debt makes that difficult if not impossible?

Sounds like you already answered your own question. You're married, you're (supposed to be) a team. Work on this together, just like you will when buying a house and having children.

Fatmouse

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #8 on: August 12, 2014, 06:24:12 AM »
Slate.com had a very interesting serious of articles on this topic a couple of years back.

If you do e-books, the series is available here:
http://www.amazon.com/dp/B0051GT8U6/ref=as_li_ss_til?tag=slatmaga-20&camp=213381&creative=390973&linkCode=as4&creativeASIN=B0051GT8U6&adid=017E82NRY12NEQJTSCE6

If you don't want the e-book, you can read the articles on Slate.  Here is the first one:
http://www.slate.com/articles/life/home_economics/2011/01/our_newlywed_money_dilemma.html

It is a really well researched and thoughtful series.  Interviews many couples with many different approaches.  Addresses people's preferences in different age groups and income levels.  If I remember, the basic conclusion is that separate finances work for some people, especially if they have similar incomes and expenses.  It tends not to work for couples with children.

Interesting topic!

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #9 on: August 12, 2014, 06:30:37 AM »
Frankly, merging finances was not the answer I expected when I originally posted "Reader Case Study-- How to Adult?". But my mind is open, and as the majority of folks in this community advocate for this radical change, I'd like to pick your collective brain for best practices. 

What kind of financial transparency should I make a condition of merging our income? What conditions and boundaries should should be set? How do we maintain trust and accountability with joint finances?

For example, my husband likes to gamble. I have no idea how much money he spends this way. Should he be required to quit this hobby, or simply make it transparent? My husband also goes to the pub twice or more a week as it is the center of our social network-- I go maybe three times a month. Does financial responsibility require us to become hermits? Do we handle different spending patters by allocating an allowance for leisure activities?

A legal note on debt (although I understand it is largely irrelevant to achieving financial independence): We married in Virginia, where debt accrued before marriage does not become the legal responsibility of the partner.

A note on my own personal failings as a partner: I resent how my husband spent the money he borrowed for college. He spent a lot of the money on parties, stereo systems and even a car for a now ex-girlfriend.

Cpa Cat

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #10 on: August 12, 2014, 07:12:19 AM »
What kind of financial transparency should I make a condition of merging our income? What conditions and boundaries should should be set? How do we maintain trust and accountability with joint finances?

Full financial transparency. Set a budget together and keep track together.

Quote
For example, my husband likes to gamble. ... My husband also goes to the pub twice or more a week as it is the center of our social network-- I go maybe three times a month. Does financial responsibility require us to become hermits? Do we handle different spending patters by allocating an allowance for leisure activities?

I like allowances. Then he can gamble and do what he wants. Regarding the pub: Keep a budget line item for the times you go together. Anything in excess gets folded into the allowance.

Ok, so I said full financial transparency above, but the truth is, I don't keep track of my husband's "allowance". He even has a seperate credit card. I don't care. I don't need to count those pennies or cast judgment on where that money goes. As long as the amount - in total - is within the budget that we set together, then it doesn't matter.

To be clear, I do not dole out his allowance like his mommy. He and I looked at our budget and decided how much we should get. We decided what amount was reasonable for our wasteful, discretionary spending and then we split it in two.

Bbqmustache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #11 on: August 12, 2014, 07:20:29 AM »
I'm a big fan of budgets for everyone.  In it, you can place some of the income into a Blow category for his gambling, and maybe "pub money" for your pub visits.

You both agree on the amounts going into these accounts, and you or he is free to use all the money in the category every month.  BUT, spending in these "fun" money things NEVER goes above the agreed amount.

You've got to track spending too, and for the first two months, it will be rough.  A couple hot discussions, and some "wow" moments ("We spend that much on ....")

But by the third month, you'll begin to see the long term benefits of a cash flow plan. 

We use YNAB, and love it!  Check my blog for a link.

pom

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #12 on: August 12, 2014, 07:26:07 AM »
My DW and I keep our finances separate, she has student debt of about 48k€.

One difference from what I see on your spreadsheet is that we pay common expenses on a pro-rata basis. As I earn 40% more after taxes, I pay 40% more than she does. That is what my parents did and they were happily married for over 40 years.

It is not all that different from what Cpa Cat does, main difference is that we each keep control of our investments. She likes to buy individual stocks and I mostly buy index funds, keeping things separate allows her to gloat because so far she has done better than me.

Think about moving to a pro-rata basis, it has some advantages. When one of us has a raise, we both benefit. If she decides to stay at home for the baby then I will automatically pay all common expenses.

sheepstache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #13 on: August 12, 2014, 07:28:18 AM »
I think you must have full financial transparency either way, whether you combine finances or not.  You don't need to peer at each transaction, but you could have a monthly check-in about what your account balances are, what your joint net worth is, etc.  That's one idea. 

Related to your other thread, I don't think you listed the husband's gambling as an expense?  How much are we talking about?

Related to your other thread, I can see how putting money towards the house rather than his student loan debt could be attractive.  Some people might still end up being resentful because they'd feel like they had paid for the house, but whatever works for you.  Note that both of you paying off the debt is mathematically the best way to do it.  Because the sooner it gets paid off, the less interest is paid.  Just something to consider.

Is your husband on board with the goal of financial independence or even cutting back on expenses?  If you're cutting out the nytimes subscription and art classes and other things you enjoy but he's not cutting back on bar visits or gambling, then your putting money towards his debt doesn't seem like it would work out emotionally, combined finances or not.  In that case I'd think you'd want to keep your own separate FI stash and let him take care of his own business.  But that's what I'm doing so I might be biased.    (Not sure if you've read Early Retirement Extreme, that's also what the guy there does.)

dandarc

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #14 on: August 12, 2014, 07:30:15 AM »
In my experience, gambling and financial success do not compute.  Maybe your husband has better self-control than I do, but I can say for sure that I did not start making significant financial progress until the gambling problem was reigned in (getting married helped with that a lot for me).  That needs to be a very small part of the budget if he continues to do it at all.

Agree with CPA - set an allowance for each of you to spend on whatever.  If there is no limit, the discretionary budget tends to expand to the amount left over after paying your other expenses.  This is the reverse of how it should be - limit all expenses, including your discretionary spending, then throw whatever is left-over at your big financial goals - get out of debt, save for house, early retirement, etc.  I find it helpful to only work on one of these big goals at a time as well.

I know this seems silly - how can putting the big goal at the bottom of the list make it a priority?  What it does is show absolutely clearly how what you choose to spend on other than the big goal affects your progress.  Your budget discussion with your husband might be something like "wow, we aren't throwing enough extra at the debt - maybe we should cut our allowances some, or cancel a subscription, or find ways to save on groceries so we can throw more at the debt."  The key is to both be fully on board with the grand plan - then sacrificing some spending to reach those goals will be a lot easier.

neo von retorch

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #15 on: August 12, 2014, 07:32:58 AM »
A Vote For Separate Finances

When you combine finances, you basically say "let's agree and/or compromise on every single thing we spend." Well, unless you have already come to agreement on every single thing you spend, I don't think you're ready to combine finances. Put your money together on the things you already agree on. (I'm sure you already do this in splitting your necessary expenses.) If you combine finances, but continue to disagree with how the money should be handled, you're introducing conflict plus the additional emotional burden of seeing "your" money being used in ways that you may not fully approve of.

Of course you should have open communication and strive for transparency. That's the groundwork of relationships, before you even get into financial discussions. If you come to agree on all of your future goals together, then start to think about whether a combined strategy of debt pay off, retirement investment, savings and home purchase make sense for the two of you. (You could probably pay very little taxes with the proper combined tax-deferred strategy.)

kendallf

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #16 on: August 12, 2014, 07:38:59 AM »
You have had a bunch of people weigh in on the side of shared finances, so I thought you ought to hear from someone on the other side.  My wife and I have separate finances, and it's been a good decision (likely a marriage saver) for us.

In a perfect relationship, we'd share, have full transparency of every expense, yada yada.  For many years, in fact, we had shared finances when I made almost all of our income and our daughters were younger.  Neither one of us were very smart with money but we were broke together.  :-)  When my wife finally graduated from college and got a good paying job, my money was still "our money", but her money was "her money".  She paid the bills from "our money" but tended to criticize my expenditures, while I didn't even have access to her accounts.  That didn't go well. 

Eventually I took back my bank accounts and split off a few bills for her to pay.  Our bills and our expenditures are still not split evenly, but I don't really care, because we are both clear on the fact alluded to by several people above: we're still in it together for the long term, and our actions collectively help or hinder us toward those goals.

Taking away the day-to-day transparency alleviated the fights over small spending, and we still periodically look at our overall finances (tax time, retirement accounts, etc.).  One of the consequences has been increased frugality and responsibility on both our parts; we can't blame the other one for the joint account balance.  :-)

A few thoughts: I think this would only work well with both spouses bringing in somewhat equitable income (or at least more than basic expenses).  Big inequities in income or spending patterns breed resentment.  More generally, we want our spouses to be partners, contributing to our goals.  Currently I am renovating our old house after finishing the house we moved into last year.  My wife does not help with this work.  Sometimes I resent this, but shared effort eases my feelings.  She went down and mowed the grass at the old house this weekend, and that made me happy.  Stuff like this may be petty, but it's real.

Good luck working through this; apart from the money it's a relationship and partnership issue you'll have to address.

Malaysia41

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #17 on: August 12, 2014, 07:43:12 AM »
I can't imagine having separate finances from my husband.  But like others have said, I guess I'm just not in your shoes.  I recommend doing this:

1. Together: Identify your goals (Where do we want to be in 5 yrs, 10 yrs, 30 yrs?)
2. Figure out what needs to be done to get there.
3. Agree to a plan, and a frequency to sit down and review the plan (every 3 months works for us).

You could each read Your Money or Your Life.  (Or the audio book which is an easy 2.5 hours).

As for the resentment / baggage: the gambling and drinking and past profligate ways of your husband are worrisome, however, as you know, nagging and holding a grudge are counter-productive.  If he can agree to an allowance for these types of things and stick to it, you can stay on your side of the street and feel okay (actually support) his amusements.

Good luck!

dude

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #18 on: August 12, 2014, 08:27:22 AM »
For example, my husband likes to gamble. I have no idea how much money he spends this way. Should he be required to quit this hobby, or simply make it transparent?

Huge red flag there.  You're considering forking over your hard-earned money for HIS student loans while he fritters away some of HIS money on gambling?  Gambling?! No f@#$&ing way I'd do that, personally.  Then again, I could never partner up with a gambler.

HAULIN3

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #19 on: August 12, 2014, 08:46:52 AM »
wow....  this is an eye opener... I guess I never thought that people get married and do not "become one" in all ways including finances..  What's his is mine and what is mine is his.. I'm very lucky that when I think of trust in a relationship, financial trust is just a give.. I have never once thought that he would spend or give or lose money in any way shape or form that I didn't know about.. all I can say is wow....

minimustache1985

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #20 on: August 12, 2014, 09:28:31 AM »
Frankly, merging finances was not the answer I expected when I originally posted "Reader Case Study-- How to Adult?". But my mind is open, and as the majority of folks in this community advocate for this radical change, I'd like to pick your collective brain for best practices. 

What kind of financial transparency should I make a condition of merging our income? What conditions and boundaries should should be set? How do we maintain trust and accountability with joint finances?

For example, my husband likes to gamble. I have no idea how much money he spends this way. Should he be required to quit this hobby, or simply make it transparent? My husband also goes to the pub twice or more a week as it is the center of our social network-- I go maybe three times a month. Does financial responsibility require us to become hermits? Do we handle different spending patters by allocating an allowance for leisure activities?

A legal note on debt (although I understand it is largely irrelevant to achieving financial independence): We married in Virginia, where debt accrued before marriage does not become the legal responsibility of the partner.

A note on my own personal failings as a partner: I resent how my husband spent the money he borrowed for college. He spent a lot of the money on parties, stereo systems and even a car for a now ex-girlfriend.
My husband and I still have semi-separate finances, in that we haven't combined accounts yet.  I think the very first step you need is transparency, especially given that you don't know what he spends on his gambling hobby.  The way we have handled this is setting up a mint.com account that imports ALL of our accounts so we can both log in and see what is going on, and I highly recommend that as a starting point even if you decide not to combine.

And no, you don't need to be hermits, but look into cheaper entertainment.  Invite friends over for drinks- grocery store beer is far cheaper than bar beer, and you still get to socialize.  Go on walks with friends and meet up to play soccer in the park.

N

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #21 on: August 12, 2014, 09:37:59 AM »
Things can change over the course of a relationship-obviously. Lifestyles change.

When I was 25 and my husband was 35, we went out to bars 2-3 x a week, got take out, went to sit down restaurants, went to casinos...we were not mustachian, we had no savings, we played a lot and had a lot of fun. we also developed credit card debt and lifestyle creep, and hedonic adaptation :)

When I got pregnant, at 29 and his 39, I managed to save 3 months of my salary to replace my post-birth leave. We now had a mortgage and still had cc debt. By this time, no more casinos, of course, I stopped going to bars and drinking (pregnant), and he had cut back to one night out, Fridays.

In the intervening years of then and now, we made a ton of mistakes. we werent mustachian and we didnt communicate all that well about finances.
I also never went back to work, which was both of our priority.

But, although husband still goes out Fridays, many things have gone by the wayside. Golfing, poker nights, going out to the movies, dinners out all the time. Much of it is money related, but also time related. With two kids, he spends more time at home with the family.

Since I found mustachianism, and we pretty much hit rock bottom with our finances and are rebuilding now, we are both on the same page. he isnt as excited as me (read: unexcited) about saving money or optimizing spending...but he's pretty much going along with it.

Gambling and Drinking (a lot?) can be red flags. But they can also be part of someone's youthful past.

Does your husband want to graduate to Adult? Where is he in all this?

TrulyStashin

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #22 on: August 12, 2014, 09:45:06 AM »
RE:  finances/ debt/ marriage/ divorce and the legal issues thereof...... Fellow lawyers out there, check my memory (I'm not a family lawyer so going off memory of bar prep!)

It doesn't matter where you married.  If you divorce, your assets/ debts will be divided based on the laws of the state you're living in if/ when that happens.

swick

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #23 on: August 12, 2014, 09:51:20 AM »
My first thought upon early reading (before you mentioned the gambling) was take it on together.

Now, I think you need to have a very frank discussion with your husband. The idea that he pay his debt and you save the same amount for a house is okay in theory, but it would probably still lead to some resentment. The bottom line is, if he is drinking and gambling a significant amount then you, by contributing any money, are supporting it. It doesn't really matter where you tell yourself the money is going. In the long run I think this would have a very negative impact on your relationship.

And it is not okay for you to give up everything you love (paper and art classes) if he isn't - unless you do have completely separate finances and you do it to make YOUR nest egg grow.

I think there are a couple of options -

A - Both commit to being on the same page financially and work through creating a budget TOGETHER. Have those frank discussions about hobbies and interests. Do include some "Fun money" that you don't have to account for.

B - Be very upfront about your desire for completely separate finances and go into detail about what that would look like - both now and in the future. If your goal is to retire early, your hubby needs to know that and what life might end up looking like if he chooses to keep spending and having to work to pay for it.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #24 on: August 12, 2014, 09:52:18 AM »
Does your husband want to graduate to Adult? Where is he in all this?

Husband dearest, do you want to chime in? ;-)

He has been following the thread with interest.

Some corrections from him: he did not buy a car for his ex-girlfriend, he helped her with the down-payment (to the tune of $250).

Unfortunately, he also informs the debt is $74,000-- a full $14,000 more than I thought it was!

Nothing like airing your dirty laundry in semi-public to get the truth! ;-)

bako_frugal

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #25 on: August 12, 2014, 10:12:37 AM »

A note on my own personal failings as a partner: I resent how my husband spent the money he borrowed for college. He spent a lot of the money on parties, stereo systems and even a car for a now ex-girlfriend.

To me this was the most telling sentance from what you have said.  If there is any resentment, please do no even think about paying off this debt.
My SO divorced, I would never ever think about paying a cent of his debt from his divorce.  Debt with emotional ties is not the same as something that has neutral emotional baggage.  (i.e. in my case I would help with current issues, family, etc, but not anything from the divorice or prior). 

There is an emotional side to money.  Emotions cannot easily be put on a ledger, but do not discount them and go straight with the numbers on something like this.

For my 2 cents.  Keep everything separate, but both start keeping transparent budgets.  You should know how much your SO gambles, etc.  My thoughts are in a partnership there should be transparancy, not lumping.  :)  It's much to easy to hide details when you lump.

mak1277

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #26 on: August 12, 2014, 10:42:23 AM »
This one hits very close to home for me.  Before (and immediately after) my wife and I were married, I lived a lifestyle very similar to what you describe for your husband.  I had about $50k of student loan debt, CC debt, loved to go out to bars and loved to gamble.  When we got married we kept separate bank accounts from our pre-married days, but agreed that all future income would immediately go to a joint account.  Then my wife set out to destroy my CC and student loan debt.  It became her mission, and consequently became MY mission as well.

Someone above said that by combining finances you (OP) would be funding his gambling/drinking habits.  On the contrary...if you don't like that behavior, combining finances is a great way to curtail it.  Make him accountable for the money he spends.  There may be some short-term frustration, but for me at least, it quickly became a situation where my values shifted towards my wife's, and I stopped leaking cash everywhere.  Now we are in a great situation, discussing FIRE in a very realistic way.  I know without a doubt that we wouldn't be in this situation if I had kept my own account, without accountability to her.  I'd have continued blowing the money I made in ways that would have been detrimental to my 'stache and to our marriage.

DoubleDown

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #27 on: August 12, 2014, 10:47:49 AM »
I would not even consider paying anyone's debt, my wife included, if they were not aggressively working to pay it down themselves a-la MMM "Hair On Fire Debt Emergency" mode. That means NO discretionary spending (let alone gambling or anything like that) -- every available penny goes toward paying off that debt.

Then, IF they were working aggressively themselves towards paying it down, I would only contribute towards paying it off with a written, signed agreement declaring that every cent you paid by you towards the debt is repaid to you (or counted in the division of assets) in the event of a divorce. No one should find themselves in the situation of paying off tens of thousands of debt of the other party, only to end up divorced and it counts for nothing. No one wants to believe their marriage could end, but tell that to the nearly 50% of married people that ended up in a divorce. 50-50 odds of losing all the money paid to the debt is far too high to gamble on (no pun intended).

Imagine giving your money to a broker to invest, with a 6% rate of return if things go well, but 50% of the time you are wiped out, left with Zero -- no one with any sense would even consider it.

Bob W

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #28 on: August 12, 2014, 10:53:19 AM »
Great Post!

I suggest you read the MMM post on "Your Hair is on Fire"

You jointly have a lot of debt.   In the MMM world the idea is to kill debt with a focused attack.

That in mind, thank you for providing your budget, you have lots of low hanging fruit to give you leverage over the debt.

Your Discovery, Cells, gym, newspaper, internet, eating out, soccer, season tickets, 401 and art classes equal about $1,050 per month.   

Here are my suggestions -  Focus on paying off Discovery first -- even get deferrals on your low interest student loans if possible to help.

Switch cells to Republic and save $50 a month on that.  Easy peasy.
Cancel gym if not under contract.   Easy
Newspaper cancel - hey radio and broadcast TV are free!
Internet gone -  again free at library or at wifi hotspots
eating out --- no, no, no
Soccer, season tickets, art classes gone, gone, gone.   Parks are free,  exercise is free,  paint is cheap

401K is hard to say,  if you're getting a substantial match, you probably want to keep contributing.

Those changes may seem extreme or even difficult for you but remember most of the readers here have already done this and feel pretty good about it.   

Once the Discovery Card is done it is time to focus on the Student Loans.

In my very humble opinion 4% interest is a great rate and I wouldn't pay them off.  I would instead dedicate a fund named "Student Loan Debt."   It would be a very nice, low management fee mix of funds that have averaged 10% over the long haul. 

I would then have your husband contribute as much as he can to this.  If you want to gift him a matching amount that is up to you.  At that rate it is still a 5 year trek.

Then in the next 2 weeks figure out how to boost your income by $1,500 per month.   The math is pretty basic.  $1,500 a month is about $400 a week divided by the two of you is $200 per person per week.  At $10 per hour it would be 20 hours of work per week per person. 

It could be OT at work,  switching jobs,  pizza delivery,  waitressing/waitering,  lawn mowing,  anything you can think of.  Just figure out what works and set a hard core goal of $1,500 per month.

At that rate you will be attacking at $2,500 per month and be able to collect 60K in 2 years. 

At that point with your 60K in investments and 55K remaining on the student loans put the deal on auto pay with the monthly payment automatically coming out of your investment account.   MMM would say write the check and pay it off but it is up to you.   I like to keep debt that is below 5%. 

After 2 years you will begin saving at the rate of 30K per year with no debt.  You can even throw in a few minor luxuries if you like.

Other parts of your budget look pretty solid.  Your monthly food bill is admirable in fact. 

If you are focused, frugal and dedicated at your income you could be retired in 12-15 years.

Remember to consistently work both sides of the equation --- Lower your expenses,  increase your income.   

I know it sounds like a very long journey, but we know you can do it!   Take some steps today,  some this week and have most of the steps in place within a month.

Good Luck and thanks again for the post!

zhelud

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #29 on: August 12, 2014, 11:28:39 AM »
If you're going to merge finances (which you might as well do if you're going to start contributing to pay down your husband's debt), it is essential that you both agree on your eventual goals and how you are going to get there. Your jointly agreed on budget can include "fun money" for each of you to spend as you wish without explanation or argument, but he should keep his spendy activities (bars, gambling, etc) in that category. If he is not ready to do that, you should probably keep separate finances and let him deal with his own debts for now.

NoraLenderbee

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #30 on: August 12, 2014, 11:43:50 AM »
As I mentioned in the "How to Adult" thread--your current budget has $1500 in income unaccounted for every month. That's 1/3 of your income. You'll never make progress if you don't figure out where it's going. Before you think about combining finances or cutting out luxuries, you both need to track your spending--all of it--and then have a very frank talk about ALL of it.



Total Current Outlay Monthly   Monthly   -$1,495.840   -$1,487.020   -$2,982.86   -$35,794.32
Total Current Income Monthly      $2,407.74   $2,080.00   $4,487.74   $53,853
Total Free Monthly      $911.900   $592.980   $1,504.88   $18,058.56

Cheddar Stacker

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #31 on: August 12, 2014, 01:40:57 PM »
Does your husband want to graduate to Adult? Where is he in all this?

Husband dearest, do you want to chime in? ;-)

He has been following the thread with interest.

Some corrections from him: he did not buy a car for his ex-girlfriend, he helped her with the down-payment (to the tune of $250).

Unfortunately, he also informs the debt is $74,000-- a full $14,000 more than I thought it was!

Nothing like airing your dirty laundry in semi-public to get the truth! ;-)

Your SL debt is higher than your income. That is true of many people, but they are called recent college graduates. You guys are around 30 right? It's time to get your shit together. I love beer and gambling, but my beer budget is $10/week and I get my gambling fix by taking an aggressive approach to investing in the stock market.

It doesn't matter what you spent the money on, it's a sunk cost that can't be erased. Focus on what you can do to fix it.

When you posed this question I almost answered immediately with "combine finances and pay it off". I'm glad I waited to post, because when I look at both threads together and consider the bars and gambling, I wouldn't consider combined finances and paying the debts off unless you are both willing to make a few "adult" decisions regarding your budget.

I'll say what I said in the other thread, you are spending nearly 20% of your take home pay on beer, newspapers, coffee, gym/soccer, etc. That needs to change if you want to take your finances seriously.

swick

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #32 on: August 12, 2014, 02:02:45 PM »

Someone above said that by combining finances you (OP) would be funding his gambling/drinking habits.  On the contrary...if you don't like that behavior, combining finances is a great way to curtail it. 

I meant by combining finances as they are now. It is the same as as choosing to "help out" offspring who can't afford to buy food and make rent, but still go out and buy the latest shoes or go to clubs or indulge in a vice.

You can rationalize that you are helping them with "rent" but you are really funding their habits and are enabling them to make poor financial choices.

JoyBlogette

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #33 on: August 12, 2014, 02:34:21 PM »
Our approach was combined finances based on % of income (95% combined - 5% for personal no-questions-asked spending).  So far this has worked great for us, but we didn't have any debt.

I agree with PP that if the debt has an emotional component for you, then you should NOT help pay it off.  Resentment has no place in a happy marriage.  Don't invite it in.  If helping to pay off the debt will help to get your hubby on board with your future financial plans, then it may be worth the investment.

Angie55

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #34 on: August 12, 2014, 02:54:05 PM »
I'm on the opposite side of the majority of recommendations. If you are in it together for the long haul pay off the debt. I'm thinking you may be having conflicting feelings about paying it off for other reasons, maybe his lack of jumping on board and desire to become more "adult". When I was in super debt payoff mode I had reservations about paying "his" debt before "my" debt. Because what if it didn't work out? It wouldn't be fair If we paid all of his first and I was left with mine just because his loans had higher rates. I eventually got over it. But it was a lot easier since his loans were about double the rates. We weren't married at the time but we essentially were in every way but paper.

The way I see it, since it does stir negative emotions why keep it around? The sooner its out of your life the better. You will no longer be annoyed by the payments every month for something you deem a result of poor choices.

pipercat

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #35 on: August 12, 2014, 03:00:56 PM »
My husband accrued substantial debt before we met. In order to achieve our financial goals, is it necessary for me to help him to pay his student loan debts?


Emphasis added.  If the debt prevents you from reaching goals that you truly both share, then you should pitch in to help pay it off.  It will benefit you just as much as him.  If he doesn't really share your goals, then that's a different story.

Your DH's prior spending priorities wouldn't really matter much to me.  It seems sort of like punishing him for something that he did long before you were even in the picture.  His current attitude and spending habits would certainly matter, though!  I think you need to have a heart to heart conversation about goals and how you can work together to reach them.

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #36 on: August 12, 2014, 03:03:08 PM »
No.

okashira

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #37 on: August 12, 2014, 03:23:46 PM »
Does your husband want to graduate to Adult? Where is he in all this?

Husband dearest, do you want to chime in? ;-)

He has been following the thread with interest.

Some corrections from him: he did not buy a car for his ex-girlfriend, he helped her with the down-payment (to the tune of $250).

Unfortunately, he also informs the debt is $74,000-- a full $14,000 more than I thought it was!

Nothing like airing your dirty laundry in semi-public to get the truth! ;-)

She's called you out; man up and post something!
Beware, there was a guy with a gambling problem who posted a thread on FWF; I wiped the floor with him.




LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #38 on: August 12, 2014, 07:49:26 PM »
Dear Mustachians,

Your thoughtful comments have informed a long conversation between my husband and I. We have arrived at the attached hypothetical budgets, and the following financial goals.

First, for those with questions that have been left unanswered: I am 27, and my husband is 29. We have each been employed full-time at salaried positions for just under 2 years. Before, we were under-employed, and this kind of financial planning (agency! choice! living in a stable environment!) still feels like a miracle. Our combined income is $72,000 a year. We have been married for just over 2 years.

Budget #1 includes a path to:
(1) Open joint checking and savings accounts (wow, I never thought I'd see the day).
(2) Pay off the $74,000 student debt in 5 years by contributing equally to the (accelerated) payments. We plan to use my contribution to "powerball" the highest interest loan first.
(3) Save $50,000 in joint savings in 5 years. At the mid-point, we will likely return to hear your thoughts on investing this savings.
(4) Continue to save 10% of my income in a private 401(k) retirement plan. This plan is not matched by my employer. Should I do something else with this $$?

Budget Option #2:
(1) Open joint checking and savings accounts
(2) Pay off the $74,000 student debt in 10 years by contributing equally to the payments.
(3) Save $50,000 in joint savings in 30 months. This would go toward buying a house and having children.
(4) Stop payment into my 401(k) retirement plan. Retirement plan would be revisited after 30 months of hard-core savings.

Both budgets would be accomplished in the same way, by making the same lifestyle changes:
(1) Selling one car for scrap (she won't pass inspection, anyway).
(2) Eliminating much of our luxury spending, including: daily NYT delivery, gym membership, home internet access, Netflix.
(3) Shopping around for a cheaper cell phone plan, cheaper dog food and cheaper car/ rental insurance.
(4) Purchasing our luxuries (art classes, indoor soccer teams, bar and restaurant spending) out of individual allowances of $200/mo. each.

In your opinion, which budget is optimal?

My husband’s financial goals seem to be limited to getting out from under the debt. My goals are to buy a home and have children in the next 5 years.

pipercat

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #39 on: August 12, 2014, 08:06:50 PM »
I like budget #2. Kudos to you both for moving forward with this conversation!

N

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #40 on: August 12, 2014, 08:39:29 PM »
# 2

pom

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #41 on: August 13, 2014, 02:19:23 AM »
My choice of 1 or 2 would depend on the interest rate that you pay on the student loans. Consider if an investment can easily earn you more than that rate. I would say that any loan above 5% should be paid before you start saving above what is needed for emergencies.

I would personally contribute to the 401(k) in both options, however at your tax rate level it is more or less neutral. When you move to the 25% tax bracket, and you are almost there, then it becomes a no-brainer in my opinion.

I would be careful about making the purchase of a house a top priority, it has been the pitfall of too many. Keep in the back of your mind that while lodging is a necessity, owning a house isn't.

rmendpara

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #42 on: August 13, 2014, 03:57:01 AM »
Dear Mustachians,

Your thoughtful comments have informed a long conversation between my husband and I. We have arrived at the attached hypothetical budgets, and the following financial goals.

First, for those with questions that have been left unanswered: I am 27, and my husband is 29. We have each been employed full-time at salaried positions for just under 2 years. Before, we were under-employed, and this kind of financial planning (agency! choice! living in a stable environment!) still feels like a miracle. Our combined income is $72,000 a year. We have been married for just over 2 years.

Budget #1 includes a path to:
(1) Open joint checking and savings accounts (wow, I never thought I'd see the day).
(2) Pay off the $74,000 student debt in 5 years by contributing equally to the (accelerated) payments. We plan to use my contribution to "powerball" the highest interest loan first.
(3) Save $50,000 in joint savings in 5 years. At the mid-point, we will likely return to hear your thoughts on investing this savings.
(4) Continue to save 10% of my income in a private 401(k) retirement plan. This plan is not matched by my employer. Should I do something else with this $$?

Budget Option #2:
(1) Open joint checking and savings accounts
(2) Pay off the $74,000 student debt in 10 years by contributing equally to the payments.
(3) Save $50,000 in joint savings in 30 months. This would go toward buying a house and having children.
(4) Stop payment into my 401(k) retirement plan. Retirement plan would be revisited after 30 months of hard-core savings.

Both budgets would be accomplished in the same way, by making the same lifestyle changes:
(1) Selling one car for scrap (she won't pass inspection, anyway).
(2) Eliminating much of our luxury spending, including: daily NYT delivery, gym membership, home internet access, Netflix.
(3) Shopping around for a cheaper cell phone plan, cheaper dog food and cheaper car/ rental insurance.
(4) Purchasing our luxuries (art classes, indoor soccer teams, bar and restaurant spending) out of individual allowances of $200/mo. each.

In your opinion, which budget is optimal?

My husband’s financial goals seem to be limited to getting out from under the debt. My goals are to buy a home and have children in the next 5 years.

I'll take a different approach.

First step: Try staying committed to a budget for 6 months and see how you do. Review your performance each month, learn from your mistakes, and hopefully you can earn a "passing" grade by the end of 6 months. (this includes increasing the loan payments and living and saving targets)

If you can't do step #1 correctly, the rest frankly does not matter.

You are absolutely correct that once you have saved $25k.. or some other midpoint-ish target.. that you can start thinking about level 2 type things (investing).

If you can't get control of your budget, the rest is toast.

Good luck! Glad you are trying to get on the same page.

Phil_Moore

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #43 on: August 13, 2014, 05:42:56 AM »
I would be careful about making the purchase of a house a top priority, it has been the pitfall of too many. Keep in the back of your mind that while lodging is a necessity, owning a house isn't.

This was the alarm ringing faintly in my head through both threads.

OP - If one of the main goals is to buy a house make sure to do the maths on the breakeven point between renting/buying where you live. In some markets it makes little sense to buy, especially if it means moving to an area which is going to necessitate more expenses.

Bbqmustache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #44 on: August 13, 2014, 05:58:39 AM »

If you can't get control of your budget, the rest is toast.

Good luck! Glad you are trying to get on the same page.


This hits the nail on the head.  Use Excel, MINT, YNAB or something to tell your money where to go.  Give every dollar flowing through your hands a job to do and make those dollars work FOR you.

The process will be rough first, as you get adjusted to having a plan for your financial future.  Maybe three months of regular budget meetings, with lots of tweaks and adjustments.   

As to the order of debts, I like the debt snowball approach (My post about it here): http://wp.me/p3Ktae-23

A 401K with no match does not do too much for you, other than automating your retirement savings before you have the chance to spend it elsewhere.  If you folks have this big hot student loan debt mess, maybe dedicate this money to that effort, and when they are put to bed, consider using your combined funds to open Roth IRAs before investing in an unmatched 401K.

My 2 cents.


minimustache1985

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #45 on: August 13, 2014, 10:47:09 AM »
I'd probably pick a combination of the two plans, but either is good as long as you can stick to it (evaluating how you're doing with it routinely will be important).  I also think the interest rates are critical- if they're high put the unmatched 401k contributions towards the highest interest rate in either plan to knock those out ASAP without impacting the house/baby fund.

With no match in your tax bracket I'd probably put the 401k on hold or reduce it to 5%, especially if you're aiming for ER and building a stash that will sustain you outside of those accounts.

And like has been mentioned, when you have a down payment fund be sure to analyze then if it's a good choice to buy based on your local market, what you can get near work, and how long you plan to stay at the jobs you have at that time.  Ownership is great and all, but it is far less flexible and costs more than the mortgage/taxes/insurance number.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #46 on: July 29, 2015, 02:16:44 PM »
So it has been almost exactly one year since I sought the advice of the Mustashian community, and I think it’ll be fun to update y’all on what happened to my husband and I in the interim!

1.   Yes, I’m paying half the student loan debt (surprisingly easy, once we got started.)
2.   We set a financial goal, and achieved it (we bought a house with some cutthroat savings and a generous gift from a relative.)
3.   He got a new job, and I got a raise—which undoubtedly made everything easier. Our household income is now up from $72K / year to $82K. We still earn equivalent salaries.
4.   His old car died, and he bought a used 2006 GMC Canyon pick-up.
5.   We adopted a second (equally silly) dog.

Most recently, we made a financial plan, post-house purchase. We decided to prioritize retirement, an emergency fund, kids and vacations (pretty much in that order.)

Here's the snapshot of our new budget:

Luxury:
Digital NYT subscription: $20/ mo.
Home Internet Access: $50/ mo.
Dogs: $120/ mo.
Netflix: $8/ mo.
Sling TV: $28/ mo.
TOTAL LUXURIES: $226/ mo.

Necessary:
Mortgage/ Homeowner’s Insurance/ Mortgage Insurance/ Property Tax: $1,056/ mo.
Student Loans: $725/ mo.
Utilities: $250/ mo.
Truck Payment: $171/ mo.
Health Insurance: $0/ mo.
Vision Insurance: $4/ mo.
Life Insurance: $3/ mo.
Cell Phones x2 (Ting & Republic Wireless): $65/ mo.
Groceries: $250/ mo.
Car Insurance: $95/ mo.
Commuter EZ Pass: $32/ mo.
TOTAL NECESSITIES: $2,651

SAVINGS:
His 401K: $450/ mo.
Her 401K: $450/ mo.
529 College Savings Plan: $100/ mo.
Emergency Fund: $300/ mo.
Home Improvement/ Maintenance: $300/ mo.
Vacation Fund: $200/ mo.
TOTAL SAVINGS: $1,800/ mo.

TOTAL FIXED EXPENSIS: $4,677
Gross Income: $82,000/ yr.
Net Income: $65,264/ yr. or $5,439/mo.

Income – Expenses = $762
We split this remainder with a complicated algorithm. We aren’t accountable to anyone for how wisely or foolishly we spend this money. For me, some months it’s oil changes, some months it’s sushi.

Liabilities:
The student loan debt is comprised of four private loans and one federal loan, totaling at about $70,000, each borrowed at different rates of interest ranging from 13% to 4%. The minimum monthly payments on all five loans is $725.

We bought a 2006 GMC Canyon for $10,000 with $3,000 down. Minimum monthly payment of $171/ mo.

We bought a house for $175,000 at 3.375% and put 3.5% down. Minimum monthly payment of $1,056/ mo. will pay for the house in 30 years. After tax abatement, our monthly payment will shrink to $880/ mo., but will not be reflected on our monthly bill before May 2016.

So what is the verdict of the Mustaches? Did we “Adult” this year??!

dandarc

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #47 on: July 29, 2015, 02:31:39 PM »
Progress made.  A couple of points:

Quote
Liabilities:
The student loan debt is comprised of four private loans and one federal loan, totaling at about $70,000, each borrowed at different rates of interest ranging from 13% to 4%. The minimum monthly payments on all five loans is $725.

We bought a 2006 GMC Canyon for $10,000 with $3,000 down. Minimum monthly payment of $171/ mo.

We bought a house for $175,000 at 3.375% and put 3.5% down. Minimum monthly payment of $1,056/ mo. will pay for the house in 30 years. After tax abatement, our monthly payment will shrink to $880/ mo., but will not be reflected on our monthly bill before May 2016.
13% debt needs to be a higher priority - 4% you can potentially live with long-term.  How much is your PMI on the house?  It is often prudent to pay the mortgage quickly until you can lift the PMI.  Is this an FHA loan?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #48 on: July 29, 2015, 02:36:57 PM »
13% debt needs to be a higher priority - 4% you can potentially live with long-term.  How much is your PMI on the house?  It is often prudent to pay the mortgage quickly until you can lift the PMI.  Is this an FHA loan?


The mortgage is an FHA loan, so the PMI will stay with the loan over it's entire lifetime. It's starting at $170/ mo., and will decrease over time.

It's possible we could refinance in a few years and shed our PMI, but depending on what happens with interest rates (our rate is super low now at 3.375%) it may not be prudent to refinance in the future.

« Last Edit: July 29, 2015, 02:41:32 PM by LilithPaul »

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #49 on: July 29, 2015, 02:45:49 PM »
13% debt needs to be a higher priority - 4% you can potentially live with long-term.

Regarding the student loans, our plan is to pay down the smaller balances first, and then roll that money toward the next smallest balance.

Loan balances range from $304 to $17000+.

Great idea? Terrible idea?