Author Topic: Reader Case Study-- Should I pay my Husband's Student Debt?  (Read 24124 times)

dandarc

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #50 on: July 29, 2015, 02:51:34 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?
All things being equal, it is better to pay highest interest first.  If doing the debt snowball helps you to actually do it vs. maybe not so much, then sure that might be a good plan for you.  The $304 loan will be paid off by the end of August, right?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #51 on: July 29, 2015, 02:53:56 PM »
The $304 loan will be paid off by the end of August, right?

End of September. We pay the minimum each month on each loan-- for this account, that's $150/ mo.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #52 on: July 29, 2015, 03:00:47 PM »
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.


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??!


Is that correct, the student loan balance has gone up $10,000 in 1 year? Splitting the minimum payment isn't helping that much, it's saving him money but it's not saving both of you money. You guys need to stop taking on more monthly payments. You are saving $300 to an emergency fund and carrying a student loan, mortgage and a car payment? Hold 1 month of expenses in the emergency fund and start prioritizing your highest interest debts. I'd also consider paying off the car ASAP.

Quote
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.

Contribute only enough to the 401k to get any match right now. Stop saving for a vacation, house care, emergency fund, 529!!!, until you KILL that 13% loan. You will never get ahead of that loan if you keep it open. You should be putting at least $1000 of that savings into your highest interest loan every month.

Are you Filing Jointly or Separately? If you're filing separately you're killing yourself in taxes. Jointly, and you're barely in the 25% tax bracket.

What are all the balances of the loans you have and what are the interest rates?

Sorry for the face punches, but you realized last year you need to fix the debt problem, and have taken on 2 new loans and more monthly expenses. Your savings are not going to save you until you pay off your loans (everything but your home).
« Last Edit: July 29, 2015, 03:11:17 PM by zdravé »

SomedayStache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #53 on: July 29, 2015, 03:02:10 PM »
I've only briefly perused this...but one thing stuck out at me.

Why are you saving in a 529 plan when you have enormous, soul-crushing student loans and other debt?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #54 on: July 29, 2015, 03:03:32 PM »
I've only briefly perused this...but one thing stuck out at me.

Why are you saving in a 529 plan when you have enormous, soul-crushing student loans and other debt?

Compound interest. Is that an ignorant answer?

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #55 on: July 29, 2015, 03:04:54 PM »
I've only briefly perused this...but one thing stuck out at me.

Why are you saving in a 529 plan when you have enormous, soul-crushing student loans and other debt?

Compound interest. Is that an ignorant answer?

No, what's ignorant is investing for 7% annualized gains in a college account, when you are losing +13% a year on loans.

FrugalShrew

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #56 on: July 29, 2015, 03:07:13 PM »
Unfortunately, he also informs the debt is $74,000-- a full $14,000 more than I thought it was!

The student loan balance has not gone up, but it was unfortunately higher than OP originally thought.

+1 on attacking the loan with 13% interest.
 

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #57 on: July 29, 2015, 03:08:20 PM »
Quote
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.

What is costing you $120 a month for dogs? We have two 90lb dogs and we pay $54/month for Taste of The Wild Dog food.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #58 on: July 29, 2015, 03:09:19 PM »
Unfortunately, he also informs the debt is $74,000-- a full $14,000 more than I thought it was!

The student loan balance has not gone up, but it was unfortunately higher than OP originally thought.

+1 on attacking the loan with 13% interest.

I missed that. Thanks

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #59 on: July 29, 2015, 03:17:31 PM »
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.


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??!


Is that correct, the student loan balance has gone up $10,000 in 1 year?

No. We did not take on additional student loans-- I had the wrong information last year, and now it looks like I still have wrong information! It has taken me awhile to get it all straight... All of these loans were incurred prior to 2010, and have been sold and re-sold. Some have veritable interest rates.

These are (as far as I know) accurate balances and interests rates for each student loan.

1. $4,813 at 3.6%
2. $723 at 4.9%
3. $1,7393 at 4.9%
4. $304 at 5.5%
5. $17,000 at 5.5%
6. $13,504 at 7.25%
7. Federal Loan: $15,033 at 3.18%

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #60 on: July 29, 2015, 03:27:12 PM »

These are (as far as I know) accurate balances and interests rates for each student loan.

1. $4,813 at 3.6%
2. $723 at 4.9%
3. $1,7393 at 4.9%
4. $304 at 5.5%
5. $17,000 at 5.5%
6. $13,504 at 7.25%
7. Federal Loan: $15,033 at 3.18%

No 13% loan? If thats correct, you're better off...

I would pay off these loans quickly. The first 2 next month with the $1000 I suggest you stop putting in 'savings'. The 4,800 you should kill by the end of the year by whatever means necessary, while making minimum payments to the other loans.

304.0 at 5.5%
723.0 at 4.9%
4,813 at 3.6%

Then kill these loans in the listed order:

13,504 at 7.25%
17,000 at 5.5%
17,393 at 4.9%

The last 3 alone are more than half your yearly income. It seems it will take you at least 2 years to pay these off. The faster you pay them off the more money you can convert to savings when they are paid off.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #61 on: July 29, 2015, 03:29:40 PM »
Quote
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.

What is costing you $120 a month for dogs? We have two 90lb dogs and we pay $54/month for Taste of The Wild Dog food.

I buy Acana dog food-- which is ridiculously expensive; we spend about $75/ mo. However, when your dogs eat healthy food, they have fewer health problems... and that is the real money trap (as with all medical care.)

The dogs have various medications for ticks and heartworm, which cost about $25/ mo. We also like to buy them toys and send them to "doggy daycare" for socialization & fun. It's definitely a luxury.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #62 on: July 29, 2015, 03:35:33 PM »

These are (as far as I know) accurate balances and interests rates for each student loan.

1. $4,813 at 3.6%
2. $723 at 4.9%
3. $1,7393 at 4.9%
4. $304 at 5.5%
5. $17,000 at 5.5%
6. $13,504 at 7.25%
7. Federal Loan: $15,033 at 3.18%

No 13% loan? If thats correct, you're better off...

I would pay off these loans quickly. The first 2 next month with the $1000 I suggest you stop putting in 'savings'. The 4,800 you should kill by the end of the year by whatever means necessary, while making minimum payments to the other loans.

304.0 at 5.5%
723.0 at 4.9%
4,813 at 3.6%

Then kill these loans in the listed order:

13,504 at 7.25%
17,000 at 5.5%
17,393 at 4.9%

The last 3 alone are more than half your yearly income. It seems it will take you at least 2 years to pay these off. The faster you pay them off the more money you can convert to savings when they are paid off.

Interesting advice.

Does it make sense to stop paying into our 401Ks and 529? After all, that money is tax sheltered, AND there's the compound interest to think about.

I'm 28, my husband is 30-- we'd like to start saving for retirement ASAP, or it will be a tough uphill climb at the end.

I really doubt our earning potential will go up over time-- we both work the non-profit field.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #63 on: July 29, 2015, 03:36:04 PM »
Quote
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.

That's some very expensive sushi. Since you're borrowing against 7% loans to buy it.

Lot's of threads on this for that talk about whether dog food makes any real difference. I'm in the camp that they should eat natural foods with meat protein. I fed my dog Blue Buffalo for 8 years before switching to TOTW, he's always been healthy. Both bags are about $50 each. Where do you live that you need those pet meds monthly, or did the vet just sell you on it? My dog has about 8 toys in the house, most are over a year old. Are you really spending $20 for toys, because if you're filling a bucket (in a budget) for toys... you should rethink it while you pay off debt.

My dog would hate doggy daycare, but absolutely loves going to the dog park... it's also free.

What's the balance on the truck you're paying off?

dandarc

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #64 on: July 29, 2015, 03:44:13 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.
So, yeah, PMI sucks.  Long story short, you needed about 29K more of a downpayment to avoid PMI.  You're paying $2040 per year for the decision to buy with a small down payment.  2040 / 29K = about 7%.  And you're paying 3.5% interest, so you are paying over 10% on this 29K chunk of your mortgage.  And that is early in the loan - as you get closer to that 80% loan to value, it'll start looking much worse.

Anyway, you might be stuck, but explore your options.  It would be interesting to see the schedule of how this PMI reduces - depending on the slope of that line, it could look better or worse as time goes on, but it is definitely going to cost you something over the life of the loan.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #65 on: July 29, 2015, 03:44:39 PM »
Quote
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.

That's some very expensive sushi. Since you're borrowing against 7% loans to buy it.

Burn! Or do you say, Facepunch! here? :-)

Lot's of threads on this for that talk about whether dog food makes any real difference. I'm in the camp that they should eat natural foods with meat protein. I fed my dog Blue Buffalo for 8 years before switching to TOTW, he's always been healthy.

Interesting! I will check it out.

Where do you live that you need those pet meds monthly, or did the vet just sell you on it?

The South. It's buggy here. That dog can look out a window and get fleas.

My dog would hate doggy daycare, but absolutely loves going to the dog park... it's also free.

Sigh. The dog I adopted five months ago is my problem child... he has some aggression issues and doesn't do well at a dog park. We adopted him from a local animal shelter-- when he came in, his jaw was broken. Foul play strongly suspected. The help from professional trainers at the doggy daycare has helped tremendously.

What's the balance on the truck you're paying off?

$7,031

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #66 on: July 29, 2015, 03:47:16 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.
So, yeah, PMI sucks.  Long story short, you needed about 29K more of a downpayment to avoid PMI.  You're paying $2040 per year for the decision to buy with a small down payment.  2040 / 29K = about 7%.  And you're paying 3.5% interest, so you are paying over 10% on this 29K chunk of your mortgage.  And that is early in the loan - as you get closer to that 80% loan to value, it'll start looking much worse.

Anyway, you might be stuck, but explore your options.  It would be interesting to see the schedule of how this PMI reduces - depending on the slope of that line, it could look better or worse as time goes on, but it is definitely going to cost you something over the life of the loan.

well, !@#$

I thought I was saving myself money by taking out the FHA loan at 3.375% over a standard loan at 5.5% (with PMI attached until I paid 20% of the principal.)

AZDude

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #67 on: July 29, 2015, 03:48:49 PM »
It's crazy that this is even a question. If you are married and plan to stay that way then yes, you should. Combined finances or at least separate but often discussed finances with joint goals seems like the only reasonable way a couple should operate.

I paid off my wife's student loans and never thought twice about it. Even if she is sleeping with 5 other guys each day and divorces me tomorrow, it was still the right decision.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #68 on: July 29, 2015, 03:51:19 PM »

These are (as far as I know) accurate balances and interests rates for each student loan.

1. $4,813 at 3.6%
2. $723 at 4.9%
3. $1,7393 at 4.9%
4. $304 at 5.5%
5. $17,000 at 5.5%
6. $13,504 at 7.25%
7. Federal Loan: $15,033 at 3.18%

No 13% loan? If thats correct, you're better off...

I would pay off these loans quickly. The first 2 next month with the $1000 I suggest you stop putting in 'savings'. The 4,800 you should kill by the end of the year by whatever means necessary, while making minimum payments to the other loans.

304.0 at 5.5%
723.0 at 4.9%
4,813 at 3.6%

Then kill these loans in the listed order:

13,504 at 7.25%
17,000 at 5.5%
17,393 at 4.9%

The last 3 alone are more than half your yearly income. It seems it will take you at least 2 years to pay these off. The faster you pay them off the more money you can convert to savings when they are paid off.

Interesting advice.

Does it make sense to stop paying into our 401Ks and 529? After all, that money is tax sheltered, AND there's the compound interest to think about.

I'm 28, my husband is 30-- we'd like to start saving for retirement ASAP, or it will be a tough uphill climb at the end.

I really doubt our earning potential will go up over time-- we both work the non-profit field.


Right now you have ~$50,000 worth of loans. By the time you pay them off, you'll likely pay $55,000.

You're loans have an average rate of 5.8%. The stock market over 80 years averages about 7%. That being said, future returns are not guaranteed.
 
Right now, you have the potential to get a guaranteed 5.8% return on investment by paying down your loans as fast as possible. It still counts as savings, even when you're filling a hole instead of building a pile.

You are contributing 10,800/year to your 401k's. That 10,000 will have to be earned in each future year you carry your loans.

I would only contribute to the 401k if there was a match.

Then here's how I see it:

Student Loans: $725/ mo.
529 College Savings Plan: $100/ mo.
Emergency Fund: $300/ mo.
Home Improvement/ Maintenance: $300/ mo.
Vacation Fund: $200/ mo.
His 401K: $450/ mo.
Her 401K: $450/ mo.

= $2,525

You can have those loans paid off in 22 months.

Then you can invest 2525 a month into your 401k for 10 years and have $436,000. Also because you are putting that much into your 401k, you'll lower your taxes, and a quick guess look like $5000 less a year in taxes, and you still have 500/month more you could contribute to your 401k.

And this doesn't even account for the $700 of 'misc' money you eat in sushi every month :) so, there's another $8000 a year you could use to pay off that loan and then proceed to eat half of it and travel on the other half in just 18 months!
« Last Edit: July 29, 2015, 04:04:48 PM by zdravé »

Potterquilter

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #69 on: July 29, 2015, 05:15:55 PM »
Who is the 529 for?  I thought you had no kids.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #70 on: July 29, 2015, 05:17:49 PM »
How much is in your emergency fund right now?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #71 on: July 29, 2015, 06:01:00 PM »
Who is the 529 for?  I thought you had no kids.

We want to have a kid in 2017. That's the plan, anyway. I'll be 30.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #72 on: July 29, 2015, 06:04:51 PM »
How much is in your emergency fund right now?

...$750.

Merrie

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #73 on: July 29, 2015, 09:10:12 PM »
PMI sucks. I have it too. I wish I could travel back in time 4 years to when I graduated, aggressively pay off my student loans, and NOT buy a house with PMI.

I would pay off those 3 pissy little loans (the ones under 5000) and refinance the others with SoFi to get better interest rates. How do you even have loans for $300 and $700 that you are making payments on, when you have $700 surplus in your budget each month? Just pay them off already and you can put the money towards other loans. I would work on getting out of the debt you are in before contributing to the 529 plan for a child who has yet to be conceived. Home maintenance can be necessary but I would also skip or cut back on the vacation fund. An emergency fund I would continue to work on.

I really don't think you *should* have $700 of "play money" every month, not if you want to get ahead... there are so many things you *should* be doing with that money.

I'm not so sure about reducing 401k contributions, since you get a savings on income tax and payroll tax, but somebody who knows more about this stuff than I do would probably have more of an informed opinion on that. Where are you with regards to withholding and tax planning? I recently boosted my 401k contribution and at the same time redid my withholding on my W-4 form to have less withheld, since it had been a few years since I'd done so. It wound up being basically a wash and my take-home pay wasn't affected at all. In your case it may be worth it to itemize deductions on your taxes now that you have mortgage interest and PMI. So I would explore whether your W-4 withholding could be changed.

2Birds1Stone

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #74 on: July 30, 2015, 01:58:40 AM »
You adulted for fure =)

Potterquilter

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #75 on: July 30, 2015, 04:29:10 AM »
Who is the 529 for?  I thought you had no kids.

We want to have a kid in 2017. That's the plan, anyway. I'll be 30.
What if you change your mind, get divorced, or cannot conceive?  You do not need to save in a 529 for a child who is not born yet, especially in your circumstances.
Take care of yourself first. If you don't get your act together you will be bringing a child into a family full of stress

Get rid of the aggression issue dog .  It is not your fault if someone abused the poor thing before you got him. Aggressive dogs can get you into legal and financial issues and you do not want to bring a child into a home with a dog with aggression issues. Personally with your finances both dogs would be gone if it were me. You simply cannot afford them if you want to have children, save for retirement and pay off those student loans.

On the issues of kids, ask any parent here and they will tell you kids are really expensive. If you both continue to work child care is very expensive, and if one of you plans to stay at home or work part time you really need to get rid of this debt.

Right now you are bailing out a sinking boat with a colander. There is no retirement fairy and there is no student loan fairy.  In case you don't pay attention to the news social security is under attack and people your age may get the very short end of the stick. I hope that is not so, but I would not plan on it being much of a help if I were your age. And no matter what, you have to pay those student loans. So just do it.

chasesfish

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #76 on: July 30, 2015, 06:06:49 AM »
Good work over the past year, I hope you've both been able to merge your finances and accept that's part or marriage.  I would assault the highest interest rate student loans first.   Fortunately your combined income is just below the threshold for that interest to be deductible, so your effective rate isn't quite as bad as what you're posting.

Your choice of dog food is expensive.  Don't get the really cheap stuff and don't get the organics. Stick with Iams, Purina, or Royal Canin.  50+lb bags of Iams are $29-$39 on sale at Costco and last way more than a month.  I'm married to a vet and we have three geriatric animals doing just fine.

SomedayStache

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #77 on: July 30, 2015, 07:17:49 AM »
Ouch some of this is harsh, but true.

For what it's worth I think you've adulted pretty well - with room for improvement. 

I like this

Right now, you have the potential to get a guaranteed 5.8% return on investment by paying down your loans as fast as possible. It still counts as savings, even when you're filling a hole instead of building a pile.

You are contributing 10,800/year to your 401k's. That 10,000 will have to be earned in each future year you carry your loans.

I would only contribute to the 401k if there was a match.

Then here's how I see it:

Student Loans: $725/ mo.
529 College Savings Plan: $100/ mo.
Emergency Fund: $300/ mo.
Home Improvement/ Maintenance: $300/ mo.
Vacation Fund: $200/ mo.
His 401K: $450/ mo.
Her 401K: $450/ mo.

= $2,525

You can have those loans paid off in 22 months.

Then you can invest 2525 a month into your 401k for 10 years and have $436,000. Also because you are putting that much into your 401k, you'll lower your taxes, and a quick guess look like $5000 less a year in taxes, and you still have 500/month more you could contribute to your 401k.

And this doesn't even account for the $700 of 'misc' money you eat in sushi every month :) so, there's another $8000 a year you could use to pay off that loan and then proceed to eat half of it and travel on the other half in just 18 months!

With the exception that I personally would keep saving some money as an all-around E-fund.  Because without an e-fund every unexpected something ends up on a card, at which point its easy to say "well, since we've already had to put money on credit what difference does a tad bit more make to buy this X, Y, Z that we really need..."

I have a couple of 529s that I opened for my young children.  But once I discovered MMM I stopped contributing to them as I realized that getting in tip-top financial shape will help my children out far more than a piddly amount in a 529.  (For comparison I have 3 kids and our household income is ~$85,000, no debt at all but it still makes more sense for me to prioritize upping the 401k and savings then it does to contribute to a 529.) In your case a 529 shouldn't even be on the radar.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #78 on: July 30, 2015, 08:19:13 AM »
PMI sucks. I have it too. I wish I could travel back in time 4 years to when I graduated, aggressively pay off my student loans, and NOT buy a house with PMI.

Preach! Agreed-- too late now, though!

I would pay off those 3 pissy little loans (the ones under 5000) and refinance the others with SoFi to get better interest rates. How do you even have loans for $300 and $700 that you are making payments on, when you have $700 surplus in your budget each month? Just pay them off already and you can put the money towards other loans.

This seems to be the consensus, and darn good advice. Will do.

I would work on getting out of the debt you are in before contributing to the 529 plan for a child who has yet to be conceived.

Also consensus on the forum. Done.

Home maintenance can be necessary but I would also skip or cut back on the vacation fund. An emergency fund I would continue to work on.

In order to reach this place, my husband and I have made a lot of compromises. I worry that eliminating weekend trips and bi-annual vacations will bring our relationship to the breaking point.

Of course I'm biased, and I think I've given more ground than he has-- but I'm sure he feels the same way.

The vacation fund is something he wants. The emergency fund & home repair fund is something I want. Am I justified in asking to veto this budget item?

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #79 on: July 30, 2015, 08:20:23 AM »
You adulted for fure =)

Thanks, 2Birds1Stone!

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #80 on: July 30, 2015, 08:29:51 AM »
What if you change your mind, get divorced, or cannot conceive?  You do not need to save in a 529 for a child who is not born yet, especially in your circumstances.
Take care of yourself first. If you don't get your act together you will be bringing a child into a family full of stress

Good points. Will do.

Get rid of the aggression issue dog .  It is not your fault if someone abused the poor thing before you got him. Aggressive dogs can get you into legal and financial issues and you do not want to bring a child into a home with a dog with aggression issues. Personally with your finances both dogs would be gone if it were me. You simply cannot afford them if you want to have children, save for retirement and pay off those student loans.

You know, when we adopted him in February, I gave him a probationary period. Now five, almost six months later, his behaviors have improved so rapidly, I hate to give up on him now. 

He is not aggressive with people or children. Does okay with other dogs in a highly controlled environment: like doggy daycare. Not yet ready for the dog park. Still think I should re-home him?

On the issues of kids, ask any parent here and they will tell you kids are really expensive. If you both continue to work child care is very expensive, and if one of you plans to stay at home or work part time you really need to get rid of this debt.

Right now you are bailing out a sinking boat with a colander. There is no retirement fairy and there is no student loan fairy.  In case you don't pay attention to the news social security is under attack and people your age may get the very short end of the stick. I hope that is not so, but I would not plan on it being much of a help if I were your age. And no matter what, you have to pay those student loans. So just do it.

Here's my newest thought on the student loans: these loans have been bought and re-sold so many times, and some of the debt collection agencies are willing to accept a lump payment that is low as 60% of the principal. I think maybe our best option is to save lump payments.

Does anyone have any experience with buying down debt in this fashion?

CommonCents

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #81 on: July 30, 2015, 08:46:55 AM »

These are (as far as I know) accurate balances and interests rates for each student loan.

1. $4,813 at 3.6%
2. $723 at 4.9%
3. $1,7393 at 4.9%
4. $304 at 5.5%
5. $17,000 at 5.5%
6. $13,504 at 7.25%
7. Federal Loan: $15,033 at 3.18%

No 13% loan? If thats correct, you're better off...

I would pay off these loans quickly. The first 2 next month with the $1000 I suggest you stop putting in 'savings'. The 4,800 you should kill by the end of the year by whatever means necessary, while making minimum payments to the other loans.

304.0 at 5.5%
723.0 at 4.9%
4,813 at 3.6%

Then kill these loans in the listed order:

13,504 at 7.25%
17,000 at 5.5%
17,393 at 4.9%

The last 3 alone are more than half your yearly income. It seems it will take you at least 2 years to pay these off. The faster you pay them off the more money you can convert to savings when they are paid off.

I agree, except about prioritizing paying off the $4813 at 3.6%.  I reordered your loans in orders of interest rate:
6. $13,504 at 7.25%
4. $304 at 5.5%
5. $17,000 at 5.5%
2. $723 at 4.9%
3. $17,393 at 4.9%
1. $4,813 at 3.6%
7. Federal Loan: $15,033 at 3.18%

Kick off the two small loans ($1027) quickly - they are small and will give you a sense of success quickly, and at least are 2 & 3 on the rates.  But the $5k payment is better off going to the loan that has an interest rate almost twice as high.

Re negotiating over student loans,  you generally have to have missed payments for them to have an incentive to pay, which can do damage to your credit.  And while many on the board disagree, I fall under the camp that says you (or your husband) took them out so you have an obligation to pay them.  (People not paying is why the rates rise.) 

Yes, stop the 529s for a kid that is a mere twinkle in the eye!  So many things can go wrong.  Pay off your high interest loans first (and wait till you are at least pregnant).

Cheddar Stacker

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #82 on: July 30, 2015, 08:51:40 AM »
I agree, except about prioritizing paying off the $4813 at 3.6%.  I reordered your loans in orders of interest rate:
6. $13,504 at 7.25%
4. $304 at 5.5%
5. $17,000 at 5.5%
2. $723 at 4.9%
3. $17,393 at 4.9%
1. $4,813 at 3.6%
7. Federal Loan: $15,033 at 3.18%

Agree.

Stop 529 contributions temporarily.

Continue all 401k contributions for the tax break and to continue funding retirement.

Pay down the SLs by using all excess funds after that, paying the highest rate first. And refinance any high ones if you can.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #83 on: July 30, 2015, 09:24:24 AM »
How much is in your emergency fund right now?

...$750.

Face punch for having an emergency fund equal to the size of your misc monthly spending budget. Get 1 month of expenses in the emergency fund and stop contributing to it until you're debt free.

If you do as suggested, and you have a true emergency you can make the minimum payment on your SL and you have over 2k in any month (plus your e-fund) to handle the situation. Don't save cash for a vacation. Work on paying down your debt with all available money, in 6+ months after you've made a huge impact on your debt you can evaluate a weekend trip and pay a little less the month you go. Use current cash to pay for 'extra's, not a 1% interest savings account. This has the added benefit of you controlling your spending to keep making larger payments.

My suggestion for which loans to pay off was a mix of snowball and avalanche. By getting rid of the 3 smaller ones you will get the emotional reward by having less accounts (this was also the OP's original strategy), then when left with the larger ones, larger payments can be made to show the OP the month progress. I think the 3 smaller ones could be paid off in 2-3 months if she uses the 3k/month available.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #84 on: July 30, 2015, 10:01:41 AM »
How much is in your emergency fund right now?

...$750.

Face punch for having an emergency fund equal to the size of your misc monthly spending budget. Get 1 month of expenses in the emergency fund and stop contributing to it until you're debt free.

Deserved. We just bought our house, so that's where the emergency fund went.

Sibley

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #85 on: July 30, 2015, 11:29:54 AM »
Couple thoughts from me.

First, congrats on getting things together! Adulting is hard, taking practice, and is a process. You are making progress, so be proud of that.

Second - your "use for whatever money" - oil changes aren't optional. They should be included in your budget. The unaccountable money should cover things like toys, clothes, treats, occasional entertainment, etc. Sounds like you didn't define your budget to include some things that you should have and that's why the "free" money is so big. Go through that category again and figure out what should be classified elsewhere, then you'll have a better idea of what the "free" money really is. Example: Annually, I pay 2 professional memberships. I don't have a separate category for this, but I also don't include this in my spending money. So I have an "Other" category to account for those types of infrequent things.

NY Times online - you might check your local library. Mine has some pretty cool looking services that I'm just digging into. I can get the digital Economist for free through the library for example. Free = good!

The 2nd dog - he's made huge progress, yay! He just has problems with other dogs? There's plenty of dogs out there like that, it's on you to control him and prevent issues. With past abuse, some things really can't be completely eliminated. Time and TLC will go a long way. But he may never be comfortable at a dog park, and it's on you to recognize that and not push too far. Make sure you can control the dogs, recognize when things are too much and get them out of the situation, and continue the training on your own. You won't need professional help long term, it's more of a temporary thing to get the dog started and train the humans.

Regarding the meds - ask your vet if there's anything you can do to reduce costs. Maybe a different med is equally effective but a cheaper. Sometimes they get rebates, etc from manufacturers. Can't hurt to ask.

Seconded on finding a less expensive but still quality food. Per my vet, the gold standard is feeding trials. Meaning, they've actually fed animals that food over a period of time and results were good. Many of the newer "fancy" foods don't have those - they're expensive and time consuming to do. I just switched my cats from Blue Buffalo to Purina One. About 1/2 the cost I think, and its a good quality food (that the cats actually like better, go figure).

Your vacations are staycations. Do some sightseeing close to home. Relax, sleep in. Catch up on your favorite shows, crafts, whatever. Throw balls for the dogs until they're worn out.

Cpa Cat

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #86 on: July 30, 2015, 11:31:53 AM »
Student Loans: $725/ mo.
529 College Savings Plan: $100/ mo.
Emergency Fund: $300/ mo.
Home Improvement/ Maintenance: $300/ mo.
Vacation Fund: $200/ mo.
His 401K: $450/ mo.
Her 401K: $450/ mo.

= $2,525

You can have those loans paid off in 22 months.

Then you can invest 2525 a month into your 401k for 10 years and have $436,000. Also because you are putting that much into your 401k, you'll lower your taxes, and a quick guess look like $5000 less a year in taxes, and you still have 500/month more you could contribute to your 401k.

And this doesn't even account for the $700 of 'misc' money you eat in sushi every month :) so, there's another $8000 a year you could use to pay off that loan and then proceed to eat half of it and travel on the other half in just 18 months!

I like this suggestion, but I'd keep the Emergency fund savings, because the emergency fund is a paltry $750. Home maintenance is then covered by your emergency fund - and it's for actual emergencies. Once your emergency fund reaches $2000-$3000, then stop adding to it.

Also... your marriage should be able to survive 24 months of no vacations. If you want vacations, find the cash in your $700 Misc spending.

That said - I don't know if a complete kill-off is required. If it were me, I would probably restart the 401k savings once I was down to only the low-interest Fed loan. With the interest being tax deductible, and sub 4% rate, there are probably better places to put your money than toward that loan - such as your 401k or PMI.
« Last Edit: July 30, 2015, 11:43:14 AM by Cpa Cat »

Merrie

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #87 on: July 30, 2015, 04:43:50 PM »
Also vacations and weekend trips are not all or nothing. Go on fewer than now, and of the ones you do go on, find a way to make some of them cheaper. Go camping. Finance some of a weekend trip out of that month's cash flow. Take day trips to interesting places within a couple hours' drive. Take a staycation. Have family or friends come to visit you. Etc.

To a certain degree, there are probably things you want to do before you have kids. I deliberately took a lot of weekend trips to see friends in the year before I planned to start trying for a baby. And I don't think that's bad, but I think there's a way to do it without breaking the bank.

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #88 on: July 31, 2015, 01:25:19 PM »
Thank to everyone who shared their suggestions and facepunches!

Budget updated with your Mustache-inspired suggestions:

Luxury:
Digital NYT subscription: $20/ mo.
Home Internet Access: $50/ mo.
Dogs: $80/ mo.
Netflix: $8/ mo.
Sling TV: $28/ mo.
TOTAL LUXURIES: $186/ mo.

Necessary:
Mortgage/ Homeowner’s Insurance/ Mortgage Insurance/ Property Tax: $1,056/ 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: $200/ mo.
Car Insurance: $95/ mo.
Commuter EZ Pass: $32/ mo.
Other (Oil Changes, etc.): 100
TOTAL NECESSITIES: $1,976 

SAVINGS:
Student Loans: $1,444/ mo.
His 401K: $450/ mo.
Her 401K: $450/ mo.
Emergency Fund: $300/ mo.
Vacation Fund: $200/ mo.
TOTAL SAVINGS: $2,844/ mo.

TOTAL FIXED EXPENSIS: $5,006
Gross Income: $82,000/ yr.
Net Income: $65,264/ yr. or $5,439/mo.

Income – Expenses = $433 

Liabilities:
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.

The student loan debt is comprised of six private loans and one federal loan, totaling at about $70K, each borrowed at different rates of interest ranging from 7.25% to 3.18%. The minimum monthly payments on all seven loans is $725.

We will be tackling the student loan debt with a combination of avalanche/ snowball tactics, in the following order:

1.   $304 at 5.5%
2.   $723 at 4.9%
3.   $13,504 at 7.25%
4.   $17,000 at 5.5%
5.   $17,393 at 4.9%
6.   $4,813 at 3.6%
7.   Federal Loan: $15,033 at 3.18%

Under this plan, we'll be free of student loan debt in 4 years, 7 months.

Vacations turned out to be non-negotiable with the Husband. He does NOT want to save the emergency fund, but was delighted that I'll pay more toward his student loans.

GreenPen

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #89 on: July 31, 2015, 03:13:02 PM »
Hi LilithPaul -- quick question.

Do you think your husband would be able to fund a "vacation fund" if you weren't helping him with loan payments?

By helping him with his loans, I'm worried that you might be just be freeing up more of his money to spend on other things, like a truck and vacations. As a couple, you have about $762 every month after making loan payments. If your husband was paying auto and student loans on his own, then he would have about $157 after loan payments, and you would have $605 (assuming you are currently splitting the trick evenly as well). If your husband had only $157 per month (which needs to pay for beer, truck repairs, etc.), he probably wouldn't be talking much about a 'non-negotiable' vacation fund.

I know the relationship aspect of this might make things muddy -- but I would consider not paying the loans as a way of forcing him not to spend more than $157 each month on things not listed in your budget.

BarkyardBQ

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #90 on: July 31, 2015, 03:34:07 PM »
Hi LilithPaul -- quick question.

Do you think your husband would be able to fund a "vacation fund" if you weren't helping him with loan payments?

By helping him with his loans, I'm worried that you might be just be freeing up more of his money to spend on other things, like a truck and vacations. As a couple, you have about $762 every month after making loan payments. If your husband was paying auto and student loans on his own, then he would have about $157 after loan payments, and you would have $605 (assuming you are currently splitting the trick evenly as well). If your husband had only $157 per month (which needs to pay for beer, truck repairs, etc.), he probably wouldn't be talking much about a 'non-negotiable' vacation fund.

I know the relationship aspect of this might make things muddy -- but I would consider not paying the loans as a way of forcing him not to spend more than $157 each month on things not listed in your budget.

Very good point.

@OP

Something else to consider, multiple people have suggested not saving the vacation fund and instead using that against the student loans.

Student Loans: $1,644/ mo.
His 401K: $450/ mo.
Her 401K: $450/ mo.
Emergency Fund: $300/ mo.
Vacation Fund: $200/ mo.
TOTAL SAVINGS: $2,844/ mo.

Now that you are putting 1600 toward the loans every month, if you need to take a vacation, you can make the 725 minimum payment and you suddenly have 1,000 you can spend on vacation, during that month. Instead of letting it sit in a savings account at nearly 0% interest. This helps you by 'SAVING' 5.8% interest on your loans for that $200. Figure out what your vacation budget limit is and work on being able to use it the month you go on vacation. When my wife and I take a trip we don't pull money from savings, we just spend the money we would normally put into after tax savings for that month. Otherwise the cash is basically sitting idle for months at a time. You said in an earlier post that you like the benefits of compound interest... start using it to your advantage.

At $200/month you current vacation fund is defined at $2400 a year, that's almost your monthly savings.

Also, with your new budget, your expenses are $1,976. Which means you emergency fund should be 1,976+725=2701, call it 3k even. Once you hit that, put that other 300 towards the loans and you're paying down $2k/month. Based on your previous posts... You have 750 in your emergency fund now, not sure how much in the vacation fund, but it would take you 7.5 months to create your emergency fund. If you dumped the vacation fund into the emergency fund you could significantly increase your payments and reduce your payoff time.
« Last Edit: July 31, 2015, 03:42:19 PM by zdravé »

Potterquilter

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #91 on: August 01, 2015, 05:24:57 AM »
actually you won't be free of student debt is less than five years if you have a baby along the way. You will need to take some time off and then have child care expenses. It is really hard to go back to work when an infant is six weeks old and leave them with a caregiver. People do it every day but it is not easy and many women take leave without pay if they can.  Be realistic in your planning to avoid disappointments.

I was the one who suggested getting rid of the aggressive dog. You have explained the situation and you need to do what is best for you. In my experience there is no greater love than parents can have for a child. You will want to protect that child literally with your life out of the nesting and survival instincts. Really think hard if you would be comfortable leaving the dog in the house with the baby. I know it is hard but give it a lot of thought. Then make your best decision.

As far as the 529 goes, every Christmas and birthday I give my grandkids generous gifts of contributions and a small token gift.  Several aunts and uncles started doing the same thing. Perhaps gentle suggestions could be made once the baby is born because chances are you will be inundated with stuff.

I know it is hard but you are doing much better. The cultural expectation of fabulous vacations, a nice house, two nice cars and so on is very hard to resist going in debt for. You are lucky that you are figuring all this out now. 


Potterquilter

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #92 on: August 01, 2015, 02:38:23 PM »
Wanted to add i am not trying to be hard (especially about the dog) on you just bringing up points that normal people don't talk about.

I have made a lot of financial mistakes in my life, and it was sheer luck that I found forums like this one to help me along the way. I also read all the financial and money management books I could get my hands on.  We have many friends and family members who are approaching their mid sixties with little retirement savings to show for a life of hard work. Don't be one of them

LilithPaul

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #93 on: August 02, 2015, 06:35:33 PM »
Hi LilithPaul -- quick question.

Do you think your husband would be able to fund a "vacation fund" if you weren't helping him with loan payments?

By helping him with his loans, I'm worried that you might be just be freeing up more of his money to spend on other things, like a truck and vacations. As a couple, you have about $762 every month after making loan payments. If your husband was paying auto and student loans on his own, then he would have about $157 after loan payments, and you would have $605 (assuming you are currently splitting the trick evenly as well). If your husband had only $157 per month (which needs to pay for beer, truck repairs, etc.), he probably wouldn't be talking much about a 'non-negotiable' vacation fund.

I know the relationship aspect of this might make things muddy -- but I would consider not paying the loans as a way of forcing him not to spend more than $157 each month on things not listed in your budget.

This is the very crux of my initial delimma last year. However tempting it is to control his spendthrift habits by refusing to share his debt, it would create a really unpleasant power dynamic.

Unfortunately, the power dynamic around money matters is still pretty dysfunctional, so I guess I didn't save myself much grief.

Our backgrounds are so different it's near impossible to talk about money. Thus, the financial plan-- the idea is to give an emotionally charged subject some structure and limit the conversation to what can be mathematically certain.




Merrie

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Re: Reader Case Study-- Should I pay my Husband's Student Debt?
« Reply #94 on: August 02, 2015, 06:59:41 PM »
Our backgrounds are so different it's near impossible to talk about money. Thus, the financial plan-- the idea is to give an emotionally charged subject some structure and limit the conversation to what can be mathematically certain.

That's good. It sounds like you have made some progress with him but there is still progress to be made. But some progress is still progress, so good for you. You may be able to make more progress with him over time as well. Approaches I take with my not particularly frugal spouse fall into three categories.

First, figuring out how to reduce spending or increase income with basically no impact on his life--insulating the attic so the climate control is more efficient and therefore cheaper. Switching shopping to Costco which is marginally cheaper for some of the stuff we buy. Switching our cell phones to a cheaper carrier. Doing the legwork to find cheaper prices on stuff we buy anyway, like diapers. Using our rewards credit card for everything to get the cash back (and paying it off at the end of the month, of course.) Etc.

Second, making the cheaper option more fun. Learning to make more tasty things at home to decrease the desire to eat out. Finding cool things to do on a day trip or vacation that are cheaper than you'd otherwise do. Etc.

Third, getting him sold on driving some frugal thing. For my husband, this is biking and fixing up our own bikes. He is interested in both and pursues this without me having to bug him about it (encouraging him or supporting him in what he's interested in doing anyway is different than bugging him). I obviously do not know your husband, but maybe he has a hobby or interest that he could pursue that would be money-saving over the longer term (homebrewing, woodworking, fixing up cars?), or maybe there is some area of your common life that he gravitates to managing and would enjoy looking for deals in this area, if for nothing else to get more bang for his buck in that category.