Author Topic: Strategic Decision  (Read 3847 times)

wickemt

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Strategic Decision
« on: July 02, 2012, 02:13:43 PM »
Hello, Mustachians.

I did a very un-mustachey thing, and took out approximately $100,000 in graduate loans to secure a law degree. I did this for many reasons, mostly because I didn't know what to do with my economics/philosophy Bachelor's degree, and didn't want to face the uncertainty of the job market in 2008.

So, now, here I am. I am admitted to practice law, and working full time for $44,000 per year gross, in the private sector. No insurance, no 401k, no benefits. No pun intended.

The debt is all currently in Income-Based Repayment. That means interest accrues and capitalizes twice a year, but I don't have to make any payments. I've used this to knock my credit card debt down from $7,000.00 to $3,000.00, and I am continuing to make significant progress. All credit card balances are kept at 0%, or else paid off in full.

Compounding the situation, I have recently become engaged. My fiancee is the most fantastic woman on the face of the earth, except that she too made the un-mustachey decision to finance a law degree. She will graduate in 2013 with approximately $150,000.00 in debt (I lived at home during law school, she had to rent an apartment). So I am trying to think strategically about both of our lives, rather than about just mustache-steamrolling my own situation.

I currently live with my grandmother, paying rent of $300/mo. She currently shares an apartment with another graduate student, paying $800/mo plus utilities. We are planning to get an apartment in the near future, although any benefit to her will be outweighed by the detriment to me, on balance at least she will be able to cut down the amount of borrowing she does for living expenses.

My question is this:

1) What is more important? Credit card balances that are currently at 0% but will spike to 13% in April of 2013? Or student loan balances that are currently ticking away at 6.8%?

2) Should I continue kicking the student loans down the road, in hopes of securing a public sector job (I am actively seeking one) and getting the 10 year loan forgiveness?

3) How un-mustachian is it to move out of my grandmother's house? My parents have suggested that we should both live in my grandmother's house, but my fiancee is uncomfortable with that, and I sympathize entirely; I often feel like a boarder myself at times.

The student loans worm their way under my skin when I think about the sheer magnitude of the interest accruing every day. Would appreciate any advice y'all can give.


wickemt

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Re: Strategic Decision
« Reply #1 on: July 02, 2012, 02:22:07 PM »
Forgot to add: Right now, the 'plan', as it were, is to tread water, trying to keep expenses under 25k/yr for the last year of Wifey's education and bar study; then, once she gets an income stream off the ground (late 2013/early 2014), start spraying money at the loan balances.

gooki

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Re: Strategic Decision
« Reply #2 on: July 02, 2012, 03:23:44 PM »
My calculations show to pay down that $100,000 at 6.8% interest within 10 years you're looking at $1150 a month.

So if you stay in the private sector your after tax salary will want to be at least $13,800 more.

For your lady friend to pay down that $150,000 at 6.8% interest within 10 years you're looking at $1,726 a month.

So if she was to stay in the private sector her after tax salary will want to be at least $21,144 more than a public sector job.

These figures make no assumption for tax deductions or minimum repayments under public sector employment. Considering private sector isn't paying well at the start of your career, I'd continue to pursue a public sector role.

ShavinItForLater

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Re: Strategic Decision
« Reply #3 on: July 03, 2012, 08:49:22 AM »
If I were in your shoes I'd be looking for a way to make those law degrees pay.  While I don't work in law, my perception is that in 10 years, if you are good at what you do and work hard practicing law in the private sector I have to believe you could get your salaries into six figures.  I would also expect that your public sector job would pay much less over those 10 years, in aggregate.  So, I'd have to give the opposite advice--stay in the private sector, and find a way to make a whole heck of a lot more than $44,000 over time.

Fuzz

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Re: Strategic Decision
« Reply #4 on: July 05, 2012, 11:55:06 PM »

I bet there are a fair number of us young lawyers thinking carefully about our finances. Glad that you found your way to MMM too.  My thoughts:

1) Pay the credit cards, it's a time bomb and you can dispose of them quickly.
2) I was considering the income based loan repayment as a government attorney and am leaning against doing it. I make 60K a year for the government owe 78K and have decided against IBR mainly because I don't want to stay in government work. Here's my post. There were some smart comments.

http://www.mrmoneymustache.com/forum/ask-a-mustachian/is-it-ever-mustachian-to-be-in-debt-for-8-years-or-income-based-loan-repayment/msg10553/#msg10553

Your situation is a little different. It's great that you have a law job, but 44K a year is going to be tough to pay down your debt. Your debt is over twice your pretax income and a lot of public sector jobs would be a raise. If you can get a public sector job, great. I would go the IBR route. Hopefully your fiancee is looking carefully for public sector jobs in the next year (unless she's positioned for Big Law). I suggest looking at smaller, rural counties. Out in the middle of nowhere Washington State she could probably hook up with a neat criminal law job (prosecutor or defense), with just an internship during her 3rd year.

3) It's probably Mustachian to live with your grandma. But I think you should rent. You and your fiancee have a tough few financial years in front of you, there is something to be said for weathering them in your own castle. If you moved into a $800/mo apt, your rent would go up $400 and hers would go down $400, so on the net you'd be the same.

Good luck.


 


 

Nancy

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Re: Strategic Decision
« Reply #5 on: July 09, 2012, 09:06:58 AM »
1.) Pay the credit card off.

2.) I would say stay in your grandmother's house and discuss having your fiancee move in there with you. If your fiancee is still planning on taking out loans for her living expenses next year despite your combined loan totals, I think you need to have a talk about the reality of the job market and of paying large loan payments each month. Make a pact that you will only live in your grandmother's house until she passes the bar and secures a job. In the meantime, you could cover the $300 rent payment (granting that your grandmother doesn't raise the rent), and she wouldn't have to take out so much in loans. Also, if it takes her a while to find a job after passing the bar (which is likely), she won't be stressed by having to make rent on the more expensive apartment, and you will save yourselves from potential money fights. You are also helping your grandmother by providing her with monthly income.

BenDarDunDat

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Re: Strategic Decision
« Reply #6 on: July 09, 2012, 10:14:01 AM »
Sue the companies and schools that put you in such debt and servitude. Class action suit baby. Some genius is going to do it and it may as well be you.

grantmeaname

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Re: Strategic Decision
« Reply #7 on: July 09, 2012, 10:20:56 AM »
It's been tried before. The odds are not good.