Author Topic: Student Loan Emergency?  (Read 2952 times)

Slow&Steady

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Student Loan Emergency?
« on: November 09, 2017, 11:21:39 AM »
I owe $8449 on my last student loan, it has a ridiculous interest rate of 7.5% and I have been paying on this (and others) for 10 years!

My husband runs his own business, so most months I am the primary income source but some months I am the sole income source.  I am due with #2 in March and his business is usually really slow in winter so he got a job for the winter.  If I assume he will quite this job to go back to his own business (and to make life easier) when the baby comes in March I will need around $7500 - $8500 in the maternity fund (to take the longest possible leave with 0 concern for money).  With this job and what we already have in savings we are on schedule to do that leaving approximately $1000-$2000 extra per month. 

Separately we have a tax incentive that we will claim for 2017 that should completely wipe out our tax liability but we have account that we put money into throughout the year to offset self-employment taxes from the business.  If I pull $2500 from this account and put it towards the SL and we apply the extra for the next 4-5 months from the winter job I think I might be able to pay off this SL before baby #2 gets here.  Due to the stupidly high interest rate ($50+/month) if we are going to go this route I want to put the $2500 towards the SL immediately vs waiting until March.

Would you pull the $2500 from the SE tax account to accelerate SL payoff?  If yes, would you do that today or wait until you make sure there is no tax liability (the tax incentive is higher than our liability has ever been)?

NoStacheOhio

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Re: Student Loan Emergency?
« Reply #1 on: November 09, 2017, 01:15:51 PM »
This is kind of hard to answer without the big picture income numbers, but if you're confident about your tax liability, then apply that money to whatever your highest-priority item is.

Have you discussed with your husband the possibility of ending his self-employment? It sounds like he could be making more money applying his efforts elsewhere. Conversely, maybe him taking on primary childcare responsibilities would make sense.

Again, it's hard to say without income/spending numbers.

Dicey

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Re: Student Loan Emergency?
« Reply #2 on: November 09, 2017, 01:33:14 PM »
You've lived with it for ten years. I would NOT pay it off under your current circumstances. Wait until your baby is born with no problems and your financial footing is more secure. The downside risk is just too great. What's another 4-6 months? Not much in the big picture.

Slow&Steady

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Re: Student Loan Emergency?
« Reply #3 on: November 09, 2017, 01:55:09 PM »
The business has only been around for a couple years, we decided to go this route because he has some health concerns that were continuing to decline when he was working full-time.  The business does bring in more than what the childcare cost are (most months) and does not run very well while caring for the kid (soon to be kids), we tried that route last winter.  It also makes him happy to be contributing financially without negatively impacting his health.

I figured a full income/spending type of question would come from this.  I generally choose not to post that information because I am the only one in the house that is focused on reducing spending and I am embarrassed by the numbers in the budget.  So I do what I can to keep myself relatively satisfied that we are making progress and the family from revolting because they think they need more junk than what I think they need.  It is a balancing act, I put more than I want to into most categories but then make them stick to that number so that I have extra to work toward what my priorities are.  Due to the health concerns above chances are good that I will work in some form or fashion until he qualifies for Medicare/Medicaid for insurance purposes so I am more accepting of the horrible budget numbers than most on the MMM forums would be and true FIRE is probably not my long term goal (although a little early would be nice).

In the past our tax liability is usually around $7k, the tax incentive that we have is $8.5k and is capable of rolling to the next year.  My paychecks has also already had $2.7k withheld for federal taxes (I increased my exemptions when we got the tax incentive to limit what was taken out).  So all that being said if this money does not go towards the SL, the original plan was to just put whatever was over/above our tax liability into a Roth IRA for him.  I am thinking that clearing out a 7.5% debt would be a better financial choice than an IRA.  The next highest interest rate debt that we have is 4.125% and is a mortgage so once the SL is gone I feel like I should be able to shift our focus more towards retirement savings.

Slow&Steady

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Re: Student Loan Emergency?
« Reply #4 on: November 09, 2017, 01:58:45 PM »
You've lived with it for ten years. I would NOT pay it off under your current circumstances. Wait until your baby is born with no problems and your financial footing is more secure. The downside risk is just too great. What's another 4-6 months? Not much in the big picture.

I thought that was a Dave Ramsey way of looking at things, I figured I would get a different answer from MMM forums.

ixtap

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Re: Student Loan Emergency?
« Reply #5 on: November 09, 2017, 02:21:00 PM »
I agree with Dicey. Do not pay this off now. See how things go and re evaluate when you go back after your maternity leave. Until then, the buffer is more important.

Slow&Steady

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Re: Student Loan Emergency?
« Reply #6 on: November 09, 2017, 02:26:43 PM »
I agree with Dicey. Do not pay this off now. See how things go and re evaluate when you go back after your maternity leave. Until then, the buffer is more important.

Do not pull the $2500 from the SE Tax account for this now or do not pay extra towards the SL at all right now?

ixtap

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Re: Student Loan Emergency?
« Reply #7 on: November 09, 2017, 02:30:35 PM »
I agree with Dicey. Do not pay this off now. See how things go and re evaluate when you go back after your maternity leave. Until then, the buffer is more important.

Do not pull the $2500 from the SE Tax account for this now or do not pay extra towards the SL at all right now?

Do not pay extra at this time.

lexde

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Re: Student Loan Emergency?
« Reply #8 on: November 09, 2017, 02:34:10 PM »
You've lived with it for ten years. I would NOT pay it off under your current circumstances. Wait until your baby is born with no problems and your financial footing is more secure. The downside risk is just too great. What's another 4-6 months? Not much in the big picture.

I thought that was a Dave Ramsey way of looking at things, I figured I would get a different answer from MMM forums.
FWIW Dave Ramsey tells people to put babystep 2/ debt snowball off completely while building up a cushion for big events like birth of a child. Once the baby comes and you return back to work, he recommends dumping that cushion all into your debt. $50/mo can be considered insurance for your peace of mind having that cushion.

Dicey

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Re: Student Loan Emergency?
« Reply #9 on: November 09, 2017, 11:00:32 PM »
You've lived with it for ten years. I would NOT pay it off under your current circumstances. Wait until your baby is born with no problems and your financial footing is more secure. The downside risk is just too great. What's another 4-6 months? Not much in the big picture.

I thought that was a Dave Ramsey way of looking at things, I figured I would get a different answer from MMM forums.
Dicey is no DR fan and doesn't think much of Suze, either, FWIW. Dicey also dislikes all consumer debt and views most, but not all, SL's with suspicion. Repeat after me, quite forcefully, do NOT pay anything extra on this loan until your baby is born and your financial circumstances have stabilized! Your life is about to change radically. Give your very-near-future self a break from financial uncertainty for a few more months, okay? I think you'll be very glad you did. If you end up not needing it, then throw money at the debt and vanquish it, but not right now. Really.

It's entirely possible you've spent more money than the "extra" interest will amount to than you have on being in somebody's wedding or taking a vacation or buying some shoes or clothing you never wore. It is small potatoes right now. Trust me. Under any other circumstances, you'd get a completely different answer. Consider this a giant PASS. Permission to wait hereby granted.

NoStacheOhio

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Re: Student Loan Emergency?
« Reply #10 on: November 10, 2017, 06:07:07 AM »
I figured a full income/spending type of question would come from this.  I generally choose not to post that information because I am the only one in the house that is focused on reducing spending and I am embarrassed by the numbers in the budget.  So I do what I can to keep myself relatively satisfied that we are making progress and the family from revolting because they think they need more junk than what I think they need.  It is a balancing act, I put more than I want to into most categories but then make them stick to that number so that I have extra to work toward what my priorities are.  Due to the health concerns above chances are good that I will work in some form or fashion until he qualifies for Medicare/Medicaid for insurance purposes so I am more accepting of the horrible budget numbers than most on the MMM forums would be and true FIRE is probably not my long term goal (although a little early would be nice).

Have you had an honest, non-confrontational conversation with your spouse about this? Obviously, everyone is different, but he may not be aware of exactly how you feel, and the burden you're taking on. It may be that this arrangement makes the most sense for your family, and that's fine, but everyone should have a clear picture of what's going on.

As far as feeling embarrassed or worrying about what people here will say, if you're up front about where you are, and you challenges, I don't think you're going to get anyone being rude.

To circle back around, try to take a fairly long-term view of your financial life. You can make changes, but they have kind of a long tail before you really gain momentum. It can be a grind (much like parenting).

Slow&Steady

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Re: Student Loan Emergency?
« Reply #11 on: December 20, 2017, 03:01:09 PM »
I figured a full income/spending type of question would come from this.  I generally choose not to post that information because I am the only one in the house that is focused on reducing spending and I am embarrassed by the numbers in the budget.  So I do what I can to keep myself relatively satisfied that we are making progress and the family from revolting because they think they need more junk than what I think they need.  It is a balancing act, I put more than I want to into most categories but then make them stick to that number so that I have extra to work toward what my priorities are.  Due to the health concerns above chances are good that I will work in some form or fashion until he qualifies for Medicare/Medicaid for insurance purposes so I am more accepting of the horrible budget numbers than most on the MMM forums would be and true FIRE is probably not my long term goal (although a little early would be nice).

Have you had an honest, non-confrontational conversation with your spouse about this? Obviously, everyone is different, but he may not be aware of exactly how you feel, and the burden you're taking on. It may be that this arrangement makes the most sense for your family, and that's fine, but everyone should have a clear picture of what's going on.

As far as feeling embarrassed or worrying about what people here will say, if you're up front about where you are, and you challenges, I don't think you're going to get anyone being rude.

To circle back around, try to take a fairly long-term view of your financial life. You can make changes, but they have kind of a long tail before you really gain momentum. It can be a grind (much like parenting).

I just read your journal and you have had one roller coaster type of year.  I hope your wife's surgery went well.  After reading that I figured I would provide a slightly clearer picture of our finances to see if everyone still has the same "DO NOT PAY OFF THE STUDENT LOAN!!" opinion.

I am not looking for ways to optimize my budget at this time, just a yes or no on focusing paying off the student loans vs putting any extra in savings until baby is here.  I also found out that my company will pay for 8 weeks of maternity leave (not the 6 I was originally thinking), my plan for now is to take 12 weeks off but with my oldest I went back at 7 weeks because being at home with limited adult interaction was not proving to be good for my mental well being (we live in the middle of nowhere so actives, with a new born and me being prone to anxiety in crowds, were not something I could get myself to do).  So we will only need approximately $4000 to cover a 12 week maternity leave either in savings or from his business picking back up in late spring/early summer. 

On another note the non-taxable income just started the last few months and it also made our expenses skyrocket for a few months, thing are settling down now and the expenses below are what I am expecting going forward (until daycare doubles). So the "extra" $1000 has not been available in the past, if it would have been either the SL would have already been gone or savings would have already been higher.

Her AVG Monthly Bring Home: $4100
His Biz Bring Home: $600- 2800
His Bus Driver Bring Home(9/12 months): $450
Non-taxable Income: $950

Total AVG Monthly Bring Home: $6950

Hard Expenses: $ 4565
Rainy Day Monthly set aside: $1300

Savings Account: $4000
SE Tax Savings: $3100
Biz Account: $3000 (this is mostly rainy day savings for future equipment/training/bills/ect)
HSA: Not sure the total but more than enough to cover deductible
Expected Tax Refund: $2500 (due to tax incentive not purposely over paying)
401k: $95k
Roth IRA: $1150

Student Loan Balance: $7946

So savings accounts today are at just over $7k and the other $950 we could pay off in Jan.  This would empty savings but with the expected tax refund and an "extra" $1100 in Feb and March there will be enough in savings to cover the longer maternity leave.  I am also now almost in my 3rd trimester and have had a completely health pregnancy.

Grrr, typing this all out makes me see the "DO NOT PAY OFF THE STUDENT LOAN!!" side of the argument but damn it I still really want to pay it off NOW.

NoStacheOhio

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Re: Student Loan Emergency?
« Reply #12 on: December 20, 2017, 05:41:13 PM »
Thank you, surgery went well. They sent her home after only two nights, and she quickly discontinued the strong painkillers. I'm giving her daily injections for the next month, but we're moving in the right direction.

From your numbers and general feelings, it seems like diverting savings money into extra payments makes the most sense. It'll knock out the loan quickly.

Broadway2019

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Re: Student Loan Emergency?
« Reply #13 on: December 21, 2017, 06:54:41 AM »
Why not refinance the student loan on SOFI to at least save interest, even if its only 5 months worth. It takes 10 minutes to fill out their online app.

Dicey

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Re: Student Loan Emergency?
« Reply #14 on: December 21, 2017, 07:02:19 AM »
Two choices:

1. Take kwarden's advice.
2. WAIT!

You're In your third trimester, it's not that long to wait for the potential security it offers.

NoStacheOhio

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Re: Student Loan Emergency?
« Reply #15 on: December 21, 2017, 07:41:02 AM »
Thank you, surgery went well. They sent her home after only two nights, and she quickly discontinued the strong painkillers. I'm giving her daily injections for the next month, but we're moving in the right direction.

From your numbers and general feelings, it seems like diverting savings money into extra payments makes the most sense. It'll knock out the loan quickly.

Just realized this was probably unclear. I meant instead on saving new money from monthly income, use it toward the loan, and leave the existing savings accounts alone.

Slow&Steady

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Re: Student Loan Emergency?
« Reply #16 on: December 21, 2017, 08:05:13 AM »
Why not refinance the student loan on SOFI to at least save interest, even if its only 5 months worth. It takes 10 minutes to fill out their online app.

I did fill out their online app, several months ago.  They do not like loans that are low 5 digits or 4 digits, they would not do it without a fee (that all said and done did not make sense financially), and the new interest rate they offered was not something that I thought was all that impressive. 

Broadway2019

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Re: Student Loan Emergency?
« Reply #17 on: December 21, 2017, 11:26:02 AM »
I refinanced $60k student loans last year and got a rate of 3%. Also, there is no fee... so not sure you were on the right website.

SOFI.com

Slow&Steady

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Re: Student Loan Emergency?
« Reply #18 on: December 21, 2017, 12:01:13 PM »
I refinanced $60k student loans last year and got a rate of 3%. Also, there is no fee... so not sure you were on the right website.

SOFI.com

It was the right website.  You can see why they would give you an offer with no fee and a better interest rate on $60k vs me looking to refinance less than $10k.  Even at just 3% they stand to make more money (worth a no fee refinance) off a $60k balance than a balance under $10k.

Broadway2019

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Re: Student Loan Emergency?
« Reply #19 on: December 21, 2017, 12:16:50 PM »
Right but I don't think they charge a fee at all. Anyways rather than waste time replying here, go to the website, spend 10 min, and do an app.

They don't do a hard pull so there is no harm.

Dicey

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Re: Student Loan Emergency?
« Reply #20 on: December 21, 2017, 12:23:26 PM »
Right but I don't think they charge a fee at all. Anyways rather than waste time replying here, go to the website, spend 10 min, and do an app.

They don't do a hard pull so there is no harm.
Or try Earnest.

NoStacheOhio

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Re: Student Loan Emergency?
« Reply #21 on: December 21, 2017, 05:26:46 PM »
Right but I don't think they charge a fee at all. Anyways rather than waste time replying here, go to the website, spend 10 min, and do an app.

They don't do a hard pull so there is no harm.

They don't do balances under $10k. OP didn't make a mistake.