New Mustachian with a question

[FrugalEE]

I just started reading the blog and was delighted to see I was already on my way to becoming a mustachian.  I'm an Engineer and my wife is a teacher and we save > then 50% of our income.  We've got money stashed away for a 20% or greater downpayment on a house and are maxing out all available retirement accounts.  I ride my bike to work but my wife lives 50 miles away from her job and needs to drive.  The job market is not great for teachers where we live and the chance of us both finding jobs where we don't need to drive is small.

My question involves debt.  Between my wife and I we have a 16.5k car loan and 20k of student loan debt.  Despite this I do not consider myself to be in a debt EMERGENCY.  The discussion over weather the 17k car is worth it could be another discussion but given the amount of miles we put on it (>15k per year) and the length of time we plan to keep it (>20 years) I don't think it was a horrible purchase.

The car loan is at .9% interest rate.  We had the cash to pay for the car the day we bought it but at .9% I didn't see any reason not to take the loan.  Inflation will easily eat away at the .9% interest even if my stash isn't earning any money for me at all.  Am I deluding myself into thinking this is ok?

As for the student loan debt (6.2%), my wife is a teacher at a title 1 school.  This has enabled her to apply for debt forgiveness.  5k of the 20k is being deferred (no payments, no interest) and will be completely cancelled after 5 years.  The rest of the loan can not be deferred, but after 5 years of teaching 17.5k can be cancelled.  Our plan for that portion of the loan is to keep making minumum payment for 2 years and then we are able to put it into forbearance for the remaining 3 years.  During forbearance we don't have to make payments but it keeps accumulating interest.  After the 3 years in forbearance it will equal approximately 17.5k and will all be cancelled.

I really hate this debt and it bothers me to have it but in my case it seems like keeping it is the most financially smart thing to do.

I am critical of the way a lot of people can rationalize the reasons that they have debt and I am now afraid that I am doing it myself. 

Thanks for help and look forward to learning.

[Roland of Gilead]

I like your thinking...definately would not pay off a 0.9% loan...heck you can make more money than that in municipal bonds.

As a electrical engineer you should be able to command a decent salary, as long as you don't do silly stuff like buy a 4 channel 500Mhz Agilent MSOX oscilloscope :-D  (guilty)

[iamsoners]

I think you're on the right track with those debts. I'm extremely debt averse and understand your discomfort but the math is on your side. Can you set up auto-payments on all of it and try to forget about them? Or would it help you to find a way to track the extra you're earning on your stache by not paying this off immediately?

[hybrid]

I agree regarding the car loan.  I have a Mazda 3 that I purchased with a 0% over 5 years loan.  In other words, we trust you Junior Mustache, just please buy our car and not a Toyota!  As much as I want to pay the loan off in cash, Mrs. Junior Mustache accurately reminds me that the loan carries no interest.  So I channel the money toward paying the mortgage off early instead.

[FrugalEE]

Thanks for the confirmations.  I think going through the mental exercise of calculating exactly how much money this is making me could help put me at ease.

I've so far avoided the temptations to buy expensive lab equipment.  The new company I work for puts old lab equipment on sale periodically so if I could get a good deal on scope I might pick one up.  Hopefully you were able to put the 500 MHz scope to good use.

[Herr Handlebar]

Between my wife and I we have a 16.5k car loan and 20k of student loan debt.  Despite this I do not consider myself to be in a debt EMERGENCY. 

I would still put you in a state of high alert. DEFCON 2! Armed Forces ready to deploy and engage in less than 6 hours!

The damage with the car is done. You did the one of the most unmustachian things possible and drove a new car off a dealership lot. Hello depreciation! That said everyone is right about the rate. Save what money you can and chase higher yields elsewhere. Take your time paying that off. If that car doesn't last 20 years don't make the same mistake again. There is plenty of reliable transportation out there that has already taken the depreciation hit.

It sounds like you have a solid plan for the student loans. I have nothing to add here.

Let's talk about your wife's commute. OMG! That has to suck, big time. Not only is it crazy expensive but it has to be a soul destroying experience to spend that much time in a car. I used to have a 30+ mile commute (one way). My wife had a less than one mile commute. My commute was an expensive and painful experience. I did manage to use mass transit on most days but even that was more expensive than my current bike commute and consumed more of my life force than I would like to consider. If you can do anything about that commute do it! It took my wife and I 3 years to transition into a better commute situation for me but it has been so worthwhile. She continues to have a sub-one mile commute. My commute is now down to 7.5 miles which I can accomplish on my bike. I am a happier, healthier and richer person for it.

[mikefixac]

Before my Mustachian days I bought my wife a Toyota Sequoia. $45K. A few weeks ago I bought my son a beautiful car, and I mean really nice, for $800. The car was owned by this old lady and the other seats had hardly ever been sat on.

Doing the math, that's 56 cars instead of the Sequoia. I'm sure I probably couldn't get as good a deal on the next 55 cars, but did I ever learn my lesson.

My dad used to say, "When you buy a used car, you're buying someone else's problems". Nowadays, with the way cars are made, I don't think that statement is true.

On the payback of the student loan debt, I hate owing others too, but this one seems like a no brainer, though sounds like wife would have to be committed for 5 years. Is that something she wants or might another teaching job open that would be closer to home with greater pay? Then it could be in your best interest to pay off loan at that time.

With a paid off economical used car, perhaps you could bump up your savings rate to 60%.