Student Loans

you sound like me a couple of years ago.

I would say pay off as much as you can in your debt first. Although some will say retirement, I think that getting the debt burden off is much better. My wife and I had a combined $175,000 (thanks to medical school) and paying it off made monthly income suck for a while, but once we did it helped our credit too.

Retirement shouldn't wait though. Put at least a couple bucks a month into an IRA, or you will be missing out on your age.

Are you sure that you can pay for $215k of debt ($90k student loans, $110k mortgage, and $15k car) with next years $46k of salary?

You for sure should max out your IRA contribution..especially if your company has any sort of a matching program.

I also would consider renting an apt for awhile and putting the money you would be paying on your mortgage into your student loans.

Good luck.

what is the interest rate on your student loans?

Interest Rate is 7.3% after I consolodated them. Thanks for the advice, keep it coming. Wouldnt getting an apartment be throwing away money, while a condo would be more of an investment? Thats my understanding. And yes, my company does have a matching program up to 6% of my income I think.

Finance People wrote:

Interest Rate is 7.3% after I consolodated them. Thanks for the advice, keep it coming. Wouldnt getting an apartment be throwing away money, while a condo would be more of an investment? Thats my understanding. And yes, my company does have a matching program up to 6% of my income I think.

Completely depends on if the price of the condo goes up or down. Bad time to buy the condo. Don't make it an emotional decision. Although, at 110k the stakes are pretty low.

I'd pay down the student loans as much as possible too. Don't worry about retirement yet - can't do everything at once. Get rid of current debt - you'll be happier for it.

Good luck.

I have private loans (variable, but around 8.5%) in addition to federal ones (consolidate at 2.5%), so when I actually get a job (I'm a GA), I'm just going to be dumping money into the private loans to get those paid off. The federal ones I could really care less about since the rate is so low on them. Regardless, if your wife is going to be a lawyer, she'll be able to put some pretty good bank towards retirement when she gets a job. I'd stick to the current loans and worry about those.

First, I would not count on what next year's salary is going to be. People get fired or laid off or the business hits a rough spot and pay increases do not come through (civil service is different but that would be a pretty good leap in pay for a civil servant---15%?)

Second, while the condo cost is $110K, you will spend a lot on furniture, painting, etc. Do not underestimate the money spent after you buy the condo.

Third, that sounds like a lot of debt to be taking on on $38K, but I have not crunched the numbers.

Retirement should always be the first priority, but the student loan rate seems to be high-ish so that throws the math off a bit. (You will be able to deduct some of the interest, but it will not mean a lot).

It might be a good idea to go a year to see what shakes out financially. Getting a professional financial planner could be a good use of time. Talk with the HR person and see if the company that manages the 401K (or whatever) offers those services.

I'd look at it this way. If you can invest and generally get a better return than the rate of your loans, then pay the minimum on your loans. For example, if you can average about 10% return on your investing and are only paying 7% interest in student loans, then you are better off not paying extra on the loans and investing all excess income. This is even more important because your company matches your contributions, which is basically free money. Make sense? Obviously pay off any high interest stuff like credit cards asap!

wow dude - why are you in such a rush to buy a condo?It just seems like the stress that would give you with cash being so tight would not be worth it... why not wait a year or two - real estate prices should go down for a year or two (depending where you are) but real estate prices tend to swing slowly... we just finished a long upswingi don't know how you people do it - i have nothing but respectyou don't know want to know what my salary is and i don't feel rich - i guess it is all relativeanyway - from my student days my only advice would be1) do you really need the condo now2) why 15k on a car - couldn't you get a good used one for much less (do you know a family member wanting to sell a used one)talk to flagpole willy about this - i think he is huge believer in never buying a new car

too sexy wrote:

I'd look at it this way. If you can invest and generally get a better return than the rate of your loans, then pay the minimum on your loans. For example, if you can average about 10% return on your investing and are only paying 7% interest in student loans, then you are better off not paying extra on the loans and investing all excess income. This is even more important because your company matches your contributions, which is basically free money. Make sense? Obviously pay off any high interest stuff like credit cards asap!

Well, the reason I'm going to be buying a condo in 10 months or so is because I need a place for my wife and I to live! And yes, I am looking at some used cars on autotrader to find something a little cheaper. I thought it would be smart to buy a condo rather than getting an apartment. Why rent when I could buy?

Finance People wrote:

Why rent when I could buy?

$900 mor. payment = $800 interest + $100 principle

$700 rent + $200 savings = same $900

$200 > $100

Don't let a realtor talk you out of renting, it is NOT financially better for every person. You could have twice as much $ going to principle if you saved for a better down payment. Make interest for a while before paying it.

Make a conscious effort to live below your means and you will find the right level of spending. Allowing extras here and there for an upgrade will leave you blowing past your means and starting off you new marriage with a lot of extra baggage.

I agree with anEconomist.

1) 15K on a car?! Are you crazy?! Seriously. Your first year's salary is only $38,000 and you have $90,000 in student loan debt. You need to buy a USED $5000 car MAX. Hell, if it were me I'd find a 10 year old car for $2000. You do NOT have $15,000 laying around which means you will be making payments and likely paying interest on that $15,000 car too, so it will cost more than $15,000 when it's over. Too many of you young graduates tell yourselves that a new car is necessary, and you think that a $15,000 car is reasonable because they are on the low end of new cars. A new graduate with $90,000 in student loans is FOOLISH to buy a $15,000 car. Payments, interst, INSURANCE. FOOLISH. Don't do it. Really. Just because you are a newly minted college graduate with a seemingly decent pay raise coming the next few years, this does not entitle you to a new car. Who knows if you'll like the job anyway. Don't bank on that pay raise until you get it. Cash in hand FIRST and then buy stuff.

2) Married couples should wait at least a year before buying a house. Rent first. The old joke is that you need at least a year to know how close to the inlaws to be. But from a practical standpoint, you need a year to find out what the two of you really like in a home, and you don't make enough to go put yourself into mortgage and buy that car you want -- two bad financial decisions which makes me think that you are likely making other bad decisions too.

3) Don't get sucked into the mortgage is the same as the rent thinking. No it isn't. You'll have condo fees and you'll want to spend money on things for the inside and on and on. Don't do it. I'm telling you, if you rent for a year or even up to three years until you are making $65,000 and your wife is then working, you'll be much better prepared. Are you planning to live in that condo for YEARS? I bet not. So, you want to set yourself up for the hassle of having to sell it in 3-4 years so you can then go buy the bigger single family home that you really want?

Advice time:

1) Rent a one-bedroom apartment or a two-bedroom one if you need office space. Spend no more than 1/4 of your TAKE HOME pay on the rent.

2) Buy a nice used car. I'd spend $5,000 max (again, if it were me, I'd spend $2000; my current car that I drive every day is worth about $1,400, and I make more than you will in the near term). Let's say you drive it for 6 months and it needs an $800 repair. Bummed right? Hell, if you bought that new car, that's about two+ months payments for it. Cars are prisons that people get themselves into willingly. Don't let society fool you into thinking you need a $15,000 car right out of college. You REALLY don't.

3) I would attack that student loan debt with a vengence. Even if it has a ridiculously low rate. Goal for college educated people (unless you spent a ton on graduate school) is to be debt free (except for a house) by age 30. You should figure out how much you need to pay on that student loan each month to get it paid off by the time you are 30. Now, if it has a 2% rate (and really not any higher) and you'd rather take the time to pay that off in 10 years then I don't really have a problem with that, but it'd be more fun to have it gone earlier than 10 years. The borrower is SLAVE to the lender. So, are you your own man or a SLAVE? ALWAYS ask yourself that when you decide you want to borrow money...for a car, on a credit card, on any loan even a house. Some will scream that you can invest your money and make a bigger return than paying off a student loan early. Mathematically that is true, but things don't always work out in your favor like that, and I'm betting your student loan rate is over 5%. With that student loan payment and you wanting to buy a $15,000 car, you REALLY don't have money to buy a condo.

4) Imagine being 30 years old with NO debt. If your wife gets a job making decent money then you can get that student loan paid off even before age 30 -- maybe age 28. How awesome would that be? You WILL NOT be debt free if you buy a condo now and a $15,000 car. YOU buy a $15,000 car and then your wife will want one too. FOOLHARDY.

5) When you are 28 or 30 (whenever the debt is gone) then establish an emergency fund of 3-6 months of expenses, put 15% of your income into retirement accounts (401k and Roth IRAs), start throwing extra money at the house that you might have bought by now (you should have taken only a 15 year fixed rate mortgage on that home). If you're doing all that, then either start saving for your kids college (if you want to) OR open separate mutual funds and start funding those.

You should be able to retire at age 62 with $2 million or more in retirement accounts.

Hey Suess wrote:

$900 mor. payment = $800 interest + $100 principle

$700 rent + $200 savings = same $900

$200 > $100

Don't let a realtor talk you out of renting, it is NOT financially better for every person. You could have twice as much $ going to principle if you saved for a better down payment. Make interest for a while before paying it.

Make a conscious effort to live below your means and you will find the right level of spending. Allowing extras here and there for an upgrade will leave you blowing past your means and starting off you new marriage with a lot of extra baggage.

I don't know, that's $700 (rent) that he'll never get back. At least by buying the condo he could potentially get his money back.

this is all really good advicethere is no rule that says that buying home is preferable to renting - in some instances it will be in others it won't, this is why in the long term rental prices and buying prices have to be cointegrated to use the technical termmy wife and i are the opposite, we could buy a home cash and we still haven't... mostly because we are not sure where we want to settle down and how long we'll want to stay in next placejust seemd like such a lock downas someone else pointed out, use the savings from renting to investsometimes buying early is a good hedge - for instance if you live in San Francisco and you know you'll want to buy in 5 years then buying now something smaller might make sense - you'll like see similar appreciation in the small place - and if prices go down, who cares the place you'll be looking at should be cheaper tooBUT if you are buying a condo on your salary you clearly don't live in San Francisco or New York cityand like I said, the risk of real estate prices taking off right now isn't that high so I would wait it out, chances are you'll get a better deal on a place in a year or two

I missed your interest rate on those student loans the first time. Dude, pay them off! You don't have enough money to buy a condo or get that car you want.

When your wife becomes a lawyer and you are BOTH working, you can take your incomes and within about 2-3 years be debt free. There's no excuse for you to still be in debt when you turn 28.

If you ever tell yourself that you are entitled to something or that you deserve something, just remember this -- NO YOU AREN'T!!! Work hard to be ABLE to afford the things you want and need.

At age 28, once you are debt free, let's see what 15% of your projected income can bring by the time the two of you are 62:

I'll put you at $71,000 and just conservatively say your wife makes $60,000. That's 131,000 per year.

15% of that each year is $19,650 (and this is with NO company match).

So, at a conservative 8% return on your investments from age 28 to age 62, you'll end up with...$3.36 million dollars.

This all starts with you being debt free (except for a house) by age 28. You can do it brother.

Some other variables in there...

IF your employer matches you'll make more

IF you invest more than 15% you'll make more

IF either of you ever get a raise (I added NO RAISES) you'll make more

IF one of you takes time off to be home with little children, you'll make less.

IF you work longer than 62 you'll make more

IF you are a FOOL and needlessly spend so that you are in debt the whole time and don't put 15% away, you'll make way less and be in debt when you hit 62.

Now, assuming you are smart and end up with $3.36 million at age 62, let's see what that brings you each year...134,400!!! if you just take 4% (then you adjust for inflation each year after that). We haven't even added in the AT LEAST $25,000 a year you will get in social security, and that makes it $159,400 per year. That's more per year than I had you making while working. Assuming you've got the house paid off by then, that's living the large life brother. If you need a little more, if the investments are going well, then take 5% ($168,000 or $193,000 with the social security added).

Dude, get that used car and rent for a couple years. Pay that student loan off as quickly as you can and then sock that income away. You will be RICH.

not a finance guy wrote:

I don't know, that's $700 (rent) that he'll never get back. At least by buying the condo he could potentially get his money back.

That sounds nice, but it doesn't always work out that way. I'm sure many people who now need to sell their homes who paid $200,000 more than they can get for it now wish they had rented.

Thing about home ownership is that if you're in a 30 year loan and you take the entire time to pay it off, then you pay about 3 times the purchase price over the life of the loan. Then, you've got to consider all the maintenance. If you're renting and the furnace breaks, they get you a new one. In a house, it's all you brother.

I know a guy who rents and will never buy. He's been socking away huge portions of his income since he was 22. He's 33 now and on track to have $9 million by age 62. With that kind of money, he can go buy anything he would ever need or easily have the money to cover any kind of rent increase. The money he has set aside is the 15% and then the additional is the amount he figures he saves each month by renting a one bedroom apartment vs. all the costs associated with a house. Just for fun, $9 million at 4% withdrawal is $360,000 per year. Not bad. Of course if I had $9 million at age 62, I'd either withdraw a LOT more than just 4% or, I would have retired at age 50.

All good advice. Lemme tell you my thinking. First of all, I am a civil servant so I will be making the salary that I mentioned previously over the next few years. My girlfriend will be working for the next 10 months before she starts law school next fall so she will be bring home around $18,000. With that money plus my income, I just figured that would be enough to pay for a decent place to live such as a condo. We do only plan on living there for maybe 4 or 5 years. Like I said before, a condo seems to be more of an investment rather than an apartment where I'm throwing my money in a black hole.

I really like the idea of being debt free (besides a house) by the time I am 28. It's definitely doable. Any success stories and how you pulled off being debt free by that age?

Also, I have planned out my retirement and I should be able to have 5.5 million when I'm 62, and that's doing 10% of my income with a 10% return on investment.

not a finance guy wrote:

I don't know, that's $700 (rent) that he'll never get back. At least by buying the condo he could potentially get his money back.

Its not rent vs buy. its rent vs interest. You get neither one back. If rent is less than the amount of interest being paid, you can reinvest that extra money. If you are sure you want to buy, it could be towards a down payment and contribute to PRINCIPLE not interest.

And let's not forget all of the other costs associated with buying the condo - condo fees, property tax, maintenance and repairs....

Flagpole and Economist are giving great advice.