Money Matters
RosieC18
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
What to Prioritize?
Hi all, I'm hoping you can weigh in on a discussion I've been having with my husband about how to prioritize our money.
We graduated from grad school a year ago and have a total of around 40k in SL debt. We're paying $650 a month to pay those back, which slightly higher than the monthly payment on a standard 10 year plan at 6.55%.
We'd like to start looking at houses in about a year. We live in an area where the population is booming and house prices are going up. The houses we're thinking of have a monthly payment roughly equivalent to our rent (including taxes, insurance etc.). In the year since graduation we've been saving pretty aggressively at 6k a month and have our emergency fund set for 6mo+. We're now working on a down payment.
H thinks we should throw everything at the down payment so we can buy as soon as possible and then use the portion of our income we're saving for the DP into the SLs. I'm wondering if it would be better to pay down the loans first. His feeling is that homes are only getting more expensive so if we wait, we'll have to spend more. We're quite confident that this isn't a bubble - we live in DC and demand is booming as this is where a lot of jobs are and people are moving here for employment. Plus, he hates paying rent when we could be building equity. We both have excellent credit, good incomes and no other debt.
Oh, and we recognize that there are lots of other costs associated with owning a house. There is room in the budget for those when the time comes.
I realize this is a pretty fortunate position to be in, but I'd love to hear your thoughts. Thanks!
*edited for typo*
We graduated from grad school a year ago and have a total of around 40k in SL debt. We're paying $650 a month to pay those back, which slightly higher than the monthly payment on a standard 10 year plan at 6.55%.
We'd like to start looking at houses in about a year. We live in an area where the population is booming and house prices are going up. The houses we're thinking of have a monthly payment roughly equivalent to our rent (including taxes, insurance etc.). In the year since graduation we've been saving pretty aggressively at 6k a month and have our emergency fund set for 6mo+. We're now working on a down payment.
H thinks we should throw everything at the down payment so we can buy as soon as possible and then use the portion of our income we're saving for the DP into the SLs. I'm wondering if it would be better to pay down the loans first. His feeling is that homes are only getting more expensive so if we wait, we'll have to spend more. We're quite confident that this isn't a bubble - we live in DC and demand is booming as this is where a lot of jobs are and people are moving here for employment. Plus, he hates paying rent when we could be building equity. We both have excellent credit, good incomes and no other debt.
Oh, and we recognize that there are lots of other costs associated with owning a house. There is room in the budget for those when the time comes.
I realize this is a pretty fortunate position to be in, but I'd love to hear your thoughts. Thanks!
*edited for typo*
Re: What to Prioritize?
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Either way, you won't be making a bad decision, but even if you do the house first I'd still plan on paying off the student loans quicker than 10-years. Throwing away 6.55% in interest is no fun.
I'm with your H. Home prices and interest rates are going up, so now is the time to buy if you have a 6 month e-fund. I personally would rather hurry up and get locked into a 4% interest rate on a $300,000 home than risk that bumping up to a 7% interest rate on a $450,000 home (I have no clue what your budget is.. just an estimate based on our area). $40,000 at 6.5% just isn't worth it if you look at it like that.
However, I would buy a small starter home, so you can keep plugging away at those student loans once you move in. When we bought our house, we structured it so that the mortgage would be much cheaper than what we were paying in rent. I'm so happy we did it that way! Our house is tiny, but that means a $80 power bills.
If you do decide to get the house first I really don't see it as a bad thing. I just couldn't deal with the added stress the loans bring in.
Love: March 2010 Marriage: July 2013 Debt Free: October 2014 TTC: May 2015
To me, it seems like your student loans are very affordable and I am also one that tends to think that some debt isn't too bad depending on what you are doing.
Either way, it sounds like you have really been keeping your expenses down, and/or you both have a great income. I don't think either way is really a bad decision, but I would pay off the loans first. Just my personal preference. I don't like debt.
(disclaimer: we have been debt free now for a couple years, and are taking out a mortgage for our new house, so not completely against debt, but I know the feeling of being debt free and like it!)