What Would MM Do?

cookies754 · January 2016

Happy Sunday! So my mom paid off my last student loan for me so I could avoid paying interest. I am in the middle of paying her back. I have about $14,000 left and I'm paying her $500 a month.

She is not charging me interest and has been very generous with letting me skip or lower payments if something else came up that month (ex: our water heater needed to be replaced).

H and I would like to get this loan paid off ASAP to free up some money in our monthly budget, but are unsure if it is worth upping the payment and stretching ourselves thin since she is okay with us taking our time. Any advice?

als1982 · January 2016

What does the rest of your financial picture look like? Do you have other debt? How old are you, do you have kids, how much have you saved for retirement, emergency fund, etc.? I think we need more information to better advise.

Personally, if it were me, I would increase payments to get it paid off ASAP. I have zero problem with family loans, but I wouldn't like the ongoing nagging feeling associated with knowing I owed the money, even if the lender wasn't concerned about getting it paid off quickly.

cookies754 · January 2016

Thanks for the thoughts. I'll add more info.

Our other debt is our mortgage and H's car payment (approx. three years left). We are in our mid-twenties and don't have kids. We will start trying in the summer. We both have a good start on our retirement and are building our e-fund, but not close where'd we like to be.

I'm leaning towards increasing payments, @als1982. However, that means not adding much to our e-fund each month.

als1982 · January 2016

cookies754 said:
Thanks for the thoughts. I'll add more info.

Our other debt is our mortgage and H's car payment (approx. three years left). We are in our mid-twenties and don't have kids. We will start trying in the summer. We both have a good start on our retirement and are building our e-fund, but not close where'd we like to be.

I'm leaning towards increasing payments, @als1982. However, that means not adding much to our e-fund each month.

Gotcha! You'll find different schools of thought here, but for us personally, debt trumps e-fund. We keep $1,000 liquid but that's it.

dragonstarjk · January 2016

I don't keep a large e-fund either, but in this situation I'd probably leave the payment as is until you have a little bit better e-fund. The reason I say this is that you've said you had to skip/lower payments for unexpected things already--such as the hot water heater. If you had a little bit more saved up, you wouldn't have to worry about these things affecting your current loan payment.

Once you have something comfortable in your e-fund (I'm okay with $1-3k but I know I'm in the minority) then you can up your loan payoff, but in the meantime you won't have to worry about setbacks.

bmo88 · January 2016

How stable are your jobs? You have had some concerns about covering unexpected things and you have a mortgage, so I would suggest at least 3-4 month e-fund before increasing payments and honestly before having a kid.

Also, do you have a plan in place to cover child costs related to out of pocket max, hospital bills, lost income and childcare? I only ask because if you struggle to cover unexpected things now and you throw more money at your loan, where will that money come from?

cookies754 · January 2016

Our jobs are both very stable right now. There has only been about three occasions in the past three years that I've had to lower a payment, so it's not happening very frequently. However, I do realize that there could be other issues that pop up. This is why it's hard to decide to dump money to the loan so we could start bulking up the e-fund after I'm done paying her off, or keep building our e-fund and keep payments the same.

We've started a baby fund to start planning for baby and covering child expenses.

bmo88 · January 2016

How much do you have in your efund in terms of months of expenses? How much do you have in your baby fund in terms of covering OOP max, child care and lost wages?

Since you don't have any interest on the loan, I would say to keep at your current pace with $500 until you get to a comfortable place for the e-fund and the baby fund. Your current plan has you paying off the loan in 2.3 years (28 months). However, do you anticipate the $500 amount changing once you have a child? Can you still afford that?

It is tough because you are paying back family and I personally would want it gone, but since your mom seems fine with your current pace, I would probably stick with it.

cookies754 · January 2016

We only have about 1-2 months of e-fund saved up. The baby fund only has $1,000 in it, but we just started it this month.

I am thinking that if we have our goal of $5,000 saved in the baby fund by the time baby gets here, then we would still be able to cover the cost of the loan repayment each month.

Perhaps we should stay on track with the payment and then keep building the e-fund. Also, maybe H and I need to have a discussion about postponing baby, which would be a huge disappointment.

vlagrl29 · January 2016

are you pregnant? If not I would not worry about a baby fund at this point. Personally I prefer 3 months of expenses in an e fund. I would not dump more into the school loan until I was more comfortable in e fund.

Also I wouldn't postpone trying for a baby - they really aren't that expensive IMO unless you have day care. When we were pregnant we were able to save up the max OOP and some extra for baby supplies. Don't forget you have 9 months to save.

cookies754 · January 2016

Thanks for your perspective, @vlagrl29. No, not pregnant yet. We were trying to get started on saving for hospital costs, gear, etc.

It seems like the common theme in all of these responses is to save more in our e-fund. Thanks for all of your thoughts! It definitely gives H and I a lot to consider.

bmo88 · January 2016

vlagrl29: I think it probably just really depends on the situation for a baby's costs. We are estimating spending $17,000 in the first year alone for OOP max, baby gear, child care and health insurance premiums. We aren't doing anything crazy fancy either, that's just standard for our area.

I am not sure what cookies754 situation is like and if she will need child care or if she lives in an expensive area, as that will greatly determine her expected costs.

AprilZ81 · January 2016

You should be able to look up expenses for prenatal care, labor and delivery and hospital costs online with your insurance company.

This will vary widely between locations, plans and hospitals, but to give you an idea it will cost us about $5,000 for prenatal care and labor and delivery. This does not include costs for lab work or ultrasounds but does include hospital costs and the doctor's costs for all the appointments. The baby is covered under the mother's plan for the first 3 days (basically the hospital stay) then the baby needs its own plans for wellness visits, immunizations and everything else.

A nursery doesn't have to be super expensive and a lot of the baby gear isn't necessary and/or you can buy it used for a lot less..

Unless you have paid maternity leave (if so, lucky you) the only way you get income during your time off work is short term disability and you have to sign up for that through open enrollment. It only pays out around 60% of your income. You will also still be responsible for paying for your benefits to your employer during this time. FMLA will only protect your job (assuming you are eligible) it doesn't guarantee income.

I would hold steady on your payments to your Mom, put the bulk of your efforts to an emergency fund but start putting money aside for baby expenses. If you do get pregnant quickly you can revisit your priorities in order to make sure you have enough for medical expenses, but starting now you may not have to make as many adjustments.

hoffse · January 2016

I agree with the others that you should keep the payments as-is and work on your e-fund. Water heaters are kind of pricey, but not terribly so, and as home owners you should be able to cover those sort of expenses.

FWIW I have a similar arrangement with my parents for my law school loans and a few of H's loans. They are charging us a moderate amount of interest, but it's much lower than we would have gotten with a re-fi through the bank. They are in retirement age, so the return for them is a bit higher than they would expect to see for a very safe investment. It's a win-win.

Actually, I think my dad secretly wants us to extend the loan term a little bit. He has offered to do it many times - pretty much any time I'm frustrated with our budget. He says our loans are one of their best performing investments, so I think he would be happy to drag it out a little longer!

I don't always like owing money to my parents either. I get it. But as long as your mom is willing to be flexible with you (and she's already proved she's willing to do that), then I would just keep it as-is and plug away at it until it expires naturally. At the rate you are paying it off, you have just over 2 years left, and that's not terribly long.

JoanE2012 · January 2016

I would take the extra money you are thinking of paying back faster your mom and set it aside in a separate acct each month while continuing to pay $500/month. When the separate account equals the remaining balance, I'd give it to your mom in one lump sum (provided you have a suitable savings). This way you have it if you need it, but you're still setting it aside and not spending.

cookies754 · January 2016

JoanE2012 said:
I would take the extra money you are thinking of paying back faster your mom and set it aside in a separate acct each month while continuing to pay $500/month. When the separate account equals the remaining balance, I'd give it to your mom in one lump sum (provided you have a suitable savings). This way you have it if you need it, but you're still setting it aside and not spending.

That's a really good idea, @JoanE2012!

vlagrl29 · January 2016

bmo88 said:

vlagrl29: I think it probably just really depends on the situation for a baby's costs. We are estimating spending $17,000 in the first year alone for OOP max, baby gear, child care and health insurance premiums. We aren't doing anything crazy fancy either, that's just standard for our area.

I am not sure what cookies754 situation is like and if she will need child care or if she lives in an expensive area, as that will greatly determine her expected costs.

WOAH! That's a lot of money - our max OOP was $7500, most of our family bought us all the big items for the baby shower, we spent maybe around $500 on the other things we needed before she got here. Also some misc things like paint and bedroom decor to decorate her bedroom. We got pregnant before we had enough time to save all that stuff up so I was pretty thrilled we got it all saved before she was born. Now that we have an even lower max OOP this year DH is not as nervous so we will probably be starting soon than planned, but he wants to at least wait until the walls and roof are up on his building project which I understand and agree with.

bmo88 · January 2016

vlagrl29: Standard cost of child care in our area is $1,100 a month, so we are budgeting $11,00 for child care alone (10 months). I will take off work for 2 months, but fortunately it is covered by paid maternity leave.

jtmh2012 · January 2016

I'm jumping on the build up the emergency fund camp. You've got a mortgage which means home ownership and anything can come up and a lot of it is expensive! I know you said you believe your employment situations to be stable, but in the event one of you or both had to look for another job, how long would it take you to find one? That's how much I'd have saved up.

Xstatic3333 · January 2016

bmo88 said:
vlagrl29: Standard cost of child care in our area is $1,100 a month, so we are budgeting $11,00 for child care alone (10 months). I will take off work for 2 months, but fortunately it is covered by paid maternity leave.

Yeah this is me too. You're not alone! We can cash flow it by going bare bones. I figure it's only a year.

OP, just to build off @AprilZ81's great advice, there are a few states that do offer state-sponsored short term disability, and 3 that also give some sort of maternity benefit. I mention this because I live in one of these states, and just read that most people who qualify don't take advantage of applying. I believe the three are CA, NJ, and RI.

bmo88 · January 2016

Xstatic3333: Yeah, we live in an MCOL area and $1,100 gets you ok daycare. The top preferred places are around $1,500 a month. We will cash flow the day care, but are saving up for the OOP max and initial hospital bills.

short+sassy · January 2016

I was in your situation a few years ago. My mom loaned me money for the DP on my house so I could reach the 20% down threshold. We had a comfortable minimum monthly payment for the loan, but I usually added more so I could pay it off sooner...but without putting myself in jeopardy of running low on cash if an emergency popped up. Initially she was going to charge me interest, but then she said not to worry about.

When I got a Home Equity Line of Credit on my house, I paid off the remaining balance to her. I also added an additional $500. I know she had said no interest, but she helped me out so much that I just had to give something extra as a thank-you for the loan.

brij2006 · January 2016

I personally HATE owing family money. So I would get the emergency fund to $1k, get on a strict written budget (that's very important here), and toss every extra penny toward it.

If/when you get pregnant, then I would go back down to paying the $500/month minimum. At that time you continue the strict budget and put that amount aside and build up a large cash savings for "just in case." That gives you 9 months to build up a ton of money. Once baby is here and all the medical bills are paid in full, then you put any remaining money toward the loan and continue paying until it's done.

What Would MM Do?

Re: What Would MM Do?

Choose Another Board

Search Boards