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Student loans... Suggestions?
I have large student loans from law school. I made a lot of extra payments before I met dh, bought a house and had a baby... And before I changed firms and now have a lower salary... I do have Equal or better yearly income due to bonus structure.
Heres my question... Am I going about paying the loans off correctly in your opinion?
Loan 1 -law loan-$45,500- 2.25% for all but $17,000 which is at 2%- $448 month for 117 more months
Loan 2-consolidated- $78,650- 5.25% - $602 month for 292 months.
[otherwise we have a mortgage at 5% and plan on moving in 3 years and a car payment at 2.25% ... No credit card debit and over 4 months safety net savings not including any unemployment or disability]
plan is to take any extra income, including bonuses and tax refund and split them 50% to new house fund, 25% each to student loan extra payments and vacation/home improvements/fun money. yearly this should amount to at least $4k for loans, $4k house/vac/extra and $8k to the new house fund. We live within our salaries for the most part so this is all "extra" money.
Would you divide this differently? Thanks!
Re: Student loans... Suggestions?
Why are you buying a new house? Assuming your current house is meeting your needs, I would say you don't need to save for a new house when you have student loans that an extra $12k/yr would make a big dent in.
I hate having debt, but my instinct would be to throw most of that extra money at the higher-interest loan. That is a 24.5-year loan term, and you'll be paying a whole lot of interest if you let it take that long. Can you do $4k for vacations/home improvements/etc, and put the other $12k extra towards that loan?
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. SeussI know I wouldn't be moving with that much debt- your student loan debt is pretty much a mortgage on its own. I know you didn't state your income- and depending upon where you live/work it is easily 6 figures or will be soon, so that may not seem too high but I would have to have a majority of the student loan debt payed off before DH and I would even consider moving.
We need to move for multiple reasons. Schools (if we stay where we are we will have to pay for private school and that will cost a LOT, we will not send him to the Philadelphia public schools), the house is not big enough (it was great when we bought it but with one child it is already tight, two will be very difficult) and it is around the corner from my IL's. (I knew this going in but did not think it was going to be as horrible as it has been so for my marriage and sanity we need to move in a few years). believe me, I totally regret buying the house we bought... it is unlike me not to think years down the road and of course I did it with one of the biggest things we bought. HUGE mistake, I know this and beat myself up about it all the time but this is non-negotiable.
We've cut our monthly budget to the lowest we can get it. With all my bonuses and extra money that comes in we are living at least $25k below what we make a year so that is over $1500.00 that we are saving a month (if you spread it out) and well below our income... I honestly don't think we can go lower with daycare, loans, mortgage, etc.
So I guess the issue becomes which is a better use of money... paying down the loans quickly or having a larger down payment for a house to decrease the mortgage/ time with PMI.
Thank you ladies for your input... I really do appreciate it and I'm starting to think we really need to go see a financial advisor... this is beyond me.
Personally, I would focus on the loans first. Even if you paid down 1 set of them between now and when you purchase your new home, you will have an extra $400/month to apply toward the next set of loans or your new mortgage.
Although I am with PP's and would stick it out at your current home and focus on paying off the school loans first before moving. If you no longer have your school loan payments when you purchase the next home, you could get a much bigger and nicer home. Or save those monthly payments and apply it toward your down payment (after the SL are paid).
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My personal feeling is that student loans amounts are relative to your career. The interest rate on the #1 is so low I would focus on your other debts and only pay the minimum on that until your other higher interest loans are paid off and your retirement is well funded. No matter how much of a down payment you have mortgage interest will likely be more than that.
How much you need to save for your next house really depends on the price range you are looking at and the market you are in now. Are you expecting to be able to sell your current house, are you underwater etc...
Student loan debt is a financial drain, but there are tax advantages to the student loan interest within certain income limits so they aren't the worst kind of debt to have around. For example if left with the choice between paying off your low interest student loan and financing a car or paying cash for your car and not paying extra on the student loan, you are better off paying cash for the car. Ideally you would pay off both, but that is not always realistic.
I would balance saving and paying extra on #2. One thing to remember with student loans is that god forbid anything happens to you they go away. Your mortgage and other responsibilities will not. So I would prioritize making sure you family is in good financial shape including an emergency funds etc.