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Question about debt reduction and deciding when to purchase home
Posted on 5/10/11 at 2:57 pm
Posted on 5/10/11 at 2:57 pm
Here's an overview:
170k in student loan debt between my wife and I.
Student loans are all at 6.8%. Total monthly liability is just over $1,400/m on the 25 year plan, which is absolutely insane.
We have a gross income of about 130/yr now, which will rise by 10k a year or so pretty consistently in the future. We figure we can pay off between 40-50k in principal per year. We keep about 15k in savings.
We're currently renting a place for 1k/m. It's great, but it's too small, and we're starting to think about kiddos. (we're 28)
Basically my question is this, how should we decide at what point in our debt reduction to purchase a home? Also, how should we go about saving for a down payment while we're throwing everything we can at debt reduction?
We could wait until we're done, but it might be 4 years, and we'd be living in a rental that's too small. Also really don't want to go through the hassle of moving to another larger rental and paying 1200 a month in rent when $1500 would put us in a decent home. Buying now while we still have this mountain of student does scare the shite out of me though. Another factor is that getting rid of the student debt would allow us to get a MUCH nicer home on the back end than we could afford now.
Appreciate any help.
170k in student loan debt between my wife and I.
Student loans are all at 6.8%. Total monthly liability is just over $1,400/m on the 25 year plan, which is absolutely insane. We have a gross income of about 130/yr now, which will rise by 10k a year or so pretty consistently in the future. We figure we can pay off between 40-50k in principal per year. We keep about 15k in savings.
We're currently renting a place for 1k/m. It's great, but it's too small, and we're starting to think about kiddos. (we're 28)
Basically my question is this, how should we decide at what point in our debt reduction to purchase a home? Also, how should we go about saving for a down payment while we're throwing everything we can at debt reduction?
We could wait until we're done, but it might be 4 years, and we'd be living in a rental that's too small. Also really don't want to go through the hassle of moving to another larger rental and paying 1200 a month in rent when $1500 would put us in a decent home. Buying now while we still have this mountain of student does scare the shite out of me though. Another factor is that getting rid of the student debt would allow us to get a MUCH nicer home on the back end than we could afford now.
Appreciate any help.
This post was edited on 5/10/11 at 2:58 pm
7
Posted on 5/10/11 at 3:02 pm to Costanza
Dont understand how you can pay off 40-50K in principal a year on your student loans. Are you paying for food, dry cleaning, taxes, cars...
Posted on 5/10/11 at 3:06 pm to BlackenedOut
quote:
Dont understand how you can pay off 40-50K in principal a year on your student loans. Are you paying for food, dry cleaning, taxes, cars...
Paid for cars, and we live on probably 45k/yr. (so that we have the liquidity to throw the rest at the loans). Certainly don't intend it to be permanent, but getting rid of the loans is very important to us.
This post was edited on 5/10/11 at 3:07 pm
Posted on 5/10/11 at 4:00 pm to BlackenedOut
quote:
Dont understand how you can pay off 40-50K in principal a year on your student loans
Do you really not think that he can live on 80-90K a year?
If I were you I'd cut my expenses down to BARE BONES and pay that thing off in a couple of years then buy a house.
*this plan is Dave Ramsey approved
Posted on 5/10/11 at 4:25 pm to Haughton99
IF it were me and I'm no money expert..
1) I would consolidate and refi the student loans if not already done, should be able to get a MUCH lower rate.
2) If the house is already too small it aint gonna get any bigger, buy the house now. Intrest rates are at an all time low and the market couldn't be better to buy a first home. The addage buy low sell high couldn't be more true now. Then you are no longer throwing away money to rent, and building equity. This would allow a monthly payment that would be manageable and you could still work on paying off student loans.
I am not a fan at all of renting if you can afford to buy that is a rule that's worked for me in my career.
1) I would consolidate and refi the student loans if not already done, should be able to get a MUCH lower rate.
2) If the house is already too small it aint gonna get any bigger, buy the house now. Intrest rates are at an all time low and the market couldn't be better to buy a first home. The addage buy low sell high couldn't be more true now. Then you are no longer throwing away money to rent, and building equity. This would allow a monthly payment that would be manageable and you could still work on paying off student loans.
I am not a fan at all of renting if you can afford to buy that is a rule that's worked for me in my career.
Posted on 5/10/11 at 4:30 pm to Haughton99
quote:
Do you really not think that he can live on 80-90K a year
You forgot taxes, which will take away some of that 130K, other living expenses such as gas, food, plus other savings vehicles.
I just think a lot of people graduate from school with student loan debt and say "we'll knock it out in 4-5 years" and that just isn't realistic with any sizeable loans.
Posted on 5/10/11 at 4:38 pm to BlackenedOut
quote:
You forgot taxes, which will take away some of that 130K
you're right.. I did. But even after taxes, it seems like he still has plenty to live on after paying that much per month on the debt.
Good news is that you have a great income and once the debt is gone you'll be able to build wealth quite quickly.
Posted on 5/10/11 at 4:41 pm to BlackenedOut
quote:
Dont understand how you can pay off 40-50K in principal a year on your student loans.
Posted on 5/11/11 at 8:27 am to Haughton99
Living on 45-50k, 30k in taxes, the 40-50k on loans, Things are already tight, and we live in a place that we'll soon outgrow. I'm really trying to find the middle ground between the dave ramsey "get completely out of debt before you buy a house plan" and the devil on my shoulder screaming at me to take advantage of this market and these rates.
I think I'm willing to pay on the student loans for another year or so if it means I'm living in a nice house that's large enough for the fam. Keep the suggestions coming!
Also, any specific ideas about down payment for a house, and how to go about saving up for that while trying to pay down the debt. Is the difference in interest rate with a large down payment worth slowing down debt reduction? TIA
I think I'm willing to pay on the student loans for another year or so if it means I'm living in a nice house that's large enough for the fam. Keep the suggestions coming!
Also, any specific ideas about down payment for a house, and how to go about saving up for that while trying to pay down the debt. Is the difference in interest rate with a large down payment worth slowing down debt reduction? TIA
Posted on 5/11/11 at 8:32 am to Costanza
Mother of God...170k?
Posted on 5/11/11 at 9:01 am to Costanza
170k in loans is a load man. Dave Ramsey's advice is good for a lot of people, but doesn't always makes sense for everyone. If I were in your position: If I felt like the jobs are secure to very secure, then I would maybe consider buying a house. But, on the flip side, imagine what would happen if one of you lost your jobs, got in an accident, had medical issues, etc. Interest rates and home prices are at an all time low and waiting to be snatched up, but if I were in your shoes...and potential upside to snatching up a bargain would be outweighed by the possible negative scenarios involved with having an existing heavy debt load at 6+%...and then putting a house note on top of that. That is just my $0.02.
Posted on 5/11/11 at 10:09 am to Costanza
quote:Damn, that is a shitload. Hopefully a nice paying profession came out of that. How much would you have for a down payment?
Total monthly liability is just over $1,400/m on the 25 year plan, which is absolutely insane.
Posted on 5/11/11 at 10:21 am to Costanza
nm
Posted on 5/11/11 at 10:25 am to Costanza
Costanza,
Am in your boat, basically. Buy the house.
Am in your boat, basically. Buy the house.
Posted on 5/11/11 at 3:24 pm to saderade
quote:
Damn, that is a shitload. Hopefully a nice paying profession came out of that. How much would you have for a down payment?
A shitload indeed. We both have good jobs, and a pretty solid income for our age which will continue to rise.
The amount we'd have for a down payment would depend on how much time we'd dedicate toward saving for it. (how much time would we put the loans on hold).
My plan right now is to go the rest of this year and all of next year focusing on nothing but the loans. I figure we can knock off 100k by then. After that, reevaluate our position financially, see where we are with having kiddos, and eliminate a lot of the risk associated with having a mortgage AND the full balance of student debt. All of this unless someone can talk me out of it.
This post was edited on 5/11/11 at 3:26 pm
Posted on 5/11/11 at 3:25 pm to BlackenedOut
quote:
Costanza,
Am in your boat, basically. Buy the house.
Did you buy the house? Was qualification a problem? Decent interest rate?
Posted on 5/11/11 at 4:11 pm to Costanza
Bought a house right after wife and I finished law school used FHA loan, this was 3+ years ago. Are you just starting to practice or have you been out for a while?
Hint: The salaries of lawyers do not really increase that much year in year out.
Sure the debt is a hindrance, but with some consolidation it is manageable. Granted there are things we could cut out and make that debt disappear faster, but answer to that is we work hard enough, why punish ourselves more?
Hint: The salaries of lawyers do not really increase that much year in year out.
Sure the debt is a hindrance, but with some consolidation it is manageable. Granted there are things we could cut out and make that debt disappear faster, but answer to that is we work hard enough, why punish ourselves more?
Posted on 5/11/11 at 4:22 pm to BlackenedOut
quote:
Bought a house right after wife and I finished law school used FHA loan, this was 3+ years ago. Are you just starting to practice or have you been out for a while?
Hint: The salaries of lawyers do not really increase that much year in year out.
Sure the debt is a hindrance, but with some consolidation it is manageable. Granted there are things we could cut out and make that debt disappear faster, but answer to that is we work hard enough, why punish ourselves more?
My firm is somewhat unique in that I can count on nice annual raises to my base salary and I receive a pretty substantial (and predictable) performance bonus. The wife also receives a modest regularly scheduled raise. I've been out since 09, wife since 2010.
The way I look at it, the more we cut lifestyle/expenses now, the sooner we get rid of the debt, the sooner we can live/invest with our full income. We're still used to living on nothing, so increasing our spending at this point isn't necessary.
This post was edited on 5/11/11 at 4:31 pm
Posted on 5/11/11 at 4:25 pm to Costanza
quote:
We're still used to living like on nothing
That's the trick. It's a lot easier to avoid getting used to living on your full income in the first place, as opposed to living high on the hog from a time then cutting back.
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