You still have student loans and you've "moved on?"

[jetproppilot]

Current day, a medical education
COSTS ALOTTA BENJAMINS.

Two hundred grand....sometimes three hundred grand...in

STUDENT LOAN DEBT.

It's really easy as a student or a resident to be lulled into how your debt is on the back burner..

you'll deal with it later...

I'm here, dudes. I'm JET. I've got a certain LEGIT CREDIBILITY here.

So please listen to me:

WAKE UP. DO NOT IGNORE YOUR STUDENT LOAN DEBT. DO NOT BUY A ROKKSTARR HOUSE OR YOUR FAVORITE BMW IF YOU STILL HAVE STUDENT LOAN DEBT. PAY THAT S H IT OFF FIRST.

DEBT IS AN ANCHOR.

Med students/residents out there,

PLEASE LISTEN TO ME MAN.

Don't listen to the "IT'S A LOW INTEREST LOAN SO I'LL JUST MAKE PAYMENTS"

s h it.

Have you guys ever figured out how much interest you'll pay if you choose to finance your 200k student loan over thirty years?

DUDES, LISTEN TO ME.

Graduating from residency as an anesthesiologist, you're gonna make at least

300K.

I'm gonna tell you something you don't wanna hear if you are in the

I OWE 200K TO SALLIE MAE

club:
.
SINCE YOU'VE BORROWED SO MUCH MONEY TO GET WHERE YOU'RE AT, IF YOU'RE SMART, YOU WILL LIVE MODESTLY UNTIL YOU PAY OFF YOUR STUDENT LOAN DEBT.

I've been there.

I was 200K in the hole

When I made partner and the BIG BUCKS started flowing,

I didn't Up My Lifestyle.

I continued to live in my rented 3 bedroom 2 bath home

all the while

THROWING BIG CHECKS TO SALLIE MAE (bitch)

I wanted to pay my student loans off ASAP so I wouldn't have any debt.

Dudes, I'm gonna say that word again:

DEBT.

See that word above? That word, DEBT?

Dudes, that is a four letter word that is

MUCH WORSE

than the F word or the

C word

AND YET

Most of you young dudes have been lulled into some hypnotic state where you think TWO HUNDRED GRAND in student loans is not a big deal and you can handle it and your life will not be affected by your Student Loan Debt....

NOT TRUE.

Listen to me, dudes...please,,,I have nothing to gain by telling you this so I'm hoping you realize the significance of me taking time out of my life to tell you this:

DEBT IS AN ANCHOR.

And I'll follow that by telling you

YOU'VE BEEN FINANCIALLY MISGUIDED BY THE FINANCIAL AID OFFICE OF YOUR MED SCHOOL.

It's time for you to start thinking

ABOUT YOU.

---

Members don't see this ad.

 

[JeetKuneDo]

I can definitely relate to this. My school loans will probably make me in the 320k range by the time it's all said and done (hopefully less if I can live even more frugally, though tuition rises of 3-4k each year don't help.) 6.8% interest and 7.9% interest for each of my stafford and grad plus loans respectively. I wonder how long it will take me to pay off, assuming I live like a poor student after graduation. Scary thoughts.

 

[Ronin786]

SDN needs to feature this post on their frontpage instead of the debt article they have.

 

[partydoc]

I can definitely relate to this. My school loans will probably make me in the 320k range by the time it's all said and done (hopefully less if I can live even more frugally, though tuition rises of 3-4k each year don't help.) 6.8% interest and 7.9% interest for each of my stafford and grad plus loans respectively. I wonder how long it will take me to pay off, assuming I live like a poor student after graduation. Scary thoughts.

Use the PMT function in excel.

 

[sevoflurane]

My debt was the first thing that went... and I had interest rates of 2.25%-3%.
It may not have been what a lot of people would do, but 6-8K a year in interest was not acceptable to me... even @ that rate. @ 6.8% that is more like 18-19K per year (275k loan).
Just doesn't make sense.

The loan forgiveness locations are extremely appealing at that rate.

 

[BLADEMDA]

My debt was the first thing that went... and I had interest rates of 2.25%-3%.
It may not have been what a lot of people would do, but 6-8K a year in interest was not acceptable to me... even @ that rate. @ 6.8% that is more like 18-19K per year (275k loan).
Just doesn't make sense.

The loan forgiveness locations are extremely appealing at that rate.

You are the poster boy for debt repayment in just a few years time.

 

[sevoflurane]

Blade, I had a lot of people discourage me from doing this (including several financial advisors). I'm glad I went with my instinct. Liberating experience to say the least.

However, I would have come out ahead if I had invested in the market...but that was a gamble back then and I didn’t want to gamble with money that wasn’t mine.

So I feel good about my decision.

Todays rates @ 6.8%... it’s a no brainer IMHO.

 

[Bostonredsox]

Some of us dont want to rent a small 2br apt with our 5 kids and labrodor for 10 years while wea py off all that debt. You say paying it off over 20 is a big financial crutch. I agree with you. However i also feel living in a small house or even an apt throughout all of your kids childhood so you can pay off your debt to then buy the house once they are in college and moved out is also a crutch. My wife and I are tired of renting. My kids are tired of sharing small cramped bedrooms. I cant wait 10 years to pay off my debt for that to happen. I agree on some things. Dont buy the Beamer, I drive a 10 year old used pickup I paod 3k cash for. Dont go on vacations all the time. Dont spend frivoulously. But I dont think a house, which is an invesment in my mind, is spending frivoulously. I will carry my morgate and my second morgate (student loans) for a long time. The rest of the **** can wait. Not the house. Now if you are a 28 year old single dude who can rock out in a nice apt and just drop boatloads of cash on those loans and pay em off fast. All the power to you thats great. But to me paying an extra 150-200k in interest buy paying the loans of longer is definiely worth not having to live in a cramped house or apt for a decade with my kids as they go through high school. Circumstances make a big difference in this discussion.

 

[Stellar Clouds]

Blade, I had a lot of people discourage me from doing this (including several financial advisors). I'm glad I went with my instinct. Liberating experience to say the least.

However, I would have come out ahead if I had invested in the market...but that was a gamble back then and I didn’t want to gamble with money that wasn’t mine.

So I feel good about my decision.

Todays rates @ 6.8%... it’s a no brainer IMHO.

I'm sure that financial advisers told you not to do it because you could easily earn more than 2.25-3% by investing your income. Earning significantly more than 6.8% is not as easily done, therefore, I too agree that paying it off quickly is a no brainer. I wholeheartedly agree that once you earn an attending's salary, you should still live frugally to pay off your debt quickly. You could even pretend to take home double a resident's salary and still heavily pay off your loan debt. You can still afford a lot of house on 90-100K, if you so desire (in some areas of course, I'm not talking Boston, NY, or SF).

 

[excalibur]

Have you guys ever figured out how much interest you'll pay if you choose to finance your 200k student loan over thirty years?

Google "loan payoff calculator" and click the first website...tcalc something.

Anyway, I made calculations over TEN years and a modest 6% interest rate. So if you were to pay off the following amounts over 10 years at 6% interest rate, this is how much interest you will pay over that time and what your monthly payment would be for those 10 years.

200K, $66,247.87 of additional interest, $2225 mo payment
250K, $82,864.59 of additional interest, $2780 mo payment
300K, $98,823.19 of additional interest, $3350 mo payment
350K, $115,659.36 of additional interest, $3900 mo payment

Ouch! $3000 per month for 10 years. Painful!

 

[The Beyonder]

Google "loan payoff calculator" and click the first website...tcalc something.

Anyway, I made calculations over TEN years and a modest 6% interest rate. So if you were to pay off the following amounts over 10 years at 6% interest rate, this is how much interest you will pay over that time and what your monthly payment would be for those 10 years.

200K, $66,247.87 of additional interest, $2225 mo payment
250K, $82,864.59 of additional interest, $2780 mo payment
300K, $98,823.19 of additional interest, $3350 mo payment
350K, $115,659.36 of additional interest, $3900 mo payment

Ouch! $3000 per month for 10 years. Painful!

Is this payment schedule feasible? Ten years out of med school is just six years out of residency. Can you pay 2780 dollars a month in residency? If you’re not paying much during residency there would be more interest compounding on this loan.

 

[Doctor4Life1769]

Some of us dont want to rent a small 2br apt with our 5 kids and labrodor for 10 years while wea py off all that debt. You say paying it off over 20 is a big financial crutch. I agree with you. However i also feel living in a small house or even an apt throughout all of your kids childhood so you can pay off your debt to then buy the house once they are in college and moved out is also a crutch. My wife and I are tired of renting. My kids are tired of sharing small cramped bedrooms. I cant wait 10 years to pay off my debt for that to happen. I agree on some things. Dont buy the Beamer, I drive a 10 year old used pickup I paod 3k cash for. Dont go on vacations all the time. Dont spend frivoulously. But I dont think a house, which is an invesment in my mind, is spending frivoulously. I will carry my morgate and my second morgate (student loans) for a long time. The rest of the **** can wait. Not the house. Now if you are a 28 year old single dude who can rock out in a nice apt and just drop boatloads of cash on those loans and pay em off fast. All the power to you thats great. But to me paying an extra 150-200k in interest buy paying the loans of longer is definiely worth not having to live in a cramped house or apt for a decade with my kids as they go through high school. Circumstances make a big difference in this discussion.

Nobody told you to have 5 kids and a dog if you couldn't afford the financial heavy lifting that's associated with all that.

 

[excalibur]

Google "loan payoff calculator" and click the first website...tcalc something.

Anyway, I made calculations over TEN years and a modest 6% interest rate. So if you were to pay off the following amounts over 10 years at 6% interest rate, this is how much interest you will pay over that time and what your monthly payment would be for those 10 years.

200K, $66,247.87 of additional interest, $2225 mo payment
250K, $82,864.59 of additional interest, $2780 mo payment
300K, $98,823.19 of additional interest, $3350 mo payment
350K, $115,659.36 of additional interest, $3900 mo payment

Ouch! $3000 per month for 10 years. Painful!

This is more like 10 years out of residency. It would be VERY difficult to make these kind of payments during residency

 

[Bostonredsox]

Nobody told you to have 5 kids and a dog if you couldn't afford the financial heavy lifting that's associated with all that.

No one said I couldn't afford it. It just requires smaller monthly payments over a longer period oftime to do so. And whenyou have your kids is not always in your control depending on your beliefs. And I am not a fan of waiting till I'm 40 and have paid off my debt to have kids even if it was within my control . Not a fan of being 60 when my kiD's are finishing high schoose either

 

[sevoflurane]

I'm sure that financial advisers told you not to do it because you could easily earn more than 2.25-3% by investing your income.

... on a bad year with wars, financial, tech and real estate bubbles bursting you could be negative 5% or more.

The one thing I know about the market is that nothing is for sure except for the debt you pay down.

 

[nap$ter]

disagree.

listen to the financial advisors, mathemeticians, and economists

absolutely pay off every little bit of high interest debt, including all your student loans if you are stuck with the current high apr. absolutely live within your means. don't take on add'l outrageous loans for the mansion and maserati. buy a reasonable house, live modestly, invest wisely.

when i finished residency i continued to rent my s h i tehole apt for 350/month until all credit card debt and one higher interest rate student loan were payed to zero.

this has been discussed before. i now have 150K consolidated at 2.55%. Inflation in 2012 averaged close to 2%. So if I took my extra dough and stuffed it in my mattress - I would lose 0.55%... so why should I wait 2-4 years to buy a house? an investment with a return likely quite a bit better than 0.55%?

huh?

i understand wanting to wipe out all debt from an emotional standpoint, but good money and good math points to sitting on this ultra low apr as long as possible.

 

[badasshairday]

Jet, you say not to buy a house. But interest rates are so low, why not?

I am finishing up my PGY-1 year and moving on to my radiology residency in a new city. Cost of living is average. I can get a "doctor loan" for a home, for a measily 5% down and still get a 3% interest rate. No PMI.

I'm looking into homes 200-275K max, my payments will be somewhere in the order or 1000-1600 a month, similar to what I would pay for a two bedroom apartment in the city.

Why not buy a home and get a chance to deduct all my monthly payments (versus no deduction if I rent)? It will be the same cost monthly whether I buy or rent, but with buying I get tax deduction (~30K deduction) plus a chance to invest.

I have 200K in loans, education only, 6.8%. No other debts. My wife works and makes decent skrill, so our combined gross income is ~135K, which isn't bad considering I am in residency now. She is debt free.

The alternate would be to pour a crap ton of money down the money pit that is my student loan and get nothing in return except a 2500$ max tax deduction for interest paid on the loan.

 

[partydoc]

Jet, you say not to buy a house. But interest rates are so low, why not?

I am finishing up my PGY-1 year and moving on to my radiology residency in a new city. Cost of living is average. I can get a "doctor loan" for a home, for a measily 5% down and still get a 3% interest rate. No PMI.

I'm looking into homes 200-275K max, my payments will be somewhere in the order or 1000-1600 a month, similar to what I would pay for a two bedroom apartment in the city.

Why not buy a home and get a chance to deduct all my monthly payments (versus no deduction if I rent)? It will be the same cost monthly whether I buy or rent, but with buying I get tax deduction (~30K deduction) plus a chance to invest.

I have 200K in loans, education only, 6.8%. No other debts. My wife works and makes decent skrill, so our combined gross income is ~135K, which isn't bad considering I am in residency now. She is debt free.

The alternate would be to pour a crap ton of money down the money pit that is my student loan and get nothing in return except a 2500$ max tax deduction for interest paid on the loan.

I'm considering buying a place for residency too. My monthly payments for a condo will be about the same as renting an apartment. But your overall living cost isn't just a mortgage. It will be mortgage + tax + insurance. The tax and insurance can easily add 5-600 extra bucks a month.

 

[survivordo]

Have any of you ever read Mr. Money Mustache? Great blog about not being stupid with your money. If more of us (and Americans in general) adhered to his basic principles we would all be a lot better off.

Survivor DO

 

[Osteoimperfecta]

I have a different perspective on this. If you have 250K cash and the choice was paying off your student loans or paying off your mortgage, I will pick paying off my mortgage especially if I live in a state that protects your primary residence in the event of a lawsuit or bankruptcy. Not to mention the various tuition payback/forgiveness/dodging programs popping up which leaves the payback fast guy at a loss.

 

[Bostonredsox]

I am looking at 400k in loans at 6.8%. Looking at busting it hard first year out of residency while we rent, throwing 5-10% down to get my house (450kish, 380ish morgate after the downpayment) planning on having around a 2500 morgate payment and a 3k student loan payment for 20-25 years. I will still only be 50ish when both are paid off and ill now have a half million dollar home which will only Appreciate in value, that I completely own (equity) and no student loan debt. the rest of the stuff along the way, cars, trips, gadgets, toys, well those will be kept in modest as the debt on thehouse and student loans trickles down. then when I turn 50, then im buying myself my M3. Im ok buying a used subaru for 15k an ddriving it until im 50. The house is what matters to me any my family. this is on a salary 240-300k. Perhaps more if I like my gig and want to work extra, which is the only plus side of being a hospitalist, the week off is availabel if you are in a pinch and need extra cash. I know for a fact it is not the most economically intelligent way to go. JET is right, I should pay the debt first. But If I were going the economically msot intelligent way i wouldnt have gone to medical school....

FWIW I have only about 8k in total non studen tloan debt at the moment. i got stipends and signing bonuses during residency from my future employer and used most of it to pay off nearly all of my credit card debt and such I had amassed supporting my kids during medical school and undergrad. I have maybe 4k in CC debt and I think I owe 3k on my wifes van. Rest is all student loans.

Lastly, how long can we hope the morgate rates stay under 4%? You never know what till happen to the US economy in todays world and you wait 4-5 years while your hitting your loan debt and the morgate rates could jump to 6-7% again. But its one or the other to me. Loans or morgate. All the other stuff you can do without while your paing off the big stuff. Everything else depreciates. Buying a nice home at a low rate in a nice area will give you equity down the road unlike buying a masserati. If you were doing the latter, I would agree with everyone else, skip the car pay your loans. A house is different IMO.

 

[Postictal Raiden]

I am looking at 400k in loans at 6.8%. Looking at busting it hard first year out of residency while we rent, throwing 5-10% down to get my house (450kish, 380ish morgate after the downpayment) planning on having around a 2500 morgate payment and a 3k student loan payment for 20-25 years. I will still only be 50ish when both are paid off and ill now have a half million dollar home which will only Appreciate in value, that I completely own (equity) and no student loan debt. the rest of the stuff along the way, cars, trips, gadgets, toys, well those will be kept in modest as the debt on thehouse and student loans trickles down. then when I turn 50, then im buying myself my M3. Im ok buying a used subaru for 15k an ddriving it until im 50. The house is what matters to me any my family. this is on a salary 240-300k. Perhaps more if I like my gig and want to work extra, which is the only plus side of being a hospitalist, the week off is availabel if you are in a pinch and need extra cash. I know for a fact it is not the most economically intelligent way to go. JET is right, I should pay the debt first. But If I were going the economically msot intelligent way i wouldnt have gone to medical school....

FWIW I have only about 8k in total non studen tloan debt at the moment. i got stipends and signing bonuses during residency from my future employer and used most of it to pay off nearly all of my credit card debt and such I had amassed supporting my kids during medical school and undergrad. I have maybe 4k in CC debt and I think I owe 3k on my wifes van. Rest is all student loans.

Lastly, how long can we hope the morgate rates stay under 4%? You never know what till happen to the US economy in todays world and you wait 4-5 years while your hitting your loan debt and the morgate rates could jump to 6-7% again. But its one or the other to me. Loans or morgate. All the other stuff you can do without while your paing off the big stuff. Everything else depreciates. Buying a nice home at a low rate in a nice area will give you equity down the road unlike buying a masserati. If you were doing the latter, I would agree with everyone else, skip the car pay your loans. A house is different IMO.

I've got some questions for you:

Are you planning on paying off your loans using government loan repayment programs (IBR, PAYE, etc.)?

With 30K/year payment on your future mortgage, how long will it take you to pay off your entire house?

I'm a calculation freak. I calculated that, assuming you make 240k/year, your take home income will be ~165-175k after taxes, depending on where you live. If you repay your student loans with IBR, that will leave you with 130K+ of take home income. After your mortgage payments, will have 100k+ left. That's still more than enough money to live decently and buy yourself a BMW, not a masserati though.

 

[dhb]

A couple of points:

-Inflation is not 2% or else the price of things would not be doubling every 10 to 15 years.
-I would not repay a loan that rate is below inflation
-I would repay asap a loan at a higher rate
-A home is not an investment it's price just follows "real" (see first point) inflation

 

[chessknt]

Buying a house that you do not intend to live in for >5 years is a very risky "investment." Even if it appreciates modestly, you are still going to have to sell it, which is inherently stressful and nothing is guaranteed. Depending on your location, there are significant taxes associated with this as well. Not to mention if something catastrophic happens to the home you are on the financial hook. If you intend to do a fellowship somewhere, do you really want to be anchored locally by your home purchase?

The number that gets thrown around a lot is that living expenses (utilities+rent or mortgage/taxes and homeowner/renter insurance) should constitute no more than 30% of your take home http://www.census.gov/housing/census/publications/who-can-afford.pdf).

White coat investor is a great site for people who have minimal financial knowledge but want to learn. I would highly recommend reading his sections on home ownership and doctor loans, in addition to whatever other resources you can find, before making the decision to even start looking.

Finally a calculator if you have the figures available to make it accurate: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

 

[Bostonredsox]

The house we buy is the house we plan on dying in. We are old fashion. I want my kids to come home for the holidays to the home they grew up in.

And no to ibr. I'm just paying back the standard over 25 years plan. And yes when I did the math I was planning on about 90-100k take home after loans/mortgage. That's more than enough for us. No I won't have as impressive retirement fund and stuff as others, but I plan on enjoying the ride and my home. We've lived poor enough through school and residency.

And fwiw we have already bought and sold a home we lived in during med school. We choose to rent for residency. Fellowship is probably not going to happen unless an institution near where we buy and settle, about an hour from where I am finishing residency, becomes An option. Last I checked both Duke and UNC are not shall we say, DO friendly, so it probably won't happen.

I am also hoping my next job will have some government loan payback options as I know the area is under served.

 

[Doctor4Life1769]

The house we buy is the house we plan on dying in. We are old fashion. I want my kids to come home for the holidays to the home they grew up in.

And no to ibr. I'm just paying back the standard over 25 years plan. And yes when I did the math I was planning on about 90-100k take home after loans/mortgage. That's more than enough for us. No I won't have as impressive retirement fund and stuff as others, but I plan on enjoying the ride and my home. We've lived poor enough through school and residency.

And fwiw we have already bought and sold a home we lived in during med school. We choose to rent for residency. Fellowship is probably not going to happen unless an institution near where we buy and settle, about an hour from where I am finishing residency, becomes An option. Last I checked both Duke and UNC are not shall we say, DO friendly, so it probably won't happen.

I am also hoping my next job will have some government loan payback options as I know the area is under served.

wait, are you IM or anesthesia?

 

[urge]

I have debated paying off my loans which are at 3.5% interest. I could pay them off right now without changing my standard of living, or take another 15 yrs to pay them off.

Inflation is about 6-7% IMHO, the reason why I haven't paid it off.

I could put this money in dividend stocks that pay around 3.5 to 4% yield (I have had it for over 5 yrs, I send a few hundred bucks every month), but honestly it is just sitting in a 0.5% savings account. I like having some non compromised money around just in case, especially in current times. Jet's "F U account" is a good thing to have.

What would you do in this situation?

1 pay off
2 dividend stocks at ~ 4%
3 keep it in Jet's F U account

 

[Bostonredsox]

IM/ hospitalist. So I will probably have to be at peace being a critical care hospitalist at a community shop like mine.

 

[BLADEMDA]

I am looking at 400k in loans at 6.8%. Looking at busting it hard first year out of residency while we rent, throwing 5-10% down to get my house (450kish, 380ish morgate after the downpayment) planning on having around a 2500 morgate payment and a 3k student loan payment for 20-25 years. I will still only be 50ish when both are paid off and ill now have a half million dollar home which will only Appreciate in value, that I completely own (equity) and no student loan debt. the rest of the stuff along the way, cars, trips, gadgets, toys, well those will be kept in modest as the debt on thehouse and student loans trickles down. then when I turn 50, then im buying myself my M3. Im ok buying a used subaru for 15k an ddriving it until im 50. The house is what matters to me any my family. this is on a salary 240-300k. Perhaps more if I like my gig and want to work extra, which is the only plus side of being a hospitalist, the week off is availabel if you are in a pinch and need extra cash. I know for a fact it is not the most economically intelligent way to go. JET is right, I should pay the debt first. But If I were going the economically msot intelligent way i wouldnt have gone to medical school....

FWIW I have only about 8k in total non studen tloan debt at the moment. i got stipends and signing bonuses during residency from my future employer and used most of it to pay off nearly all of my credit card debt and such I had amassed supporting my kids during medical school and undergrad. I have maybe 4k in CC debt and I think I owe 3k on my wifes van. Rest is all student loans.

Lastly, how long can we hope the morgate rates stay under 4%? You never know what till happen to the US economy in todays world and you wait 4-5 years while your hitting your loan debt and the morgate rates could jump to 6-7% again. But its one or the other to me. Loans or morgate. All the other stuff you can do without while your paing off the big stuff. Everything else depreciates. Buying a nice home at a low rate in a nice area will give you equity down the road unlike buying a masserati. If you were doing the latter, I would agree with everyone else, skip the car pay your loans. A house is different IMO.

I actually feel sorry for you after reading this post. The next time I feel bad about my career/job I will remember that post.

Anesthesia has been good to me as it has been to Jett, Sevo, MMan, etc. Not only do I have a big F U account, 529 plans and a big retirement account I also have no debt whatsoever. I did all this by age 50. I've even had a few BMWS, M-B, Lexus, etc. along the way.

I agree the primary residence is what matters to your family. Also, based on what you earn your plan is a solid one. I totally agree about buying a nice home at today's prices with a 4% or lower mortgage rate. IMHO, Housing is a great buy right now and actually bottomed a year ago.

Remember, unlike a plumber (who hides his real income of $100K and declares $35K) the IRS and Colleges view you as "rich." This means your kids won't get the freebies the plumber's kids get as far as financial aid. So, you might need to invest in a 529 plan and/or a prepaid College plan as part of your overall fininacial plan.

One last piece of advice is work those extra shifts if possible.

 

[Bostonredsox]

Thanks blade. Def planning lots of extra shifts. I like my plan. My only uncertainty is how I'm going to go about savings plans for my kids college, not that I'm paying for them, my parents didn't pay for mine I took loans.

And don't feel bad. I chose the family route, sort of lol. And I will have nothing to complain about if/when im in a 450k house and i have a smaller 3 series coupe. My only complaint will be if I end up not being able to practice CC. That will hurt. O well. "Blessed are the meek for they shall inherit the earth" -Matthew 5.5. I could have it worse.

 

[Hockeyguy]

disagree.

listen to the financial advisors, mathemeticians, and economists

absolutely pay off every little bit of high interest debt, including all your student loans if you are stuck with the current high apr. absolutely live within your means. don't take on add'l outrageous loans for the mansion and maserati. buy a reasonable house, live modestly, invest wisely.

when i finished residency i continued to rent my s h i tehole apt for 350/month until all credit card debt and one higher interest rate student loan were payed to zero.

this has been discussed before. i now have 150K consolidated at 2.55%. Inflation in 2012 averaged close to 2%. So if I took my extra dough and stuffed it in my mattress - I would lose 0.55%... so why should I wait 2-4 years to buy a house? an investment with a return likely quite a bit better than 0.55%?

huh?

i understand wanting to wipe out all debt from an emotional standpoint, but good money and good math points to sitting on this ultra low apr as long as possible.

NAILED IT! Surprises me how many smart people can't comprehend this. I had a little less than 130K at 2.25%.

I had a investment property with quite a bit of equity (about 300K) refinanced and took 130K and payed off student loan. Interest rate on that was higher at 3.375 but now its tax deductible interest (that someone else is paying) and since that time the property has appreciated another 175K or so I playing with house money -med schools was essentially free if I sell that property. And if I go broke or something terrible happens I can walk away from that debt - very unlikely but could happen. It is very hard, if not impossible, to discharge student loan debt.

Just what I did. Lots of ways to skin a cat.

 

[jetproppilot]

Jet, you say not to buy a house. But interest rates are so low, why not?

I am finishing up my PGY-1 year and moving on to my radiology residency in a new city. Cost of living is average. I can get a "doctor loan" for a home, for a measily 5% down and still get a 3% interest rate. No PMI.

I'm looking into homes 200-275K max, my payments will be somewhere in the order or 1000-1600 a month, similar to what I would pay for a two bedroom apartment in the city.

Why not buy a home and get a chance to deduct all my monthly payments (versus no deduction if I rent)? It will be the same cost monthly whether I buy or rent, but with buying I get tax deduction (~30K deduction) plus a chance to invest.

I have 200K in loans, education only, 6.8%. No other debts. My wife works and makes decent skrill, so our combined gross income is ~135K, which isn't bad considering I am in residency now. She is debt free.

The alternate would be to pour a crap ton of money down the money pit that is my student loan and get nothing in return except a 2500$ max tax deduction for interest paid on the loan.

What I meant to say is "Do not buy a ROKKSTARR house," like alotta people do.

I've modified my post.

Thanks for pointing that out!

 

[BLADEMDA]

I have no issues buying a home if you have kids. But, I can't see anyone wanting to have student loan debt at age 50 regardless of the interest rate. But, I'm a dinosaur and believe in DEBT free living which the younger generation doesn't always agree with.

I guess if you still have student loan debt when YOUR OWN kid goes to college you can always say "I'm still payimg off my own loans junior so you are on your own."

I opted for the old fashioned plan: Pay off all debts including my home and saving money for 529 plans as well as buying prepaid college plans. I have ZERO regret with that plan and won't be taking out a new mortgage at 2.75% either (even though I'm the type of buyer all the banks want).

I had debt when I graduated med school and I lived in a way that my children won't have to borrow a dime. Maybe, that is a crutch to them in the long run but I am glad to have saved so they have options in a tough world.

I agree that paying off low interest rate debt should be last in a long list of items to deal with. But, long term debt isn't something I feel comfortable. Freedom means different things to different people and for me being debt free is its own reward.

If you can't afford it then don't buy it. It's that simple. This means a real fininacial plan which includes high interest debt repayment especially credit cards then home/mortgage followed by low interest rate debt. Also, you need a real retirement plan (at least $50K or more per year and I recommend more as you get older) as well as college planning for the kids (which for some means no money for college).

When you factor in debt, mortgage, retirement, the kids, etc. $300K PRETAX doesn't go as far as you think. Let's hope your employer is providing the bulk of that $50K per year for retirement.

In the end, you make the final decision for allocation of your money. Just remember the piper has to be paid one way or the other.

 

[Stellar Clouds]

If you can't afford it then don't buy it. It's that simple.

If only more people would actually live like this...

 

[pgg]

Lastly, how long can we hope the morgate rates stay under 4%?

Who knows, but not forever. Probably until 2015 if the Fed can be believed.

The flip side is that when mortgage rates rise, home prices will probably crash again.

 

[excalibur]

I am looking at 400k in loans at 6.8%. Looking at busting it hard first year out of residency while we rent, throwing 5-10% down to get my house (450kish, 380ish morgate after the downpayment) planning on having around a 2500 morgate payment and a 3k student loan payment for 20-25 years. I will still only be 50ish when both are paid off and ill now have a half million dollar home which will only Appreciate in value, that I completely own (equity) and no student loan debt. the rest of the stuff along the way, cars, trips, gadgets, toys, well those will be kept in modest as the debt on thehouse and student loans trickles down. then when I turn 50, then im buying myself my M3. Im ok buying a used subaru for 15k an ddriving it until im 50. The house is what matters to me any my family. this is on a salary 240-300k. Perhaps more if I like my gig and want to work extra, which is the only plus side of being a hospitalist, the week off is availabel if you are in a pinch and need extra cash. I know for a fact it is not the most economically intelligent way to go. JET is right, I should pay the debt first. But If I were going the economically msot intelligent way i wouldnt have gone to medical school....

FWIW I have only about 8k in total non studen tloan debt at the moment. i got stipends and signing bonuses during residency from my future employer and used most of it to pay off nearly all of my credit card debt and such I had amassed supporting my kids during medical school and undergrad. I have maybe 4k in CC debt and I think I owe 3k on my wifes van. Rest is all student loans.

Lastly, how long can we hope the morgate rates stay under 4%? You never know what till happen to the US economy in todays world and you wait 4-5 years while your hitting your loan debt and the morgate rates could jump to 6-7% again. But its one or the other to me. Loans or morgate. All the other stuff you can do without while your paing off the big stuff. Everything else depreciates. Buying a nice home at a low rate in a nice area will give you equity down the road unlike buying a masserati. If you were doing the latter, I would agree with everyone else, skip the car pay your loans. A house is different IMO.

I will say good luck to you. Reading this post I really just wish you the best.

400K?? at 6.8% over 20 years??

I went to a loan payoff calculator website and...

$400K at 6.8% over 20 years equals a monthly payment of $3050 and the ADDITIONAL interest you will have paid is...$333,717.28.

God bless. That is a lot of money in interest. $733K to pay $400K??

That in itself is scary.

Other things though. I do not blame you for wanting a house. I know what that is like. You got kids, you are coming into some extra money. You are tired of living in a little box. You are going to be in this house daily, you want it to be something you like. I totally understand because I did the same thing. I moved from residency to private practice, so we wanted an upgrade in terms of house. If I would have gotten a job where I did my residency, I would have continued living in same house for sure. Since I moved, I felt I would upgrade.

Here is another question though. How are you going to furnish this 5 bedroom house you plan on getting? I hope you have all the furniture already. New furniture is going to cost a decent chunk of money. If you get that nice house, sometimes it's hard for the Mrs. to settle with the $99 bed in a bag from Bed, Bath, and Beyond for the Master Bed. I spent my first year of private practice paying back among other things the credit card bills for furniture and appliances for the new house.

Blade mentioned his 529's, his 401K, his investment accounts. Sadly, I just can't see these things as realistic options while your paying that loan back. Perhaps you could contribute some, but I can't see substantial contributions to any of these in that 20 year period. Plus these need TIME to grow. Making larger contributions at age 50 just aint gonna cut it.

Yes you won't have money for your children's college or post-graduate education. It's sad when I see a 250K earning potential for 20 years, and then the acknowledgment that there can be no money for children's college education because of 400K in loans. Sadly, though I know that is the reality for many. It's sad though because the children might be in the same financial boat 20 years from now because they had to borrow all sorts of money for their education. The cycle will just repeat.

The part I really didn't understand. At age 50 or so as you said, when you FINALLY paid off your house AND enormous loan, your plan was to...BUY AN M3. With what? Cash?? Are you going to save up money during those 20 years with the plan of buying a luxury car at age 50 instead of saving money for retirement, 529, or investing in a mutual fund? Or after you pay all that debt off, do you plan on taking a car loan for the M3?

I say again...Good luck to you.

 

[jetproppilot]

NAILED IT! Surprises me how many smart people can't comprehend this. I had a little less than 130K at 2.25%.

.

HYPNOSIS MAN.... WATCH THE BIRDY...

I'm always entertained by dudes like you that post and act like

YOU ARE A BUSINESS!

You're not a business, dude, unless you've incorporated yourself because you own a business or unless you have an LLC because you own a business

YOUR DAVID COPPERFIELD EXPLANATION OF DEBT

is just that, man.

YOU'RE IN DEBT, RIDING THE "CRAPS TABLE"

of our economy.

You sound really smart quoting interest percentages and such.

As an Individual, that equates to

NOT A LOT MAN.

You're better off saving your

RATIONALIZATION OF WHY YOU HAVEN'T PAID OFF YOUR

DEBT

and

PUTTING YOUR HARD EARNED DOLLARS TOWARDS YOUR DEBT ANCHOR BEFORE YOU BUY AN MTV CRIB AND AN INFINITI FOR YOUR WIFE SO YOU CAN SOMEDAY IN THE NOT TOO DISTANT FUTURE BE FREE OF DEBT SINCE

Being Free of Debt

SETS YOU FREE MAN.

You can then move to the

ACCUMULATION PHASE..

..bank account in the 6 digits...contributing MAX amounts to retirement accounts....maybe a vacation house...

Here's the problem with some of you out there...

You've moved yourselves into the ACCUMULATION PHASE WHILE YOU ARE STILL IN

DEBT!!!

WTF?

No man.

Take a deep breath.

Take a step back.

Don't buy that shiny car/ROKKSTARR house/ second home until you

PAY OFF YOUR STUDENT LOANS.

DEBT IS AN ANCHOR.

Being Debt Free will literally

SET YOU FREE.

ALOTTA YOU OUT THERE ARE FOOLING YOURSELVES, MAN.

 

[Obnoxious Dad]

When comparing the rates of return between paying off student loans and investing in the market, please remember that the interest rate on student debt is an after tax rate of return for all practical purposes. Because of the limit on student loan interest as a deduction and because the deduction is phased out as incomes rise, physicians after residency get no tax benefit from student loan interest. So, if you are comparing returns from investing in the market you have to use the after tax rate of return from stocks, real estate etc.

On the other hand the fed has kept rates low by printing money to buy bonds. There is a mountain of cash sitting in corporate bank accounts. If we have rip roaring 70s level inflation you may be able to pay your loans back with very cheap money.

 

[Gern Blansten]

These types of threads should be required curriculum for med school and residency. The debt load is really the dirty little secret of med school that no one talks much about. It is getting worse as tuition rises and as forebearance went away several years ago. The amount of total extra interest paid on med school debt by the time it gets paid off is staggering.
I agree with Jet that you should live modestly for several years and get yourself in much better financial shape before you splurge on huge homes and expensive cars. It is very hard to do, but you will be thankful 15 years from now.
The simple philosophy of, "if you can't afford it, don't buy it" should be the norm. And if you have a huge, high interest debt anchor, you most likely can't afford any luxuries.
I suggest giving yourself a modest lifestyle increase when residency is done and commit the rest of your money to paying off debt (obviously the high interest first). Once the rich lifestyle is present, it is almost impossible to go back, unless forced. As mentioned, the big new house comes with added and hidden costs. The neighborhood association, the pool and maintenance, the lawn care, the furniture and appliance costs, the general upkeep (not cheap as something is always breaking), Then, you and the wife want nice cars, because you have both put in your time driving clunkers. Maybe the wife wants the kids in private school where all of her friends kids go. Maybe you join the country club. Before you know it, instead of paying off debt, you are accumulating more debt. Meanwhile, your friends who chose different career paths are doing well financially and do not have the same debt anchor that you do. It can be very frustrating.

I really think that part of the curriculum should be financial planning. I got none when I was going through the process.

 

[aneftp]

If you are single (that's a big IF) or don't have a family, you should easily be able to pay off 200K in student loans in around 7-8 years after finishing residency and still be able to afford a nice home.

There is simple no excuse. I LOST 250K cash on 2 homes since I purchased at the peak of the housing bubble in end of 2005 (never made any money on a home since it was my first home). I sold in 2009 since I was losing so much money by renting it out and rental laws do not favor tax deductions for rental losses once you make more than 100K AGI and phases completely out by 150K AGI. Brought another home in 2009 and market was still tanking and sold in 2012. But got an incredible deal on a bigger home in 2012.

Yet I managed to pay off around 120K of student loans in about 6 years after residency.

Think about that. Losing 250K in the housing market. That's real cash plus paying off 120K student loans. All in a 6 year period. That's 370K I spent paying off debt/losing money.

Yet I managed to max out my retirement account (have over 500K pre tax in 401K even after the market crashed in 2008) and close to 500K liquid savings/stocks/cash.

I probably "average" about 330-340K in self employment income over a 8.5 year period.

Yet I still went through my Hummers, BMW convertibles/ Audi Q7 etc. My cars were all paid with cash.

So I have no clue why people can't pay off student loan debt fast.

I even got married 4 years after residency and have 2 kids and still maxing out my retirement. It's manageable. We still travel a lot (well haven't travel in past 8 months since newborn). But still living our lives.

What the heck are people doing with their money? Buying boats? 2nd homes? Expensive private schools for the kids even though they live in A rated public school systems? Those are usually the issues with people who complain they can't pay off debt.

 

[Bostonredsox]

I will say good luck to you. Reading this post I really just wish you the best.

400K?? at 6.8% over 20 years??

I went to a loan payoff calculator website and...

$400K at 6.8% over 20 years equals a monthly payment of $3050 and the ADDITIONAL interest you will have paid is...$333,717.28.

God bless. That is a lot of money in interest. $733K to pay $400K??

That in itself is scary.

Other things though. I do not blame you for wanting a house. I know what that is like. You got kids, you are coming into some extra money. You are tired of living in a little box. You are going to be in this house daily, you want it to be something you like. I totally understand because I did the same thing. I moved from residency to private practice, so we wanted an upgrade in terms of house. If I would have gotten a job where I did my residency, I would have continued living in same house for sure. Since I moved, I felt I would upgrade.

Here is another question though. How are you going to furnish this 5 bedroom house you plan on getting? I hope you have all the furniture already. New furniture is going to cost a decent chunk of money. If you get that nice house, sometimes it's hard for the Mrs. to settle with the $99 bed in a bag from Bed, Bath, and Beyond for the Master Bed. I spent my first year of private practice paying back among other things the credit card bills for furniture and appliances for the new house.

Blade mentioned his 529's, his 401K, his investment accounts. Sadly, I just can't see these things as realistic options while your paying that loan back. Perhaps you could contribute some, but I can't see substantial contributions to any of these in that 20 year period. Plus these need TIME to grow. Making larger contributions at age 50 just aint gonna cut it.

Yes you won't have money for your children's college or post-graduate education. It's sad when I see a 250K earning potential for 20 years, and then the acknowledgment that there can be no money for children's college education because of 400K in loans. Sadly, though I know that is the reality for many. It's sad though because the children might be in the same financial boat 20 years from now because they had to borrow all sorts of money for their education. The cycle will just repeat.

The part I really didn't understand. At age 50 or so as you said, when you FINALLY paid off your house AND enormous loan, your plan was to...BUY AN M3. With what? Cash?? Are you going to save up money during those 20 years with the plan of buying a luxury car at age 50 instead of saving money for retirement, 529, or investing in a mutual fund? Or after you pay all that debt off, do you plan on taking a car loan for the M3?

I say again...Good luck to you.

You can find nice 3-4 year old M3s for 25k. I'll probably just take out a small car loan for it. I'll be 54 and will probably work another 15 years (I'm not a sitter I can't retire early ill work in some sort of medicine till I'm ancient even if its just seeing 12 pts a day in a primary care clinic) I'm sure along the way I could have 25k to spend on it. From earlier discussion my post loans/morgate take home was still 100,000 and over 25 years that's 2.5 mil. I'm sure ill have good savings and 401k. It won't be like yours but it will be enough for a used m3 if I want one. This is at least my plan at the moment we will see how things shake out with the house and such and how much I can truly work. I have many hospitalist friends clearing 350 working 2 extra shifts every off week ( so essentially 9 on 5 off). Will depend on how hard I'm working. My current facility has residents who write all the notes and such it's not as tiring a day. So my earrings may be much more than 250k. Plus a few years of under served govt loan repayment can help me quite a bit.

 

[caligas]

So glad I paid off early. 4% $150k. 2006 anesthesia grad. If I had invested the money then instead of paying (I did it in 2 years) my investment would just now be back to even and I would have paid $40k interest.

 

[Mman]

living frugally is the key. There is no magic formula of pay this, don't pay that, invest in this, etc. The answer to all those things is...it depends! For some people, paying debt to zero is best for them. It makes them feel good by having financial freedom. For other people, critically analyzing rates of return on investments and comparing it to interest rates on loan leads them to not pay off low interest debt fast and they end up wealthier 10 years from now. But it depends.

For me, my student loans of nearly 200K (when I first started paying back) are at 1.7% interest. I auto pay my loan payment rounded up to the nearest $100 each month (easier to balance the check book with an even $800 a month rather than the pennies and dollars it works out to) and that's it. To me, it isn't worth it to pay them off sooner. The math just doesn't work out. Instead I'm paying my mortgage down to zero ASAP because @ 3.9% I'd rather just be done with that headache (and will be done in another 6-9 moths). But I'm also able to finance various investment (dividend stocks, ETFs, etc) and savings opportunities including keeping 9-12 months of living expenses (including mortgage payments) in a liquid account in case of emergency. If my group folded tomorrow, I could still maintain my style of living for 12 months without earning a penny in income which would give me time to find another job and money for moving expenses should I need to move.


Financial life is just so much easier if you don't spend insane amounts of money. My car is 4 years old and running great and I probably won't need another for 4-5 years (probably be bored and want a new one at that point). My house is in a nice neighborhood, but it's the smallest house on the block.

Save, save, save. The act of doing it is probably more important than the manner in which you do it. Be frugal and you will have a long and happy financial life regardless of what future reimbursement is for medicine in this country.

 

[Direct Laryngoscopy]

I have 220K at 6.8% (consolidated). I have a plan to chop 66-75% in 3 years. I think like the other posters said, it takes discipline. I don't plan on upgrading to the Benz on July 1st (I'm not really in to cars like that), I'm not gonna finance 1 million for a home (although I am into nice homes with space), nor will my kids be enrolling into Dalton or the trinity school (not in HS as yet, but still). I plan to continue to live frugally as I have until I'm debt free (and live financially responsible thereafter).

I have a friend who is in his 1st year out and already chopped off 1/3 of 240K so it can be done if you're smart about your spending habits. My wife and I do have assets, that put us in a MUCH better position than most finishing residency, but we feel getting from underneath the mountain of debt early is the way to go. Of note we have NO credit card debt. If that were the case, I would pay that off first, then attack the student loans.

My only indulges post residency will be to slightly upgrade my golf set (approx $350 bucks), at least one trip to Vegas with my dudes ($1000 spending cash), and golf trip with the guys ($750 total). I'm good.

 

[Bostonredsox]

Question, once I consolidate and start paying soon, if I set my loans up for 20 years and I'm making crazy bank working extra hours, can I pay extra on my loans without penalty so that say, I turn 20 years into 14 years? This would be nice because if I have a Few months light on cash because I needed it for something else, I wouldn't be obligated to pay the bigger payment but on other months I could.

 

[nap$ter]

I'm always entertained by dudes like you that post and act like

YOU ARE A BUSINESS!

You're not a business, dude, unless you've incorporated yourself because you own a business or unless you have an LLC because you own a business

YOUR DAVID COPPERFIELD EXPLANATION OF DEBT

is just that, man.

YOU'RE IN DEBT, RIDING THE "CRAPS TABLE"

of our economy.

Here's the problem with some of you out there...

You've moved yourselves into the ACCUMULATION PHASE WHILE YOU ARE STILL IN

DEBT!!!

WTF?

ALOTTA YOU OUT THERE ARE FOOLING YOURSELVES, MAN.

most of us on here are a) partners in a business, and b) have incorporated ourselves as LLC's.

math is not magic (maybe to some americans).

all of investing is more or less gambling, with higher or lower risks and rewards.

jpp, with all due respect your post is emotional and irrational. where is the math to support your advice? what is the dollar value one should pay for the emotional satisfaction gained from bringing debt to zero early?

again, here is the math to support moving funds into the "accumulation phase" in the setting of debt.

150K at 2.55%. Inflation over the last year has dependably been around 2% (check your math and sources, dhb). an ultraconservative investment portfolio returns at least 3% - closer to 5%. a low-risk return of 2-4%.

no one is advocating living as a rokkstar. no one is advocating sitting on the debt and simply paying the interest without investing along other avenues. live within your means. pay cash for everything except your (modest) house.

also - don't work too hard, spend time on the things that really matter in life.

 

[nap$ter]

Question, once I consolidate and start paying soon, if I set my loans up for 20 years and I'm making crazy bank working extra hours, can I pay extra on my loans without penalty so that say, I turn 20 years into 14 years? This would be nice because if I have a Few months light on cash because I needed it for something else, I wouldn't be obligated to pay the bigger payment but on other months I could.

yes.

 

[BLADEMDA]

http://finance.yahoo.com/news/pay-off-student-loan-fund-080019829.html


http://www.youneedabudget.com/forum...d-pay-off-student-loan-debt-early-t19922.html

 

[BLADEMDA]

Many investment gurus advise that repayment of student loans should be postponed for the longest period possible. The logic of their advice is something like this. Think of the spare funds with which you seek to repay the student loan, as your invest-able funds. The options available before you are two. The first is to repay the student loan and save paying interest on it. The second is to invest this amount elsewhere in safe investment avenues, where you can earn a good rate of return.
The gain for you in this exercise is the difference between the amount you earned on your investments and the interest that you need to pay on the student loan. This strategy will work only when there are suitable and safe investment avenues, where the rate of interest is higher than the rate of interest to be paid on the student loan.
Taking advantage of the strategy as aforesaid will give the person the advantage of investing early. Investing early gives your investments an opportunity to grow at a faster rate due to compounding. A few years delay in commencing investments can result in a much lower accumulation in your retirement funds.
Employees may also invest the amount saved in 401(k) pension plans depending on the scheme implemented by the employer. In a case where the employer matches the employee's contribution, this can see an immediate gain of 100% in the amount invested.
While all this may seem like a good option, making this strategy work in a real situation is a Herculean task. The first and foremost drawback is that it presupposes a level of understanding of investments and finance. Most people do not have the capacity to take investment decisions on their own. Taking the advice of a financial consultant can wipe off the benefits of the entire exercise due to the fees and related costs involved.

 

[Frank Rizzo]

The simple philosophy of, "if you can't afford it, don't buy it" should be the norm. And if you have a huge, high interest debt anchor, you most likely can't afford any luxuries.
I suggest giving yourself a modest lifestyle increase when residency is done and commit the rest of your money to paying off debt (obviously the high interest first). Once the rich lifestyle is present, it is almost impossible to go back, unless forced.

Bingo.

A thread like this popped up about this time last year. Amazing what tax time will do.

This ends up being a very personal decision for everyone. I fall into the above camp with Gern/Jet/Sevo, et al. I'll be 4 yrs out this summer, graduated with ~175K+/-, consolidated 3%. Told myself I would have it paid off in 5 years. I should beat my schedule by 6 months. I live almost exactly like I do when I was a resident... I'm a cheap b@stard, so much so that my partners make fun of me. Oh well. If I'm living so cheap, why isn't it paid off already you may ask??? I don't plan on living cheap forever... I've built up a down payment for a house, an FU account, and have started fully funding some retirement accounts.

Nothing wrong with crunching numbers and following a plan like Slavn. Everybody is different, and this makes perfect mathematical sense. Maybe this plan is right for you, its just not for me.