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Six Figure Student Debt - I_need_advice - 09-30-2020

I'm 23 and graduated college last year and have thus far paid my student loans down to $163,000 (yikes), with an interest rate of 6.62%. Before taxes I will make ~$80,000 this year. I work in a very stable industry and my company gives a raise between 4-8% every year so my income stream is a minimal concern. I currently have $8,000 in savings and $25,000 in a brokerage account. I am currently renting an apartment but will be moving back to my parents once my lease expires (June 2021) as covid has paved way for me to permanently work from home (no need to be close to the city). From there my expenses will be almost non-existent as my parents are much more than understanding of the amount of money I owe and willing to help me in any way possible. We have a great relationship so I'm not in any rush to get out but I would like to buy my own home as quickly as possible so they can retire and not have to think about supporting me in any way. I have a multitude of questions on how I should be allocating my money... Should I empty my brokerage account into my loans? When is the best time to refinance my loans? Should I try to completely elimate the loans before I start saving for a home? Money management has never been a big problem for me and its almost natural for me to live somewhat frugally but its a big number to have in front of you at such a young age and I would appreciate the advice from someone who has a little more life experience than myself. Thanks in advance!


RE: Six Figure Student Debt - pathfinder - 10-01-2020

I_need_advice, I mean this well, but you could definitely serve as a poster child for where we are financially. The mere fact that you're asking for advice shows some growing wisdom there. The way that you asked it shows more. I'm in my mid 30s, so I am able to share some experience as a child of 2008-2009, right when I came out of college.

I come from a Dave Ramsey-esque view that cutting your expenses is one of the best things you can do. With COVID-19 and all of the associated changes it has wrought, I don't think the markets will just go up, up and up. With that said, I am not totally a fan of abandoning your retirement or future given your age. You are at the prime time to set yourself up nicely and the time-value of money is really on your side for anything you can put back now.

I don't know what your credit looks like and this is not the place to share it, but I am going to assume you pay bills on time. Have you looked into refinancing those student loans? Rates have come down significantly in just about everything. To be honest, as I work in the financial industry, I don't think there is much more wiggle room for rates to flatline much further. Banks and other lenders have to take home something at the end of the day to make this all work. And where are at a place where fees are creeping up while rates stay low. Personally, I'd look into refinancing and hit those student loans hard. It's a bit of an albatross to let those things last. If you cut your rate, then you can knock down the principle more quickly and save across the board. There are a few debt snowball-type calculators out there, plug some numbers into there and see how cutting your interest can really save some money over the lifetime.

That lets you free up some cash. Do you have any other debts right now?

If so, pay them off. If not, I'd crunch the numbers and either start a down payment fund or get really, really aggressive on the student loans. That choice is yours. I'd try to not live the parents forever, especially if you want to put roots down in an area and own a home. As we continue to experience virus fallout, I think slow and steady will win the race. It also better positions you when things go back up.