Hi all,
I just want to say that in the couple months I've been reading this forum, I have learned a LOT. I just wish I had found this forum years ago while I was still foolish. I realize I'm old and not in the greatest financial position, but I need to be pragmatic and tackle this and would greatly appreciate any advice you have for my situation (if it's bad enough that I need to speak with a paid professional, I wll gladly take recommendations!):

- I'm 34, late return to grad school, now in my first year in my career. - I make $90k; spouse is 44 and makes more, no kids nor plans for any
- I have federal student loans of $280k at 7.5% (ouch); andf private loans of $9k at 10.25% (variable - another ouch)
- Refi'd my paid-off car to get a chunk of cash to pay off my credit card balances and pay down the 10% student loan (which had been at $16k); car loan is 2.9% ($300 payment for three years).
- In process of saving emergency fund (currently at $2300; saving $750/mo until I get to $7k or so).
- spouse has student loans, car payment and a credit card; $150k in 401(k)
- mortgage on a 10 year fixed *interest only* loan is about $3.3k; in five years when we start paying principal it will go to about $5k. No equity since we bought when they still had those crazy loans; we plan to be in the house indefinitely though.

Loan strategy: I want to preface this by saying that this is a short or midterm strategy - I intend to snowball/snowflake/avalanche and be aggressive and ideally pay off all loans in 12-15 years max.
- I stopped contributing to my paltry 401(k) in order to put the extra few hundred a month toward my high interest loans (no employer match for me; current balance a measly $5k)
- Plan was to pay 10% loan down in 3 years paying $300/mo (plus any extra raises/bonuses go straight toward loan); meanwhile I was on a 30 year fixed payment plan for the big loans at $2k/mo.
- However, I just changed the Big Loan to a "graduated repayment plan" where the repayment amount is $1800/mo for five years, and increases by 20% every five years. This change allows me to pay off my variable 10% loan in 2 years rather than three. However, it is almost like being an "interest only" loan for a while. I haven't found a good debt calculator that will allow me to factor in the graduated repayment so I can't quantify how much interest I'll actually save by paying off the 10% loan in this manner.
- When my 10% loan is paid off, I intend to revert to a fixed repayment plan for the big loan.

Questions:

When do I start contributing to my retirement again?
- I had intended to start contributing when I pay off the Big Loan completely in 12-15 years, realizing that I will need to contribute at least $36k a year to make up for lost time. However, I know there are various contribution limits (and our AGI is already too high to contribute to a Roth IRA, which we don't have anyway) so there are those considerations.

Do you see any disadvantages to the short-term (2 year) plan to going with the graduated repayment on the Big loan in order to pay off the 10% loan?

Any strategies to dealing with the huge loan at 7.5%? Our home has no equity so we can't take out a lower interest HELOC. I figure refi'ing my car every three years (lower interest rate) and paying every extra bit of cash toward the loan is the best I can do.

Any other thoughts or advice? I'm obviously new to being financially responsible and savvy - and I apologize for such a long first post.

Wow...those loans are massive.

It seems that with a household income of $290k and no kids you should be putting a big dent in those balances every year, but you aren't. Which means you need to figure out where your money is going. And sacrificing your retirement savings at your age is another big risk.

Why would you keep refinancing your car? Either pay it off or sell it and get a cheaper car. Your solutions here all involve extending loan terms by refinancing or borrowing more (HELOC).

And your mortgage is another issue, but right now the cost isn't that bad. Which again leads me to...where is the rest of your money going?

Hi Bill, thanks for responding.

I should clarify that these just went into repayment last month so I'm literally at the very bottom of the mountain, starting the trek waaay up. I've paid $12k toward the loans in the past two months between cash from my car (though at 2.9%), salary and a small retroactive raise.

By "refi" my car I guess I meant that I took out a lower interest secured loan - since paying 3% still saves me more interest than just keeping my car paid off and paying 7.5% and 10% on the loans. My car is old and worth about $10k, which is what our credit union lets me borrow on this.

That said, I realize the only way to pay these down is to be very aggressive. Right now, while I'm adding funds to our emergency fund, I'm planning to pay $500-600 toward the 10% and $1850 toward the Big loan. When the emergency fund is beefed up, I'll probably aim for $750 toward the 10% loan. In two years (or sooner - when the 10% loan is paid off), I'm going to snowball and put any raises I get toward the Big loan - probably around $3500/mo.

Still, there is the nagging question: at what point is it better to save for retirement? Do I save now since I'm older, even with these high interest loans? Do I start saving when the 10% loan is paid off? Should I just start contributing my raises when/if I get them yearly, but otherwise keep my student loan attack the same?

I'd start immediately contributing the minimum required to get the employer match (if available) on the 401K. Everything else would go to the SL's. I might even try to downsize the home in an effort to get these paid off. I also agree with Bill that it seems like you have a hole in your financial bucket. Do you have a budget?

Even if you stay on your plan as it is, your combined income is pretty healthy & you could make up lost time after the SL's are paid as long as you don't over inflate your lifestyle.

How secure are your jobs?

Hi Tightwad - thanks for your comment - and good questions.

- My employer does not match 401(k) - should I still contribute at this point?
- Downsizing the house is not really an option as we're underwater and we'll be ok with the payment. We also paid points and our interest rate is pretty low, but we only bought 5 years ago.
- jobs are probably as stable as we can get in this uncertain economy. I'm a first year lawyer but have been at the firm 5 years (worked part time through law school), so I expect to be here and expect my salary to go up over time. Husband is very secure; advanced degree with ten years experience in the oil industry and still upward potential. For the last four years though, my salary was between $25k-$40k working part time.
- Hole in the bucket, dear Liza dear Liza: that's a good question because when I do the math, I wonder the same thing. We do have budgets but we keep our finances fairly separate, so when I'm paying my loans, I'm doing it primarily with my money. My monthly budget right now is:
$1800 towards joint expenses
$300 towards my car
$850 towards beefing up emergency fund (temporary til end of year)
$400 for monthly spending like gas, lunches, gifts etc.
That leaves about $2600 towards my loans.

So is it smart to pay all of that towards my loans right now or to start contributing some to 401(k) now? If not now then when? When my 10% loan is paid down in 1.5 or 2 years?

Thanks again for weighing in - I know it's not pretty and I'm not even going to waste space on shoulda coulda woulda (but I've agonized over that one, believe me).

I would have also said contribute to the 401k up to the match...but that is not an option.

Since you just started re-paying the loans and you are a new lawyer with the potential for more income your situation doesn't seem as bad anymore. And your budget seems reasonable. Freeing up $300 per month from your car loan would help, but not that much.

Definitely knock out that higher rate loan as soon as possible.

So we know where your money goes, where does your husband's money go? What if paying down the loans was a joint project? It would be in my household.

Have you considered refinancing the student loans themselves?

There's another nagging question that's bugging me....how in the world did you wind up with a total of $290K in student loans?

Thanks again.

- My husband's salary (after taxes/pre-tax withdrawals for our health insurance and his retirement) goes primarily to our household expenses: mortage, utilities, internet, phones - about $4300; and also to his credit card, car and student loans, another $2500.
I should mention that about $40-50k of his compensation comes from annual bonuses; he's used that to pay off credit cards and our annual property taxes (about $8k).

- our plan is to attack the loans jointly when he's paid off his higher interest credit card, though I'll still probably contribute more since he pays more of the household bills.

- refinancing the loans: is there a way to do this? I have scoured the internet looking for that sort of solution, because most of my atty friends who graduated several years ago have very low interest rates on their law school loans. However, from what I can tell, since the federal govt started originating these loans, the interest rates for these unsubsidized Stafford and GradPLUS loans are essentially set in stone. Unfortunately, I consolidated them before I found this forum, so the 7.5% comes from the weighted average of my loans which had 6.8% and 8.5%. I don't see that consolidation is being offered by anyone other than the federal govt - but let me know if you know otherwise?

- how in the world... Well, my tuition alone was $150k; the interest over four years was capitalized; and unfortunately I spend unnecessarily on things that I justified - at the time - were necessary to help me cope with the stress of work and school (a few vacations, leasing horses...) - like I said, shoulda coulda woulda. My husband and I have been together since we were both poor students, and when he got his good job we definitely experienced lifestyle "leap" - not creep. However, the student loans are definitely a wakeup call, and now that I'm not in career limbo I just want to focus on turning our situation around and living within our means. We've already eliminated several credit cards but it's a small start.

Thanks again.

I'm not really sure about your retirement questions, but I had a similar "financial awakening" last summer, and can relate to some of the things you're asking and thinking about.

I'd encourage you to track your spending for a while in something like Quicken or Mint.com. I was amazed at how much extra money I had per month when I used it more thoughtfully. With your salary, I bet you can find lots of lifestyle to cut and put toward debt repayment while still having enough to enjoy life during the process.

Also, I started a journal in the Fiscal Fitness section of this board and it has helped me stay on track. It's nice to have a place to sort of think out loud about your finances and to share things that you probably don't want to talk about with friends and family.

I think your debt load is very high but you already know that. The good thing though is that you have a good salary so the situation may not be so bad. I would strongly suggest that you begin retirement saving AND aggressive debt repayment, perhaps with your husband's help.

With your salaries I would hope you could come up with at least $50k a year in addition to ~$15k retirement savings. If you do that for about 6 years your debt will be paid off.

While it might sound difficult to come up with that much, it should not be. My wife and I will be saving about $50k this year plus another $25k in retirement plans. Your combined income is about 30% higher than ours.

You've kind of got a triple whammy going - late start with retirement savings, very large student loans, and an apparent above your means lifestyle. There is hope but it will take some sacrifice. My suggestion:

1. Find $60000 per year either by having hubby pay more household expenses or by cutting way back

2. Put $12000 of that into your 401k

3. Pay $4000 a month to your student loans in addition to what you already pay if possible.

Good luck

May I ask you what do you and your husband do?

Is it possible to work extra shifts if you're both in the medical field?

Fiddlefaddle - thanks for the tips. I just signed up with Mint and will spend some time this weekend customizing it to better track our household expenditures. As others have noticed (and as we have come to realize), we've been living above our means for some time, and it's time to buckle down and get disciplined. But you're right - this is not the sort of thing I can discuss with friends and family, which is why I'm relieved to be able to post here, even though it's sort of uncomfortable putting in writing how financially irresponsible we have been.

Doing Homework - wow! That is quite an aggressive proposal and I commend you and your wife for being able to do that. It is also a good reality check for me - because what would otherwise seem impossible is clearly possible - and I'm going to sit down with hubby this weekend and crunch the numbers hard.
Questions:
Is your proposal one that should be implemented after an emergency fund is established? (Otherwise I don't see where continuous saving would fit in).
Would it be better to pay off my 10% loan ($9k) before starting the aggressive retirement savings + Big Loan payments? With an aggressive plan like you suggest, the $9k loan could be paid off before the end of the year.

Fantasma - lawyer and oil patch scientist. My best hope for increased income is to do the best job I can at my current job and thereby be eligible for the highest raise/bonus next year. Evenings and many weekends are already taken up by this job..

It's not as hard or aggressive as it seems. The first step is to figure out where all your money is going and plug the holes you don't think are worth it.

You will find a lot of people on here who are very frugal. They do things to save money that you may not want to do. We are not very frugal. We spend what we want, have a second home, drive nice cars, etc. The key is that we don't waste a lot of money and avoid interest as much as possible. Live beneath your means. Just because someone makes half a million a year doesn't obligate them to spend it all.

I think in your case I would suggest building the emergency fund first. I would pay off the $9k loan as quickly as possible too mostly just to get it out of your head. Maybe a good short term goal for you would be to have the 9k loan paid off by December 31 and also have 3-6 months emergency fund saved.

I agree with DoingHomework. I know it seems like a lot of your yearly income, but it's just a hair over 20%... probably close to your tax rate right now. I'm 25, and right now I dedicate 20% of my (relatively low) income to paying down student loans alone! By the end of this year, I should be debt-free.

For now, forget your retirement savings. You must pay down these loans. Even your lowest interest rate loan, 7%, is extremely high right now. I'd suggest looking to a refinance at today's interest rates - they are the best ever, and they won't last, I can promise you. Anyhow, if you could guarantee a 7% year-over-year return from an investment, I'd buy into that... in that sense, you are investing by paying off your student loans! You get a guaranteed 7% (or higher!) return on your investment.

Start with that 10.25% loan... you can polish that off pretty quickly.

Your situation is rather severe... maybe you should look into borrowing against your husband's 401k? Usually you pay the 401k plan back plus interest, but it's better to pay interest to yourself rather than to some sleazy student loan shark.

Not to split hairs but I would not call Love's situation severe. I'd call it serious though.

$280000 in student loans is about 3 times salary, which is a lot. But including hubby's salary it's only around 1 times salary. There are a few peoples' stories I've read on here where a couple making $60k or so combines paid off $50k or so in student loans in just a year or two. Scaling these things is a bit difficult. Food and other household expenses do not have to go up just because you make a lot of money. But taxes do go up, even though the student loan interest might be deductible. So, even though the total debt seems like (and is) a big number, it's not so terrible when compared to salary.

The deciding factor on the seriousness/severity of the situation is likely to be willingness of both Love and her husband to live a lifestyle that is within their means given the need to pay off debt. My antennae were raised at one comment that hubby gets ~40k bonuses and uses them to pay off credit card debt. That could mean that they are racking up a lot of credit card debt during the year which means they are outspending their high salaries already before paying on the student loans.