Goodbye student loans, hello future!

Where are you and where are you going?
peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Goodbye student loans, hello future!

Post by peerifloori »

Hello, here is my journal. My first goal is to pay off my student loans as quickly as possible! My second goal is maximize savings for retirement.

I'm 30. I work as a nurse. I have a pile of student loans from making poor school decisions (spent 6 years getting my first degree, then went back to school for nursing). About $68K at this point, down from $80K. In the last 2 years since entering the work force, I've also started a Roth IRA, a 403b with employer match at work, and an emergency savings fund.

My strengths: grew up frugal, enjoy spreadsheets/numbers/finances
My weaknesses: impulse shopping, husband has cc debt/no budget/no savings/no interest, would like a house/family in the future

Right now I live in Alaska - high cost of living, high cost of travel to see family, long/dark winters. We're hoping to move down to the Pacific Northwest - cheaper, closer to family, closer to the ocean. We live in essentially an unplanned tiny house, aka "the box". We've managed to live in 210 square feet for 2 years. We're paying off the land we live on, and very much hoping someone will buy the property soon so we can get the heck out of dodge.

Here's what the finances look like:

Savings: ~10K
403b: ~9K vested (unlikely I'll stay in this job long enough to get more than 25% vested in the additional 6K, I don't bother counting it)
Roth IRA: ~5K

Right now I put ~500 pre-tax into the 403b and ~240 into the IRA monthly. My goal is to increase the IRA contribution to the max, $458/mo. I'm debating using my emergency savings to fill out my max contribution for 2015. I have a few more months to decide.

I have both retirement accounts with a mix of index funds, passive investing strategy. I'm interested to read about some of the other investing strategies people use around here!

Loans:
Federal Loans: ~37K at rates from 3-6.8% fixed
Private Loans: ~21K at 2.25% variable
Personal Loans ~10K at 0%

Right now I put $1000 a month towards my loans. My goal is to get that up to around $1700 a month.

Here is the average of my monthly expenses for the last 12 months and what I hope to change:
Land Payment/Property Tax: $600 --> hope to lower this for rent or mortgage in the future.
Utilities: $120
Phone: $74 --> recently dropped the smartphone/time suck, now I have a flip phone for $30/mo
Car (gas/insurance): $81
Groceries: $799 --> atrocious, partly cost of living, goal to get under $600/mo (for 2 people)
Restaurant: $66
Health: $175 --> this was due to some high insurance premiums
Laundry: $35
Shopping/Gifts: $234 --> Goal to get this under $50/mo
Entertainment: $20
Travel: $345 --> When we move, this number will be WAY lower.
Other: $107

Well, there it is. It's far from perfect. It's a work in progress. Another goal I have is to find a second source of income/free hobby. I have 4 days off a week, but don't use it very constructively.

Gilberto de Piento
Posts: 1942
Joined: Tue Nov 12, 2013 10:23 pm

Re: Goodbye student loans, hello future!

Post by Gilberto de Piento »

Welcome! I paid off $7x,xxx in student loans and it was well worth it. It took me some time too.

Consider paying off the 6.8% loan before doing any more investing. It's a guaranteed 6.8% rate of return. I know IRA and 403b space doesn't come back around again if you don't use it but 6.8% is not very good.

bradley
Posts: 167
Joined: Sun Jan 11, 2015 8:45 am
Location: NYC Metro

Re: Goodbye student loans, hello future!

Post by bradley »

Welcome! I'm also paying down my student loan debt, which is at about 75k now. I'm throwing all my extra money in that direction, too. Good luck!

Dave
Posts: 545
Joined: Fri Dec 19, 2014 1:42 pm

Re: Goodbye student loans, hello future!

Post by Dave »

Hello!

It sounds like you have made some really great progress in the last couple years, good job.

Ah, I am intimately familiar with living in a small space. I live (and work in, and read in, and meditate in, and lift weights in, and do yoga...) in a 270 square foot apartment with my fiancé. Maybe I will start calling it "The Box" as well :-D. I think it will be interesting when we eventually move to a larger place. What will we do with all of the extra space?!

This time of the year I effectively have three days off a week, as well. I have chosen to spend the time exercising and working on my investing knowledge. I consider the investing knowledge a second job of mine, because at some point in the near future investment returns will exceed my wage income. Maybe you could do something similar, where you either work on building a second income stream (part-time job, online work, etc.) or developing skills to reduce your expenses.

Best of luck with everything!

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

Gilberto de Piento wrote:Welcome! I paid off $7x,xxx in student loans and it was well worth it. It took me some time too.

Consider paying off the 6.8% loan before doing any more investing. It's a guaranteed 6.8% rate of return. I know IRA and 403b space doesn't come back around again if you don't use it but 6.8% is not very good.
It's nice to hear that it's possible! I pay off my loans relative to their interest payment per month. For example, some of my loans at 4% have higher balances and accrue interest faster than my loan at 6.8%. I haven't really sat down and looked at the math on that, but it's how I've been doing it.

I definitely go back and forth on whether or not to max out my IRA vs. pay loans down faster. Based on my experience of seeing my parents not save for retirement until their 50s, and my husband who is mid-40s with no retirement, I'm inclined to get that compound interest rolling now, instead of waiting 3,5,10 years to pay off my loans. The 403b is autodebit, pre-tax, employer match, so that is a no-brainer.
bradley wrote:Welcome! I'm also paying down my student loan debt, which is at about 75k now. I'm throwing all my extra money in that direction, too. Good luck!
Thanks. :) I need luck, and persistence.
Dave wrote:Hello!

It sounds like you have made some really great progress in the last couple years, good job.

Ah, I am intimately familiar with living in a small space. I live (and work in, and read in, and meditate in, and lift weights in, and do yoga...) in a 270 square foot apartment with my fiancé. Maybe I will start calling it "The Box" as well :-D. I think it will be interesting when we eventually move to a larger place. What will we do with all of the extra space?!

This time of the year I effectively have three days off a week, as well. I have chosen to spend the time exercising and working on my investing knowledge. I consider the investing knowledge a second job of mine, because at some point in the near future investment returns will exceed my wage income. Maybe you could do something similar, where you either work on building a second income stream (part-time job, online work, etc.) or developing skills to reduce your expenses.

Best of luck with everything!
I'll post a picture of the box one of these days. It started as an 8x12 shack, literally looks like a box. Now it's actually 2 boxes and an enclosed porch, but I just like the sound of saying I live in a box. Definitely makes me realize how little space is needed, and yet how much it would be nice to have space to do yoga.

In January I will switch from working 3 night shifts a week to working 3 day shifts a week, and that is definitely going to help my productivity. Exercise has fallen by the wayside this last year of night shift. I could sit around and read about financial stuff all day. I've been looking at ideas for second income stream. Probably the most efficient thing would be to pick up extra shifts, as OT pay is many times more than I could make in another field.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

I've been anxiously awaiting the opportunity to do something dramatic towards FI/ERE, but all I've been doing lately is small un-things. (Not spending money, not buying more expensive groceries, etc.)

My husband is quitting his job, which is smart and a relief because he was being overworked for an inadequate salary. But it does change our financial picture a bit in the short term.

Debating another trip in February to see family. We've traveled a LOT this year, which is very expensive to get out of town and one reason I'll be glad to move. But spending time with family all together and especially as my nieces/nephew are growing up is a priority. Probably wait for finances to stabilize and hope for an airline sale before I make a decision.

Grocery optimizing is going well! I made some tasty lentil soup this week. My husband shot a deer yesterday, so that will be a good addition to our stores.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

October spend/save roundup. My spending was very high, and my income was even higher (3 payday month + PFD).

Image

Normally I would stick all my extra savings toward loans or in the IRA, but until my husband's job situation stabilizes, I'd rather have a little bigger emergency fund. C'est la vie!

I'm happy to see the grocery budget heading down. I'm working on a super-anal food/cost/calorie breakdown spreadsheet. So fun. :D (Really).

I'm looking forward to cutting that spending even more next month.

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Egg
Posts: 250
Joined: Sat Oct 04, 2014 10:59 am

Re: Goodbye student loans, hello future!

Post by Egg »

peerifloori wrote:It's nice to hear that it's possible! (1) I pay off my loans relative to their interest payment per month. For example, some of my loans at 4% have higher balances and accrue interest faster than my loan at 6.8%. I haven't really sat down and looked at the math on that, but it's how I've been doing it.

I definitely go back and forth on whether or not to max out my IRA vs. pay loans down faster. Based on my experience of seeing my parents not save for retirement until their 50s, and my husband who is mid-40s with no retirement, (2) I'm inclined to get that compound interest rolling now, instead of waiting 3,5,10 years to pay off my loans. The 403b is autodebit, pre-tax, employer match, so that is a no-brainer.
(1) I recommend you do the maths. Your 4% loan might be larger and therefore be increasing faster, but throwing a fixed amount, $x, at it will also have a smaller impact relative to overall loan size than it would if you used it against the smaller loan. In effect, it doesn't matter at all that your 4% loan is larger. You still get better bang for buck by paying down the 6.8% loan first as either way you are still saving the interest on the same sum, $x, except at a higher rate of interest. Your choice, but you're pissing away free money.

(2) That depends on the extent of the employer match. Just don't forget that compounding works on your debts just the same as your assets, so by not paying your debts down you are also risking allowing that debt snowball snowball to gather steam.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

Egg wrote: (1) I recommend you do the maths. Your 4% loan might be larger and therefore be increasing faster, but throwing a fixed amount, $x, at it will also have a smaller impact relative to overall loan size than it would if you used it against the smaller loan. In effect, it doesn't matter at all that your 4% loan is larger. You still get better bang for buck by paying down the 6.8% loan first as either way you are still saving the interest on the same sum, $x, except at a higher rate of interest. Your choice, but you're pissing away free money.

(2) That depends on the extent of the employer match. Just don't forget that compounding works on your debts just the same as your assets, so by not paying your debts down you are also risking allowing that debt snowball snowball to gather steam.
Okay, fair enough, advice from multiple people that I should look at how I order my repayments. I plugged the numbers in, a couple times, because I'm not so good at math as I used to be. :oops:

By putting more money towards the high interest loan, I save about $400 and 1 month of repayment time. (I didn't include the other 4 loans I have, though it would probably be prudent to mess with all the numbers). This is accounting for increasing repayment to the second loan after the first one is paid off.

Image

(I used this calculator here). (If you have a better loan repayment calculator where you can calculate different extra payments for multiple loans at one time, that would be grand).

Alright, fair enough. I'll probably re-order how I make those payments. I think there are easier ways to save $400 (paying off loans faster, spending less), but every penny counts!

Point 2, this is a purely emotional decision. I grew up in a home without much financial security and being able to see my savings is very satisfying for me. More satisfying than making a decision based purely on numbers.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

November Spending Summary

Image

Should recoup some money from those travel costs, the hotel charged us twice. Travel costs were high partly due to a trip this month (baggage fees, airport parking) and due to planning a trip in February which is going to be amazing (first time our nuclear family will be all together since my sister adopted kids). v :) v Our travel costs in general should be much much much lower once we move out of Alaska.

Groceries are still under 600. Aiming to get them under 500.

Income has been higher than average lately with extra education pay, holiday pay, etc. I'm switching from night to day shift in January, which will be amazing for my quality of life but will include losing that nice $4 differential. I think if I pick up 2-4 extra shifts a month, though, I can keep the income on the up and up without going bonkers. Going from nights to days effectively increases my week by an entire day (!). I think I'll even start exercising again. Maybe.

My husband is about a million times happier not working his crappy job. We're almost to the point where he will consider thinking about sitting down to talk about finances sometime in the near but not too near future. I have to keep reminding myself not to worry about things I can't control (ie, other people's behavior). I think that's why I find spreadsheets so gratifying. Everything so neat and in its place and following rules and I am in complete control!

At work we have been changing from a partial paper-charting system to a full EHR. It's a joke. We literally have the option to write a note on a patient, a part of their permanent health record, in Wingdings. Wingdings? Really? We've moved from the early 90s to the late 90s in terms of technology. There must be a fortune to be made in healthcare software, because people are peddling complete crap for outrageous sums.

Student Loan Calculation Optimization

I finally found a nice multi-loan payoff calculator and looked at all sorts of variables for paying off my loans.

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This is comparing 3 scenarios - 1, the way I'm paying off loans now, 2, optimizing my govt but not private loans, and 3, paying off loans in a strict high interest to low interest fashion. Yes, paying off loans strictly high-to-low interest would save me some interest, but not as much as just making a larger monthly payment. Both is ideal.

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This compares 5 scenarios: 1, strict high-to-low interest, 2, current payment method, 3, strict high-to-low if variable loan increased to 3%, 4, strict high-to-low if variable loan increased to 4%, and 5, strict high-to-low if variable loan increased to 6%. I have multiple govt loans at fixed interest rates between 3.4-6.8%. I have a large private loan at a variable interest rate, currently 2.25%, but could possibly increase to something ridiculous like 20. Even if the variable interest rate increased to just 3%, it would cost me more than doing things in current risk-mitigating payoff.

Again, the takeaway for me is that the biggest impact in interest savings is in paying things off more quickly. Also if my variable rate loan goes up at all, it effectively screws any progress I'm making. I'll probably keep paying it off at a higher rate and optimize my govt loans to decrease that risk.

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If I max out my loan payments, I could be debt free in less than 2.5 years! Right now I am on track to be debt free in 4.5 years.

I haven't been very focused with big picture money management this month. Competing desires to pay off loans, pad emergency savings, increase moving fund and maximize retirement savings. :?:

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

I also realized that I have something like 5 weeks of vacation saved up, which I'm unlikely to use before we move next year (I can get a 7 day vacation without taking any days off), which is like an extra month of income just waiting to be cashed in. :)

thrifty++
Posts: 1171
Joined: Sat May 23, 2015 3:46 pm

Re: Goodbye student loans, hello future!

Post by thrifty++ »

Looks like you are making some swift progress on your student loans!
I have been paying mine off for the last 8 years. Think I have about 2 more years to go.
I recommend when calculating your "savings percentage" that you include your student loan payments and your retirement payments. I think its realistic as its change to net worth and its more motivating for people like us who are closer to the beginning of the game.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

It feels very slow, but thanks. :)

I do include my loan payments and my retirement payments in my savings percentage. :( It was still only 44% this month.

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

I've made two extra payments on my student loans this month, which will put my monthly contribution at ~1500 instead of ~1000. This is because I picked up some extra shifts at work, so I'm not sure if my saving rate will be higher, but it feels good to pay off dem loans.

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: Goodbye student loans, hello future!

Post by Dragline »

Good for you!

This was the same struggle that DW and I went through. It was sometimes tough when we were doing it, but it was well worth it and was one of the best things we ever did.

learning
Posts: 92
Joined: Thu May 12, 2011 12:29 pm

Re: Goodbye student loans, hello future!

Post by learning »

Hey peerifloori,

It has been inspiring to read your journal. Keep it up!

For a person who has never been to Alaska, could you detail how the cost of living is higher? From your journal, food is more expensive and frequent travel to the lower 48 is necessary. Are there other factors, such as more expensive housing and utilities, or longer distances to drive?

It is possible that there is an error in your calculations about paying off your loans in 30 months if you pay $1.6k/month. 30*1.6=48 which is less than your current principal balance. It seems that you are close and getting closer fast, but perhaps not quite this fast. Maybe I have misunderstood something...?

Also, I've been thinking about the variable interest loans, which The Institute for College Access and Success (TICAS) considers: "No more a form of financial aid than a credit card... Private loans lack the basic consumer protections and flexible repayment options of federal student loans, such as unemployment deferment, income-driven repayment, and loan forgiveness programs." (TICAS 10th Annual Report: Student Debt and the Class of 2014, p17). I suspect that other forum members' advice to you might be different if they thought of your situation as including a credit card debt with an interest rate that is 2.25% variable up to 20%.

I think that this might be a case where disregarding the rule of thumb about paying the highest interest loan first might be in order. I recommend you learn thoroughly all the terms of the loan contracts and factor those conditions in to your decision, including but not limited to interest rate. Compare the effects of the terms of each loan on your life in different hypothetical life scenarios such as loss of employment. Having your private loans balloon to something like 20% would probably be much worse than anything else in the scenarios you have posted. It would be good to be aware of every detail of what could trigger that and what would then happen. For example, if you miss one payment, what exactly does the interest rate balloon to? If you miss two? Would there be additional fees? How would this affect your credit score and how would this affect other areas of your life such as insurance premiums, which are now often based on credit score? This would help you do everything possible to avoid this, such as maybe keeping a separate reserve for making those private loan monthly payments in case of loss of employment or other similar risks. What are other preventive measures that could be taken?

From my thinking about your situation, if it were me, I would pay an extra $400 in interest on the federal loans to minimize the possibility of a scenario where the private loans go to 20%. I would simply hate to fall victim to this. And I would work the OT to get out of that situation sooner and just not have that risk in my life anymore. I know I am going against the conventional rule of thumb here, but I do not think these loans should be compared on interest rate alone, given how different the other terms of the loans are. It's apples to oranges.

Keep up the impressive progress!

Learning

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

Oh good, it deleted my whole post. That'll teach me not to copy/paste backup anything ever.

@Dragline - Thanks for the encouragement! I am greatly looking forward to kicking these loans butts to zero.

@learning - Thanks for all the questions and thoughts. First off, you're right about the calculations. Looks like I missed the start date on the calculator I was using, so they're all off by about 11 months.

Regarding Alaska. Cost of living in Alaska varies greatly depending on whether you live in a bigger city like Anchorage or Fairbanks, or whether you live in rural Bush Alaska. Regardless, everything costs more to ship up here.

Gas prices are quite high, right now where I live gas is $3.39 a gallon, in Portland, OR it is $2.09. Where I live there are only 50 miles or so of roads and no road out of town, so it's hard to drive a lot. Most people have AWD cars or trucks, which means poor gas mileage.

This year we've traveled out about 5 or 6 times, where we would only normally make 2 trips. That's been quite expensive. Before this year, there was only one flight service in town and they definitely used that monopoly to their financial advantage. Traveling is negotiable, certainly. It's been a priority for us. There are also no medical specialties in town (just General Practice, General Surgery, Orthopedics), so if you have any health issues that require a specialist, expect to fly out (unless you live in Anchorage or within driving distance of Anchorage (which is the majority of the population, to be fair)). We had to fly down to Portland to see a specialist this year; insurance does not cover plane tickets.

Where I live rent and property values are quite high. It's impossible to find a 1 bedroom apartment for <$1200 or a house for <$350K. Those prices might be good for an urban metropolis, but I think they're kind of high for a rural backwater community. There are other parts of the state where houses and land are much cheaper. My parents got 40 (beautiful, mountain) acres for <$70K, but that was a steal.

Food costs are ~30% higher than Portland, utilities are ~60% higher.

You can hunt and fish, but with licenses, gear and time, I'm not sure how that compares to buying meat valuewise. Certainly healthier and tastier. Gardening is difficult where I am with a short growing season and long summer days which cause bolting. There are agricultural parts of the state, and if you have a greenhouse and good planning, you can do well there. My parents put away almost all their winter veggies from their garden, and often have several hundred pounds of excess potatoes to donate as well.

Alaska is pretty unique.

(Here are a few interesting documents on cost of living in Alaska: this one from 2015 and this one which is more comprehensive but more out of date from 1999).

RE: variable rate private loan. I appreciate you sharing your thoughts on this. It is apples and oranges compared to my federal fixed rate loans.

The variable interest rate is based on the LIBOR. It generally follows market value. Unlike a credit card, if I make a late payment, it won't affect the interest rate. Just a late fee. But I don't make late payments. Ever.

When I got the loan, I did so with full knowledge of the potential consequences. I was able to get such a good rate by having my parents co-sign the loan. If the interest rate should jump dramatically, my parents offered to take out a line of credit to pay it off in a lump sum, then I would pay off the line of credit. I have pretty nice parents.

I also have an emergency fund which I calculated including my loan payments. Also, when I pay off my federal loans, I allow the payment due date to advance, which means that my required monthly payment is often very low, <$50, even though I pay off >$500 a month. I don't know how far it is advanced, but I think I could make quite low payments on that if needed (or defer it, I suppose).

I'm not too concerned with losing employment, though. Not until they make cheaper robot nurses.

Here's the updated payoff graph:
Image

peerifloori
Posts: 61
Joined: Tue Oct 20, 2015 5:11 pm

Re: Goodbye student loans, hello future!

Post by peerifloori »

Merry Christmas to me: my biggest paycheck yet, and my biggest student loan payment yet! ($1600 this month!)

LiberateMind
Posts: 197
Joined: Fri Oct 26, 2012 8:18 pm

Re: Goodbye student loans, hello future!

Post by LiberateMind »

Merry Christmas to me: my biggest paycheck yet, and my biggest student loan payment yet! ($1600 this month!)
A nice way to start a new year!! Congrats.

learning
Posts: 92
Joined: Thu May 12, 2011 12:29 pm

Re: Goodbye student loans, hello future!

Post by learning »

Thank you for all the detailed COL information on Alaska. It seems that you are living in an area that costs a lot and offers little. I can definitely understand why you want to move to OR. Maybe Vancouver, WA for sales tax-free shopping in OR and income tax-free earning and top public university for any hypothetical children in WA...

Yeah, glad to see that you're on top of the private loan situation. And congrats on that big payment!

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