Student Loans Are Taking Over My Life

[Kinley Puzey]

This is a multi part question. All thoughts are appreciated.

Background:

My wife and I would love to get into investing but right now with other financial obligations it makes it difficult. We are currently paying upwards of $700 a month towards student loan debts. Our goal is to get rid of these loans, free up money, and get in a better financial position for our growing family then invest. Not that we are struggling but we would be in a lot better place with $700 to invest if we could get these paid off.

We currently have a single family residence worth $260,000 - $265,000. We owe $180,000. We're trying/failing to understand what the BEST option is to getting to a better financial point.

scenario 1

Stay where we are at and continue paying on student loans for 5 -7 years until paid off.

scenario 2

Use the money in our existing HELOC to pay off student loans and stay where we are at.

scenario 3

Sell our primary residence, where we've lived for the past 7 years, and use the equity to pay off student loans. We would then rent for a year or two. Rent would be more than our current mortgage but because we could pay off student loans we could now put that money in saving or towards an investment property in future.

Would we have to pay taxes on our capitol gains if we sold and didn't put it towards a property?

scenario 4

Buy an older fixer upper. House payment would be less as we would use equity to put towards home. Our payment would be less so we could pay off loans faster. We would be gaining equity and then use that home as a rental once we decide to move on in 2 years.

I'm sure there are other options and items that we are overlooking. All comments are appreciated.

[Bob Okenwa]

Hi @Kinley Puzey,

Here are my thoughts on your situation, in no particular order:

*You would not have to pay capital gains on the sale of the home since you have lived in it for at least 2 of the last 5 years. 

*it may not be the best idea to use the HELOC funds to pay off the student loans if the interest on the student loans is less than that of the HELOC. Trading one debt for a higher priced debt with a variable interest rate doesn't seem like a good idea unless I'm missing something here.

*Selling your home and then renting is a serious step and make sure you take into account all of the closing costs, possible seller concessions, and realtor commissions when factoring how much profit you would stand to earn in such a transaction.

*Getting a fixer upper requires a great deal of work, but if you and your wife are patient, then it can pay off since you would have equity and could also turn it into a rental. Not to mention you should be able to get a low down payment with FHA on such a property and even use the 203k loan to fix it up if you so choose.