Yet another Student Loan Paying Off Strategy

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

8y

Masashi Borges-Silva what is the interest rate on your student loans? How much of the 500 dollar payment is principle vs interest?

Alyssa Paros

Rental Property Investor · Johnstown, PA · Member since 2017 · 71 posts · 42 votes

8y

@Nicholas Paros Thought you might have input here...

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

Thank you for the link! There are a lot of interesting topics to read about on the site!

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

Originally posted by @Caleb Heimsoth:

Masashi Borges-Silva what is the interest rate on your student loans? How much of the 500 dollar payment is principle vs interest?

The interest rate is 4.5%, and the fact is that I am not sure principle vs interest since I am borrowing from my parents. Actually, they let me use their line of credit, which was lower than my student loan (6.5% at the time). So I don't have a website to log in to see how much I am paying in interest. I should be able to figure that out pretty quickly tho...

Just guestimating, I am paying about $500 a month for $40k so it would take roughly 100 months to pay off given $150 in interest and $350 in principle.

Melissa Gittens

Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes

8y

@Masashi Borges-Silva did you consolidate your student loans? If not this should be your first step. Consider, Income driven payments until you are able to afford to pay more than what you are required to pay, while saving.

Step 2, Review your household expenses and find ways to either cut unnecessary debits each month. Ie: stop eating out, prepare food for breakfast/lunch/dinner at home, consider taking shorter showers at home (yes you will still be clean and don't need to spend an hour in the bath), another tip is consider changing out light fixtures to energy efficient bulbs and lightfixtues, unplug cords not being used (while plugged in they still draw current), if you can walk to work or ride a bike or car pool that would save you money too. ALSO NO ONLINE SHOPPING UNLESS ABSOLUTELY NECESSARY, this was my vice., it was difficult to curb my habit.... its still a struggle to this day..lol

Step 3, Look at how much you are making each month, if you think you can make more money look for a higher paying job, or a part time gig that can help you save more money.

Step 4: start shopping around mortgages to see if you can get a better understanding of what you need to set aside and how much you may be able to qualify for. NOTE don't run credit unless you are absolutely sure you are ready to start looking for a home in the next 3-4 months. Pulling credit is a hard inquiry on your report and can have an affect on your score.

Step 5: DO NOT GET PREGNANT!! LOL Although babies are an absolute Blessing, sounds funny but children are a major expense, I would suggest figuring out your living situation and your home purchase first if you can. And SAVE SAVE SAVE SAVE Then have the kids, you will be less stressed if you have a year's worth of reserves from either your income producing property or just from the savings that you have incurred from all of the steps that you took from the above! <--- This wasnt a step for me lol but since you mentioned it in your post I wanted to touch on it.

I am not a financial advisor but that majority of these steps I did take to better prepare my self and become mortgage ready

4 Reply

Abigail Hollar

Little Rock, AR · Member since 2016 · 26 posts · 24 votes

8y

A lot of people have been successful with the Dave Ramsey baby steps plan outlined here: https://www.daveramsey.com/baby-steps. I also like his Total Money makeover book, which you should be able to get from your library.

A financial planner who is fee-only by the hour and does quality work will cost at least $2,000 in NYC, probably more. If you use the book above, you can set yourself up with a really strong financial foundation for later investment at much lower cost.

[email protected]Podcast Guest on Show #350

Craig CurelopBusiness Member

Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes

8y

@Masashi Borges-Silva

I am going to make the assumption that you make a decent wage working as an engineer in NYC. Here is what I would do given the information you've given above. I'm not a financial advisor and some people may disagree with me, but here it goes.

First step. Before you start saving for retirement, you need to get your financial house in order right now. With that being said, I would:

1. Stop contributing to the IRA.

2. If you are contributing your 401k beyond the match, then only contribute to the employer match.

Next, I would take a look at your monthly expenses. What are your largest ones? Given your location, I'm going to assume housing and food are up there. Perhaps you and your wife could move to a cheaper place a little further outside of the city? Or perhaps search for a killer deal.... they are out there!

From the food front. How much do you go out to eat? Do you drink at these restaurants? Those bills add up. I suggest you and your wife cook at home for a few months until you are in a more comfortable position financially. This doesn't mean you can't go out with friends. It just means that when you do, you nix the drinks and expensive meals and stick with water and an appetizer.

I don't know you and I don't know your mindset or your money habits. However, I would definitely look at cutting some of the discretionary things in your life and enjoy the things that truly matter. Your wife, your friends, your family, etc.

2 Reply

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

@Melissa Gittens

Step 1 is done. I had multiple loans that had interest rate ranged of 1.5% to 6.5%. My parents offered me to use their line of credit, which has interest rate of 4.5%. I calculated how much I need to borrow from my parents by filtering loans with interest rate higher than 4.5%. In the process, I also considered if I can use a commecial loans such as Earnest, Credible, Landkey, and Sofi, but the quoted rates were higher than 4.5%.

Step 2, we recently started to adapt a method of making a bulk that is enough to cover lunch and dinner on weekdays. We spend about 2 hours doing that on Sunday, and this is saving us money and also time spend on weekdays to prepare food everyday. I will look into doing saving electricity and commuting method.

Step 3, I am actually looking around and researching what I can do as a career change, and also side gig as part time job. I am still not firm with my clarity in terms of career path/change/side gig, but I started to networking via LinkedIn. For example, I am interested in Mechanical Design Engineering, and I found some people who are one or in the industries. I have request them to have a conversation to have their insights so that I can learn if the career path would be interesting or not.

Step 4, I actually contacted Wells Fargo to get pre-qualified without the hard pull. This is where it got interesting... With the amount of the debt I have and comparing my income (DTI ratio), I was not even qualified for a mortage... However, the assumption used here was to get an estimate with my individual income and combined outcome for myself and my fiance. After I combined her income in the equation, we got something to work with.

Step 5, Will SAVE SAVE SAVE, and SAVE! haha

Thank you for your input!

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

8y

Masashi Borges-Silva another more extreme idea could be to move. You live in a high cost of living, high tax area. If you moved down to say where I currently live you’ll pay less taxes and potentially earn more making it a double whammy. I’m also an engineer (studied mechanical undergrad, starting master in industrial this fall), so just figured I’d throw that out there. My boss is from Long Island and I don’t think he regrets moving lol.

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

@Abigail Hollar

Thanks for the information! After quick view at the site, it talks about snowball debt method. Long before, I used the method to pay off my credit card debt. I knew the method was there, but some of the student loan debt interest are pretty low (1% to 4.5%) so I wasn't really considering it... But I do agree the method can be a good system since I would be keeping a close look at the progress of reducing the debt!

I also quickly look inside of the book you recommended on Amazon. I will see if I can find it at local library.

At the moment, I might not be able to afford $2000, but perhaps one day I will...

Thank you for taking the time to share!

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

@Craig Curelop stop contributing to the IRA might be something I have to consider. You are the second one who suggested that idea. Dave Ramsey (suggested by @Abigail Hollar) also suggests to save $1000 for an emergency fund and pay off debt by paying of the smallest amount of loan regardless of interest rates, and once the first one is paid off, apply it to the next one until it is all paid off.

In terms of big expenses. you are correct about the housing and food costs in NYC. We are actually in the process of finding an apartment. I was hoping to find a place that is cheaper than the current location, but our situation is very unique. My office is north of the city (Yonkers) and my fiance works in Brooklyn. My commute is about 20 mins by car and hers is about an hour and 20 mins by train, and she wants to reduce the commuting time. That means we have to move close to the city, which will be more expensive and probably smaller as well. The situation is little tough since I will have more commute time and have to pay higher price, but I understand that she is commuting longer. We talked about potentially having roommates, but we are still not sure if we can find a place (possibly 2 bed room apartment) and/or reliable roommate.

For food, we actually had the discussion yesterday. We are saving money by cooking food at home and packing lunch for the weekdays. We still like to enjoy a social life, and I suggested to have a social life at home. I don't drink but she drinks socially so I suggested that if we buy beer or wine at home and hang out with friends, we would still have fun and save money. We were talking about playing a table game, which is always fun with more people.

We are also talking about going over the budget and our spending together so that we can calibrate our spending habit.

OP

Investor · Manhattan, NY · Member since 2018 · 103 posts · 70 votes

8y

Originally posted by @Caleb Heimsoth:

Masashi Borges-Silva another more extreme idea could be to move. You live in a high cost of living, high tax area. If you moved down to say where I currently live you’ll pay less taxes and potentially earn more making it a double whammy.

I’m also an engineer (studied mechanical undergrad, starting master in industrial this fall), so just figured I’d throw that out there.

My boss is from Long Island and I don’t think he regrets moving lol.

Caleb, this is another good suggestion!

You are absolutely correct about moving to another state. We were talking about that since we are questioning ourself if it make sense to stay in NY, and raise a family. That would be another variable I have to factor in.

I am currently exploring career change and searching for potential job in East and West Coast. Another variable we have to consider is that my fiance's job is in advertisement/media so she needs to stay near somewhat big city such as Boston, Chicago, LA, Seattle, and such. On the other hand, I also studied in Mechanical Engineering and have interests in Automotive industry, and I find automotive engineers are located in Michigan or out of nowhere in a big space with cheap rent for manufacturing. I do see a lot of HVAC, construction, inspection or design engineer job with CAD experience... so I am contacting some people via LinkedIn to see if that the path I want to consider.

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

8y

@Masashi Borges-Silva you are certainly Employable as an engineer. I know nothing about advertising so I won’t speak to that. Rent is cheaper down here, it’s expensive to buy but still cheaper to buy then NYC.

If you’re ever around, feel free to look me up .

Victor S.

WorldWide · Member since 2016 · 1k+ posts · 1k+ votes

8y

can we get an idea of how much (%) you're spending on necessities and how much on the extra stuff? who is the bread-winner in your household? i once looked at how much i'd have to make in nyc to have a comparable living, and it was north of $200k lol Even that wouldn't get me a similar house i have in okc..,

have you considered relocating? Not sure what kind of engineering you do, but Florida has a high presence of aerospace companies, as does South Carolina (Boeing), and many other places with lower cost of living. Sure, the "fun" factor might be lower, but you have to make sacrifices in life to succeed and get out of the rat race.

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

8y

Masashi Borges-Silva Dude don’t pay off your low interest rate student loans. Pay the minimum and invest the rest in REI. Let me know if you need clarification.