What to do with $40K profit on medical school house

[doc2016]

Hi Everyone,

We just sold our med school house and after we deduct taxes, expenses...etc, we have a profit of $40K(conservative figure). We are PGY 1 (3 years residency) with a possibility fellowship(3 more years). We won't buy a house until we are done with training, which could be another 2.5 years or 5.5 years. We are DINKS and our annual gross is around 120K, we are renting now and rent+monthly expense is fairly cheap(1500/month) and we can cover other insurance expenses disability insurance, life insurance, car insurance, max out 401, and roth primilary from our salary and still be able to save some money. We are 200K in debt and the rate is 150K @ 5.5% and 50K @ 6.8% and no other debts. I feel like we should just toss that profit we have at the 50K @ 6.8% since we can live comfortably with out salary and we have easy access to emergency fund( large CC line + parents who are okay with lending). Should we pay off a good amount of the student loan with the profit or there is a better way of spliting between saving for downpayment + investment+student loan+retirement options.

[DMFA]

How are you repaying your loans?  If your functional interest rate is lower than that because of RePAYE, then you *might* want to make Roth IRA contributions with it ($5,500 each now for 2016 and $5,500 each after Jan 1 for 2017).  Your loans won't be at 6.8% for long since you'll most likely refinance them to considerably less when you complete training.  You're never really *wrong* to pay off a debt, imo.

[MrsIMDoc]

If you are planning at all on PSLF then may want to consider only paying the minimum and not throwing the extra money at the loans.  I am not doing PSLF and do not trust that it will be around in ten years so if it were me I would throw it all at the loans.  Also if considering kids in residency it might be good to save a little of that for a larger emergency fund depending on maternity leave policies and childcare options.  I have posted on WCI before to say that I could not imagine having kids in residency, but I know that many do and it is quite expensive.

[MochaDoc]

If you're not planning to do PSLF, you have more than enough money to live comfortably, while maxing out retirement funds and investing, etc., and don't plan to purchase another home soon, I'd 1) throw the profit from the house sale at the highest interest debt 2) look into the few student loan refinancing options available to residents in order to lower your interest rate(s) and 3) put extra money, from residency salary and then from moonlighting, toward paying off your student loans. You'll both be in enviable positions if you all have no student loans remaining when you all become newly-minted attendings.

[doc2016]

Hi Everyone,

Thanks for the quick response! Defintetly not doing PSLF. Don't believe it will work and the plan is to pay it off ASAP!

@ DMFA - Good Point!!! I have tried to refinance, but the best rate they give to residents is almost the same as the fed loan rate i got. I'm in RePaye now and the functional rate would not be 6.8% after you take the interest subsidy into account. I guess i will re-think by taking that into account. We can max out our roth by our salary, so this is the extra money after paying for insurance+roth.

[jfoxcpacfp]

Good job on the house profit. Agree with others to pay off the bulk of your 6.8% debt since you are not going for PSLF and set a goal to have the last $10k paid off in 2017. Will be a great feeling to have one loan over and done with.

[paramount]

So you accrue around $970 per month in interest.

Assume AGI of 100k (maybe you moonlight).  Your REPAYE payment would be $685 on 200k loans.  That means $285 left over of which government pay 50% leaving you with $142.50.  That means your total interest per month is actually only $827.50 with an effective rate of 4.96 or 4.97 %.  Given all that, I'd just drop it all into the 50k loan.

 

Someone check my math.

[GXA]

A shiny new 3-series BMW.

Wait, wrong forum...

 

Agree with others, pay down the loan.

[doc2016]

That's a really good point! I didn't take the functional interest rate under REPAYE into account. Now I gotta re-think my strategy. My current payment is only $160 under REPAYE due to it based on my last year's AGI, which was only my wife's 50K. So does that mean it's better for me to utilize the REPAYE interest benefit(probably makes my functional interest rate almost half of 6.8% right?) for now and wait for a year before I make that huge payment? Or it's still worth is to reduce a big sum of principal, so it accrues less interest? Please help me brainstorm! Thanks!!!