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Paid off student loans... what next?

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  • Paid off student loans... what next?

    I'm very happy to say that I made my last student loan payment today!! I paid off approximately 250k over the past 2 years. I refinanced with sofi in May 2015 (211k at the time) and made my last payment today. I'm 2 years out of residency and very happy to have the student loan debt behind me. I haven't been perfect with my financial decisions since getting out of residency, but I'm learning a lot on WCI and from books and other forums. I'm trying to decide what to do next with any extra income.

    Current situation: Income between my wife and I of approximately 600k gross. We both max out our 401k and backdoor roth IRAs. We also contribute 2k to a 529 (max state deduction). The rest has been going to the student loans up to this point.

    What should I do now?

    Option 1: I have a Physician mortgage of 600k for 30 years at 4.49%--- I'm considering paying this quicker and refinancing to 15 year. Very little equity in the house at this point, but I don't have any PMI. I'll do this at some point regardless, but the question is do I do this now or in a few years...

    Option 2: Pay off the cars. I love cars and upgraded after residency. I know... I shouldn't have, but I love them and I don't spend money on much else. I plan on keeping both for at least another 5 years. I put cash down for each, but still have loans of 19k at 2.9% and 14k at 1.9%. The cars are worth approximately 40k/30k respectively. I'm happy to let these loans ride until paid off or I could pay them off and be done with it.

    Option 3: Open a taxable account and buy Vanguard total stock index or something like that

    Option 4: Invest more in the 529. I don't really feel like doing this yet, but it's an option.

    Option 5: Save all extra in Ally Bank savings account for likely partnership buy-in in a year or so.

    Any thoughts (other than I spent too much on cars)? I should mention I have approx 6 months expenses already saved in an Ally savings account. I'm fully insured (term-life, own-occupation disability, and umbrella). I appreciate any advice. Currently, I'm leaning towards paying off the car loan at 2.9% (wife's car), keeping the 1.9% loan (likely could write it off after partnership), and then opening a taxable account vs saving for partnership. I think the interest on a business loan for partnership can be written off, so I'm really leaning towards investing in taxable account.



  • #2
    That's awesome, El Hombre Macho Macho Macho (would love to know the story behind your screen name). What you really need is a financial plan to help clarify how each decision will affect your short- and long-term plans. A few key pieces of missing information are -

    • how much cash you just freed up monthly by paying off your loans (about $10k, is that correct?)

    • your ages,

    • the total size of your and your wife's portfolios

    • what rate you'll pay on partnership loan and how much you'll have to borrow. Also the terms, such as: will the partnership float the loan interest-free and reduce your guaranteed payments?

    One recommendation is to

    • knock out both car loans in the next 2 or 3 months,

    • move on to your mortgage, which is costing you too much, and save enough to get out of the doctor loan with no PMI (can you do that in a year?),

    • OR save for the partnership buy-in if you won't get good terms,

    • then invest in a taxable account. In the appropriate circumstances, this could move to action item 2.

    Your excitement shows in your post and I am happy for you. imo, you can be forgiven a bit of extravagance on the cars. Doesn't sound to me as if you went too crazy and you've shown a tremendous amount of discipline in paying off a quarter of a million $ in loans in 2 years.
    My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
    Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


    • #3
      Thanks very much for the reply jfox. My screen name was gifted to me by the WCI himself when I asked a question about creating a new name.. I couldn't come up with anything better, so I went with it.

      To answer your questions:

      My wife and I are in our early to mid 30s.

      Total 401k (me and wife): 150k

      Roth IRAs: 22k

      529: 12k

      Savings: 50k

      I don't have a consistent salary each month (on a productivity model.). Early in my contract year I might only have 3k left over at the end of the month. Later in the contract year I might have 20-30k left over. Buy in is going to be via a typical business bank loan. Rates should be decent, but not any better than my mortgage. Cost of buy-in will be around 500k. Income should increase enough to pay that off in 2-3 years, though traditionally partners take out a 5 year loan.

      From a purely numbers perspective, why pay off the car loans early?

      Thanks again.


      • #4
        WCICON24 EarlyBird
        EHMMM - I remember that "name me" thread now.

        From a purely numbers perspective, no need to pay the car loans off early. My presumption was that you would want to dispense with small loans since you can afford to and the loans are inconsequential in the overall plan...kind of like swatting annoying gnats. With your amount of disposable income, why have nondeductible interest-bearing car loans? Other than those and a mortgage with relatively high interest, you are in good shape with savings and debt.

        Based on your info, I'd put more money toward the mortgage debt to get the interest rate down. Your loan interest for buying into the partnership, in most cases, will be more valuable than your mortgage interest, as business deductions are "above the line" reductions in income and mortgage interest is only an itemized deduction.
        My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
        Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients