Desperate financial/debt advice needed...

[jayzsurgery]

Long-time lurker, first time poster...
Now that I'm a year+ into practice, I'm looking to get more serious on my debt management and looking for advice specific to my situation

Demographics/Income:

• Married, filing jointly; family size: 4


• Base salary: $600,000


• Annual bonus:  $100,000-$150,000

Savings:

• Currently maxing out 403(b) ($18,000/year) with employer match of 6% income and Roth IRA ($5,500)


• Currently have $250,000 in cash/money market


• Need to open 529 accounts for children's college funds for projected 15-20 years

Expenses:

• Generally, mortgage/car/bills:  ~$8,000/month

Debt:

• Direct subsidized loan:  ~$65,000 @ 7.125%


• Direct unsubsidized loan:  ~$400,000 @ 7.125%
  
  
  
  • Currently enrolled in REPAYE with monthly payments ~$2250
  
  
  • Ineligible for PSLF program
  
  
  
  

While I fully accept the magnitude of my debt and am fortunate with my current income situation, I struggle to mentally accept the exponential growth of my monthly payments from IBR as a resident ($300) to REPAYE as a new attending ($2300) to standard repayment ($5000-$7000) at my current interest rate.

Ideally, I'd hope to pay off the bulk my loans with my annual bonus which is received in February each year and make smaller monthly payments, however, didn't know if that was the ideal route or best way to do so.  Any recommendations on refinancing?

Thanks in advance,

Drowning in numbers

[Dr. Mom]

Congrats on a huge income shovel to get out of your debt hole.  I would refi to the lowest interest rate you can from the choices on WCI's site then use that base salary and the bonuses to knock out all debt in 2-3 years, except the mortgage. If you really enjoy the whole debt free thing at that point, continue on with the mortgage after that. Get comfortable with taxable investing as it will be necessary at your income level and offers great flexibility.  You are going to do great!  Guard against burn out and take care of yourself.

[Zaphod]

Agree with refi asap, makes no sense to have such crazy rates to pay back.

Struggling or not, thats reality, best get on top of it before it gets worse. A refi could bring that down to 60-70% of current and get it paid off faster. You have an excellent income it will be no problem.

Also, you have a massive cash pile just sitting in the bank? What are your plans for that, investing, lump summing the loans, etc...you have a lot of latitude it seems.

[jhwkr542]

$250k in cash gaining hardly any interest and 465k in loans accruing 7%? Have I got the deal for you! What if I told you I could take your $250k and make a guaranteed 7% interest a year risk free?

But seriously, use that money to knock down the loans. Maybe give yourself a little wiggle room but you have a debt emergency. No need to have an emergency fund if you're not going to use it for emergencies. And apply to all the student loan refinance companies and pick a 5 year variable term with the lowest rates and pay it off in a year or two.

[CordMcNally]

I agree with the above. Refinance, use $200k of the money market fund to pay off the debt, and then aggressively pay off the rest. You'll be done in less than 18 months.

 

Also,  make sure you're doing a backdoor Roth for your spouse as well.

[DMFA]

What are you doing with so much cash sitting around not earning anything?  The only cash that should be sitting around is an emergency fund of 3-6 months' expenses.

Why are you letting that much interest pile onto that much debt?  You're stuck paying it, and as such you should pay the absolute minimum possible by doing it it as quickly as possible at the lowest interest possible.

Refinance right away.  SoFi has 5-year variable rates in the low 2% range, which you can easily afford with your massive income.  That should be your best bet, unless you can shop around and find a better rate.

You also should be putting away more for retirement (20-25% of your income) than you currently are.  Max 403b, backdoor Roth for both of you (can do spousal even if spouse doesn't have income), HSA, and make up the rest in a taxable brokerage account.  I'd consider eliminating your debt ASAP before funding your 529s since with that income, it shouldn't be difficult to cash-flow much of your kids' college expenses.

[VagabondMD]

Hardly desperate. Desperate is when you cannot pay your bills, lose your home, cannot afford to feed your family, etc. You just need to make a few tweaks--lots of good advice has been given already. You are on Easy Street.

[The White Coat Investor]

Yea, big hole but big shovel. Start shovelin'! The only way to get rid of debt like that is to throw a lot of money at it each month until it goes away.

 

You should refinance too of course and throw your bonus at it too of course, but mostly you just need to throw a lot of money at it each year. If I were you I'd try to have it paid off within 24 months and just be done.

[jfoxcpacfp]

529s go on the back burner until you have the debt paid off which, as WCI advised, can be done away with in 2 years, 3 at the most. Put a plan together and do it. You are fortunate to have such high earning potential. Please make sure you have adequate OO disability insurance. This is a situation where financial planning could really make a difference.

[Kamban]

Refiance

Use the $250K money market funds to pay $65K subsidized loan and rest to the $400K non subsidized loan

Make $5000 per month payments from now until next March towards the $400K loan.

Use the $150K of bonus due next March to pay off the rest of the loan. By April 2018 you should be debt free except mortgage.

 

Hope you don't have a car loan

[jayzsurgery]

Thank you everyone for the much needed advice.

 

From a tax standpoint, would it be advantageous to pay a large lump sum ($150-200k) toward my loans with my current FedLoan lender and then re-finance the balance or refinance first then pay off a large chunk?

 

Thanks again

[Zaphod]

jayzsurgery wrote:

Thank you everyone for the much needed advice.

 

From a tax standpoint, would it be advantageous to pay a large lump sum ($150-200k) toward my loans with my current FedLoan lender and then re-finance the balance or refinance first then pay off a large chunk?

 

Thanks again

Click to expand...

It doesnt matter tax wise, but will min monthly payment wise. I'd just get the refi started asap before any rate changes. You can do variable, even in a rising rate environment as you'll pay it off quickly per your plan and it wont matter.

[DMFA]

Refi it, like, yesterday. Every day you lose $91 to interest alone. Get out of bed and light four $20s, a $10, and a $1 on fire before you go to work.

SoFi: 5-yr variable at 2.11% after auto-pay discount. Not kidding. Log on tonight and stop the bleeding. Whatever lump sum you decide to throw at it, you can do that first, too.

Say you knock out $150,000 of it right now, then refi it to that rate, your interest loss drops to a fifth of what it was ($18/day).

Git 'er done.

[Hatton]

I agree with the above posters.  Pay off $200k today. Refinance the rest tonight.  Make the reduced payments and retire the loan with the next bonus. 1..2..3..done.  Then you need to address 529s and retirement savings.

[Craigy]

Pay with available cash, then refi.

At $8k month of expenses, to be on the safe side keep 3 months of that for now, plus one month of slush, so maybe ~$30k.  In reality you'll end up with more than that in your checking account since you're always getting paychecks, making payments, etc.  Take all of the rest of the cash ($220,000) and write two checks, one for $65k and one for $155,000 and send (fedex overnight) to lenders.  Call them up and confirm payment addresses and 10-day payoff amount on the small one.  Drop your checks in a fedex envelope with your name and account number and a brief note.

Suddenly you have just $245,000 of loans.  The payments should show up next day and clear within the week, probably sooner.  Done.

Then you refi.  With that sort of debt-to-income ratio, you should get a great rate, probably better than 4%.  Fixed at 4% over five years, that's a $4,500 monthly payment, BFD.  If you really can't stomach that, do a ten year note and it'd be about $2,500.  Pay it over five or ten years, or just pay it off.  It'll be at a low rate so who cares at that point.

Again, pay down your debt with cash today, then refi, which will make the refi a lot easier and you'll get lot better rate.  If you try to refi now before making your payment, you'll get a stiff rate which won't be much better than the 7% you're getting now, and you might not even be eligible with many lenders period.  Also, most of these lenders take a couple months after approval to actually fund your loan on the big ones, so you'll be sitting at your 7.125% rate for months while the lender finds the money.  Don't even look at the refi sites until you make your cash payments.

Send checks today!