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  • Help with a plan of attack

    My husband is nearing the end of his surgery training. I am just getting into WCI and need help making the best possible plan for loan repayment...

    He will be making at least 400k+ (plus production). We currently have 654,000 in student loans at 5.6% refinanced through Mohela/Laurel Road. We have two kids, we rent, any credit card debt will be reimbursed (moving/board cert).

    I guess I plan on having us refinance student loans at a variable rate and knocking it out ASAP.

    Should we also open a backdoor ROTH or just focus on the loan debt and contributing to an employer matched account? Should we start contributing to 529 or again, just focus on the debt repayment? I am uncomfortable with the debt but also feel like we can't live our lives if we dump everything into it. How long will it take if we are aggressive? Is it best to get rid of it or live with it? Thoughts?

  • #2
    You should max out all tax-advantaged accounts then start plowing into the debt.

    Just for some wording clarification, you don't open a 'backdoor ROTH' account. You need a traditional IRA account and ROTH IRA account, there is no such thing as a 'backdoor ROTH' account.

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    • #3
      You should be able to get a much better rate than 5.6%. Doesn't cost money to refinance student loans, just a temp hit on credit score. Sometimes you even 'make money' with odd bonuses or amazon gift cards.

      Goal is usually 20% retirement in backdoor roth IRA, 401k, taxable if needed to allow compound interest to work in your favor. After you 'pay yourself' in retirement funds, pay off minimum of student loans, fund the rest of your budget, then you can figure out what you want to do with the rest of the money.

      If you're debt adverse, feel free to pay down extra on your loans at that point.

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      • #4
        Originally posted by Nysoz View Post
        You should be able to get a much better rate than 5.6%. Doesn't cost money to refinance student loans, just a temp hit on credit score. Sometimes you even 'make money' with odd bonuses or amazon gift cards.

        Goal is usually 20% retirement in backdoor roth IRA, 401k, taxable if needed to allow compound interest to work in your favor. After you 'pay yourself' in retirement funds, pay off minimum of student loans, fund the rest of your budget, then you can figure out what you want to do with the rest of the money.

        If you're debt adverse, feel free to pay down extra on your loans at that point.
        Thank you for the clear insight. Good advice on paying back the minimum of student loans. When we refinance, what choice is best for quick payoff? 10 year variable?

        Comment


        • #5
          Originally posted by CordMcNally View Post
          You should max out all tax-advantaged accounts then start plowing into the debt.

          Just for some wording clarification, you don't open a 'backdoor ROTH' account. You need a traditional IRA account and ROTH IRA account, there is no such thing as a 'backdoor ROTH' account.
          Perfect thank you.

          Comment


          • #6
            Originally posted by drwifey View Post
            My husband is nearing the end of his surgery training. I am just getting into WCI and need help making the best possible plan for loan repayment...

            He will be making at least 400k+ (plus production). We currently have 654,000 in student loans at 5.6% refinanced through Mohela/Laurel Road. We have two kids, we rent, any credit card debt will be reimbursed (moving/board cert).

            I guess I plan on having us refinance student loans at a variable rate and knocking it out ASAP.

            Should we also open a backdoor ROTH or just focus on the loan debt and contributing to an employer matched account? Should we start contributing to 529 or again, just focus on the debt repayment? I am uncomfortable with the debt but also feel like we can't live our lives if we dump everything into it. How long will it take if we are aggressive? Is it best to get rid of it or live with it? Thoughts?
            what does we can't live our lives if we dump everything into it mean. keep the same budget as you have now, and everything on top of that goes to loans, i would also work extra shifts if possible.

            Comment


            • #7
              You've received some good feedback already. I will add that there is no reason to put money in to a 529 until your loans are paid off. It does not make sense to prioritize your kids college until you take care of your own debt.

              Comment


              • #8
                Originally posted by fatlittlepig View Post

                what does we can't live our lives if we dump everything into it mean. keep the same budget as you have now, and everything on top of that goes to loans, i would also work extra shifts if possible.
                This doesn't help but thank you.

                Comment


                • #9
                  Originally posted by TheDangerZone View Post
                  You've received some good feedback already. I will add that there is no reason to put money in to a 529 until your loans are paid off. It does not make sense to prioritize your kids college until you take care of your own debt.
                  Great point - removing that from our budget plan.

                  Comment


                  • #10
                    No, don't bother with the 529. We kept sort of a minimum amount liquid when paying off loans ($20-30k) but plowed the excess into loans. Honestly, if you're making $500k and continue renting, it can be done within 3 years. It'll stink for now, but after the short time, you'll be free. Max backdoor Roths for you both and his 401k (and HSA, if applicable). I'd ignore the 20% rule for now. I wouldn't ignore 5.6% loans to invest. With that amount, you may not get a better rate. I think 5 year variable is even possible, depending on other factors.

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                    • #11
                      Originally posted by drwifey View Post

                      Thank you for the clear insight. Good advice on paying back the minimum of student loans. When we refinance, what choice is best for quick payoff? 10 year variable?
                      Choose a payoff that makes the most sense for your finances. Start with his monthly after-tax salary, deduct housing, average monthly spending from 2019, and 20% for retirement. With what's left you should have a good idea of how long the repayment term should be.

                      My spouse graduated in 2018 with about half as much debt and similar income. I put us on a 5 year payoff which I considered aggressive but it left plenty of wiggle room. We reprioritized due everything going on in the world and made our last student loan payment this month.

                      Especially if you're relocating, it'll take 6-12 months to really settle in with these big numbers and start feeling confident about the best direction from your family. Always glad to see another spouse in the group, read often and stick around!

                      Comment


                      • #12
                        Refinance again
                        Max tax advantaged accounts.
                        Live like a resident
                        Work like a resident
                        Put the rest towards loans.
                        If a few years it will be well worth it.

                        Comment


                        • #13
                          Originally posted by drwifey View Post

                          Thank you for the clear insight. Good advice on paying back the minimum of student loans. When we refinance, what choice is best for quick payoff? 10 year variable?
                          It depends on what rate you can get refinancing. Some people are saying they’re at 0.5% or something ridiculous. If you’re able to get that low it’s essentially free money and I would take as long as possible to pay it off. If the best you can get is 4-5% then I’d probably prioritize that and pay it off in the shortest time possible pending the rest of your budget.

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                          • #14
                            I would start here: https://www.whitecoatinvestor.com/st...n-refinancing/ We went with a variable rate with Earnest for 5 yrs but it was much less $s. After a year with initial rate of around 2.5%, the current rate is now less than 0.25%. For that much loan, the better the interest rate the better off you are. Hunt for the best rate you can find with terms that you can live with. Make sure that there is no pre-payment penalty too.

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                            • #15
                              Originally posted by drwifey View Post

                              This doesn't help but thank you.
                              I’m curious why you were apparently offended by flp’s comment? He brings up a valid point. What do you mean that “you can’t live your life if you dump everything into it?”
                              I’m assuming that right now as a resident (your husband, not sure if you also have income) your household income is a lot lower than $400k+ correct?
                              What he is suggesting is that you should continue to live off of a resident salary and use all the additional income he will be making to throw at the loans. You can certainly live just fine now on a residency salary, so you should be able to continue this for a few more years or more until the debt is gone correct?
                              I agree with his advice. If I were you two, I would pretend that your husband is not getting a raise at all until the debt is gone. Maintain exactly the same standard of living as you do now and throw all the additional income at the debt. You have a MASSIVE amount of student debt and even making $400k a year it’s still a relatively big bill.
                              Yes refinance if you can get a better rate, term doesn’t really matter imo because your goal should be to pay down the balance asap.
                              It sounds like it would be helpful for you to really sit down and look at what you’re used to spending now in relation to your current take home pay. Then calculate what you will be taking home under the new salary. Look at the difference between the two. Use that to calculate how long it will take you to pay back your loans. A tax calculator online will be necessary and you will need to tweak it a little after his first paychecks come. But I would guess you’re probably looking at 4-5 years before that debt is gone. That’s IF you do as described above. No one here can give you a more accurate guess unless you provide a lot more info.
                              I wish I could go back to 2010 when I was in your exact shoes and convince myself to live like a resident until the debt was gone. You’re lucky you found this site when you did so congrats

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