What to do has been keeping me up at night. Hoping for some guidance, advice and/or other options. I'm going to spell out all the details so this is going to be a long post.
Obligatory background: Never been good with money and made some very poor financial decisions. Earlier this year I came into a modest windfall and was able to dig myself out of all high interest debt.
Current situation: * Age 43 * Current annual income $117K + Bonuses (this is significantly higher than years past) * Have a budget - YNAB * Current living expenses: $55K/year (HCOL area but thanks to my budget it’s much lower than before) * Have a 3-6 mo emergency fund. I work in a volatile industry so this is a necessity. * Current value of retirement accounts: $30K. This includes $23K in an inherited IRA with the first distribution in 2019. Maxing out my 401k this year to reduce AGI, value by year end should be $45K.
Debt: * Car loan: $28K, interest rate 3.98%, $10-12K upside down but do have gap insurance (I'll never buy a new car again) * Federal student loans: $400K, consolidated interest rate 7.625%, 7 years in on a 25 year IBR plan (18 years remaining), approximately $50,000 paid so far.
I started to write an explanation of why my student loans were so high but they are what they are. The total includes some from undergrad, most from grad school and too much from accumulated interest. I also think the possibility of forbearance after 25 years was a false sense of security.
I've run the numbers on student loan payoff calculators and here are the details:
Repay in full over 10 years * Minimum payment: $4365/mo * Total amount paid: $648,000
Repay in full over 18 years (remaining life on IBR) * Minimum payment: $3400/mo * Total amount paid: $783,850
Pay IBR minimum over 18 years (remaining life on IBR) with forgiveness on balance owed *Minimum payment: $550 - $2500/mo (based on current and potential future income/filing status) * Taxes on amount forgiven ($657,000 @ 35% worse case): $230,000 * Total amount paid: $779,000
I think if throw all of my future bonuses and surplus income at the loan (including the inherited IRA) I could get it paid off within 10 years. This would save the most money in terms of total amount paid but my concern is that in 10 years I’ll be 53 and not have any significant retirement savings. I get that I’m already behind but I would like to at least be able to partially retire or work part time at some point in my 60’s.
Paying the calculated minimum for the next 18 years hardly sounds appealing time wise, but seems to offer a middle of the road approach. It would allow me to save for the potential tax hit, save for retirement and still make some repayment of my obligations. There is always the possibility that the forgiveness option will go away so that’s also something to consider.
I’ve also considered the idea of splitting extra money, half to the loan and half to retirement/investments. Or refinancing part; it’s split by subsidized and unsubsidized with the subsidized part at about $55K. I will also have the option of getting a side hustle in the near future (there’s a legitimate reason for not being able to do so now which I’d rather not go into) which could increase my extra income.
So my question is, what would you do in this situation? Or are there any other options I may not have considered? Thanks in advance.
Edit: Sorry for bad formatting. I tried!
Edit 2: Going with all advice to payoff as soon as possible. New question: Try to refinance any part of it for a lower interest rate?
Submitted June 19, 2018 at 08:08PM by NoFearofDepths https://ift.tt/2tcHoST
