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I’m Willing to Radically Change My Finances to Payoff My Student Loans

Written by Steve Rhode

“Dear Steve,

Where to start? I’m a 28 year old married male and am a manager for a private equity portfolio company. My financial stats are as follows:

  • Gross Household Income: $180,000
  • Private student loan debt (Husband only): $155,000
  • Public student loan debt (combined): $52,000
  • Mortgage Debt: $240,000

We currently own our house which is all in (including utilities) approximately $2,500. Our combined student loan payments are $1,500 per month. Our two cars with insurance run approximately $900 per month. These are our biggest expenses.

We also own a rental property we break even on with a 15 year mortgage that has approximately $45,000 in gross equity.

We are putting away $10,000 (match included) per year to 401K and $5,200 to savings. However, with the amount of income we are making we feel like we are not moving towards financial freedom and are just treading water.

What’s the best way to tackle these private student loans? With all of the money we throw at it monthly it seems as though the balances barely move.

We are looking to have a child in the next two years, and want to be as financially fit as possible. We are open to radical adjustments.

Sincerely,

Going Nowhere Fast”

Dear Going Nowhere Fast,

I did get a big smile when you said you were open to radical changes. It’s not something I hear from readers all that often and I wonder if you are REALLY open to radically changing things. Generally when people say that it is followed by all the items they are not willing to change. I can’t tell you the number of times people have told me they won’t take their child out of private school or sell the car. When faced with the loss of something, time-and-time-again, needs become wants.

So let me enjoy the moment and put on my radical hat for a moment.

If the elimination of these student loans was a priority for you then it would mean making the maximum payments to these loans a priority. To make more room for these payments you’d have to consider selling the investment property, downsize your house, cut discretionary expenses, slash dinners out, and basically jump feet first into the Dave Ramsey slash and burn approach.

Of course I’d maintain the 401(k) matching contributions to maximize your savings now.

You could use proceeds from the sale of the homes to pay down the debt and probably eliminate all of the federal student loan debt. And if you followed that radical approach you might be able to eliminate damn near all your student loan debt by the time your lovely child arrived.

That would allow you to be able to have more flexibility with your child and less dependent on dual incomes to get by.

It would also require a two year sacrifice of your current standard of living and be willing to take some short-term pain for massive long-term gain.

Outside of that sort of life altering radical approach, the most logical way to tackle the debt is by using math. See my recent post, Should I Payoff My Navient Student Loans or Save for Retirement? to understand how the math plays out.

Based on the returns on your 401(k) investments it might not make sense to take any money away from what you are currently doing and diverting it towards the loans. And unless you change the equation that is your life right now it doesn’t seem there is extra money to divert towards the loans without taking it from something else that is a priority.

If I could go back to talk to my 28-year-old self I would have convinced him to go for the radical approach because living a life without a lot of debt gives you the freedom to live the life you want, instead of have to.

You can be as radical as you want here but ultimately what I hope most for you is that you find a way to enjoy your future with your child in such a way you are not always a slave to your debt and treading water for decades to come.

Maybe the time is right for you to read my book “The Path to Happiness and Wealth.” You can download it for free here. I think it is a message you are ready to hear.

Please post your responses and follow-up messages to me on this in the comments section below.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

7 Comments

  • To be clear I suggest seeing if refinancing is beneficial via a private student loan lender like SoFi, etc. I usually am not in favor of turning unsecured debt (private student loan) into secured debt (HELOC, etc).

    • I’ve got my eyes open for any amazing private student loan refinancing offers but I have not found any yet that beat current rates. So many restrictions and crazy rates. Even with SoFi or CULoan.

      If anyone knows of a low rate private student loan refi company, please let me know.

    • I have $40K with SoFi now @ 5.99% – $400/mo (making small additional payments)
      $115K with Navient now at 3.75% weighted average (variable = scary, but it keeps the payments affordable for now) – $545/mo
      $37K in public loans @ 6.75% (I believe) – $345/mo
      Any attempt to refi would leave me further cash flow negative I would think. My credit is very good.

  • Steve is correct that most private student loan lenders will only negotiate after you go into strategic default. Refinancing your private loans may be a viable option to reduce the cost of your loans.

    • That is correct. If you had equity in your homes and wanted to borrow against it then you might be able to significantly reduce the loan balances and potentially at a lower rate. Of course the downside to that strategy is you further encumber the properties making the payments higher at a time when you might be looking at an income reduction with a new child. Have you seen the price of daycare? Wow!!!.

  • Thanks for the response, I sincerely appreciate it! Your advice will not fall on deaf ears, and hopefully in a year I can report back some significant progress. I definitely see a few avenues.
    On the other end of radical, what are the consequences of stopping all private debt repayment? I presume the loan companies would be happy to sue someone in my financial position. Not necessarily a consideration, just more of a curiosity.

    • It will hurt your credit, you will wind up in collections, you may be sued, you might then have a judgment and a subsequent wage garnishment.

      Alternatively, some have been able to negotiate a settlement for about half of what they owe around the chargeoff date and then have to potentially have to pay income tax on the forgiven amount if they are not insolvent.

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