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View Full Version : Savings vs. Debt?


Phuz
01-22-2008, 11:00 AM
Hey guys, I'm a regional pilot and I'm wondering if its smarter to pay off student loan debt or make minimum payments while saving for something like a down payment on a home.

I'll make ~$27,000 this year. (I'm looking for part-time work too)
I have ~$50,000 in student loan debt. Here's a breakdown:
$5000 @ 4.5%
$7000 @ 9.21%
$16000 @ 8.65%
$22000 @ 7.2%
No kids - no savings.

Any advice? Thanks.


vagabond
01-22-2008, 11:19 AM
Well, it's been a long time since I made $27,000 a year, but we all have to start somewhere. Back when that was all I made, I also did not have a house, so my rather conservative brain forced me to pay off debt. If I were in your shoes again, I would pay off first that debt with the highest interest rate. 9.21% is un-American and immoral!! But that's just me.

There is a thread on the forums on buying vs renting. The housing market is down right now and looks like it's going to be that way for a while longer. You have time to save up the down payment. Depending on where you live or want to buy a house, it is not difficult to save up the 10 to 20%. And don't forget that the IRS allows you to deduct the home mortgage insurance premiums now.

Good luck!

Estee
01-22-2008, 11:28 AM
First, I'm no financial guru...
That being said, ideally, you should have 3 months of savings for a rainy day. You also need to pay off the loans. Start with the highest interest one and assuming you can pay it off early, pay more than required. I doubt you will be able to find a place to put your savings that will make more than your top three interest loans. When you get one paid loan off, you can use the money you would have paid to that loan to max the payment on the next highest interest loan...ripple effect.

Live cheap, create a savings, pay off your loans, and then pay yourself. Finally, since you will have learned to live paying XX amount of dollars a month to your loans, when they are paid off continue to pay XX amount automatically to an account/mutual fund.
You will also need to balance enjoying life...
Good luck


ArmyRC12Dude
01-22-2008, 11:47 AM
I would encourage you to check out Dave Ramsey - radio, books, podcast, what ever you can, and take the advice to heart. He breaks things down into simple steps and will really set you up for life if you stick to it. I am living proof - from over $40K of debt 3 years ago to all the way through step 5 of the Dave plan.

Search the forums here - I know he has been mentioned before....or check out his web site - www.daveramsey.com

Cubdriver
01-22-2008, 11:55 AM
I would pay down ALL the loans first. If you lose your job and there is a hiccup in your income you are gonna lose your house, destroy your credit rating, quite possibly have a ton of loans still staring you in the face, and insult to injury you are still going to be required to pay the interest on the loans while you fall to financial ruin. Don't forget that house loans are interest accruing, also. You will be paying that interest on top of what little equity you accrue in the house in 2 or 3 years, plus, mortgages require insurance and other concurrent costs that renters do not pay. People who support the house buying idea say it's tax deductible, but I would say not very.

My advice is get free from debt as job one. Then at least you are not paying money out with no tangible benefit. After the loans are paid off or down in a few years, then buy the house. I graduated aerospace school with $62k for school loans a year and a half ago. Since then I have cut the sum in half. I live kinda small and rent. But in another two years at most I will be free to buy golf clubs, house, and puppies or whatever without bleeding hard earned money away in the form of interest.

sqwkvfr
01-22-2008, 01:30 PM
I would think that the interest rate that you'd receive on a mortgage would be greatly reduced if you didn't have that $50k of unsecured debt.

Then again, a lot of people have been able to ride themselves of debts like that by pulling equity out of their home after a few years...but that might be quite a risk in this housing market.

cfii2007
01-22-2008, 02:09 PM
Pay it off. I got rid of all my flying debt in about a year.

Best decision I ever made!

mcartier713
01-22-2008, 03:03 PM
Well, it's been a long time since I made $27,000 a year, but we all have to start somewhere. Back when that was all I made, I also did not have a house, so my rather conservative brain forced me to pay off debt. If I were in your shoes again, I would pay off first that debt with the highest interest rate. 9.21% is un-American and immoral!! But that's just me.


lol vaga, you think 9.21 is un-american, my current flying loan is at 18.99% :) gotta love it....

but yeah, I'd go with the rest of the troops here and say go ahead and pay off the debt, the easiest money you'll ever make is the money you'll save from not paying interest. the Dave Ramsey thing was also a great suggestion, look for "Total Money Makeover" and give it a read, great book.

schwanm
01-23-2008, 05:26 AM
lol vaga, you think 9.21 is un-american, my current flying loan is at 18.99% :) gotta love it....

Did you put it all on your credit card? :p

But yeah, as everybody else has been saying. Always pay off the highest interest first, working to the lowest interest last:)

mcartier713
01-23-2008, 06:36 AM
Did you put it all on your credit card? :p

But yeah, as everybody else has been saying. Always pay off the highest interest first, working to the lowest interest last:)

lol no, it's a line of credit from Bank of America through AOPA. I'm only 21 (734 credit score tho :)), i only make $500/month, and my dad refuses to co-sign. so that equals 18.99%.

Boom Boom
01-23-2008, 06:54 AM
Just my 2 cents... Pay off the debt which is easy to say but you need a plan... When I was getting out of the Military for that dream job, I wanted to be as close to debt free as possible just in case of unemployment. Luckily the unemployment was sort lived but early wages were not so good..

The Plan: Go to your bank or one of those type of websites and use one of their calculators--> You can put in rates, terms, etc; and then by manipulating those numbers just a bit, you can find exactly how much extra to pay to have that loan clear in a certain time frame... You would be surprised how much 25-50 dollars extra a month kills on the principle and how it reduces time..

Good Luck

FlyingChipmunk
01-23-2008, 01:23 PM
lol no, it's a line of credit from Bank of America through AOPA. I'm only 21 (734 credit score tho :)), i only make $500/month, and my dad refuses to co-sign. so that equals 18.99%.

If you pretend you cant pay your credit cards they put you on their credit counseling. Knocked my interest from low 20% to 6%. Plus if you have any late fees or other bogus charges they clear those as well. But you have to make the effort and confront them.

cfii2007
01-23-2008, 01:55 PM
I actually put a majority of flying debt on credit cards.....not smart.

You'd be surprised when you crunch the numbers, and realize how paying a little extra toward the principle will make a HUGE difference!

mcartier713
01-23-2008, 02:41 PM
If you pretend you cant pay your credit cards they put you on their credit counseling. Knocked my interest from low 20% to 6%. Plus if you have any late fees or other bogus charges they clear those as well. But you have to make the effort and confront them.

lol so how do i do this? hehe

FlyingChipmunk
01-23-2008, 04:50 PM
I called em (Chase Bank) up and said I was having difficulty making payments, then they referred me to their credit counselors and they set me up on a 36month program to wipe out my credit cards at the lower interest rates. They were able to include my Aopa MBNA account too. There is a service fee like 7 bucks per card but for me it was still way cheaper than the interest I was paying.

cfii2007
01-24-2008, 02:47 PM
That's not a bad deal, if they can cut down your interest rate.

ToiletDuck
01-24-2008, 03:26 PM
Hey guys, I'm a regional pilot and I'm wondering if its smarter to pay off student loan debt or make minimum payments while saving for something like a down payment on a home.

I'll make ~$27,000 this year. (I'm looking for part-time work too)
I have ~$50,000 in student loan debt. Here's a breakdown:
$5000 @ 4.5%
$7000 @ 9.21%
$16000 @ 8.65%
$22000 @ 7.2%
No kids - no savings.

Any advice? Thanks.

Refinance your debt all into one loan. I pay 2.9%. Have roughly 4k. I make more with cash just sitting in savings so why bother with paying it off? I also invest. If you want to know the company I go through send me a pm. If you make 24 consecutive payments with automatic deduction from your check it drops to 1.9%. I don't mess around when it comes to things like that so I went through easily over a hundred places before I found this one.

Duck

ToiletDuck
01-24-2008, 03:27 PM
I called em (Chase Bank) up and said I was having difficulty making payments, then they referred me to their credit counselors and they set me up on a 36month program to wipe out my credit cards at the lower interest rates. They were able to include my Aopa MBNA account too. There is a service fee like 7 bucks per card but for me it was still way cheaper than the interest I was paying.

Does that not kill your credit rating when it shows a refinance?

slimjim10101
01-31-2008, 04:21 PM
i so far have taken a $3500 subsidized loan (low interest). Might take out 1 more $3500 if i have to. in a week or so, i'm using my car as collateral(sp?) to get about $5000. i have $1000 left of the $3500. so i will have about $6000 to get my ppl. i also have a credit card with $3000 i gotta pay. I am now paying about $440 a month on that. so when thats zero'd out this summer, that same amount (the $440/month) will go toward saving up about $2000 to be my new zero in my savings account for emergency. then that ($440+/month) will go to paying toward further training. plus i'll deploy this summer and hope to save around $6000. that will pay off whats left from what i pulled from my car. plus, the military is paying 100% for my college. don't even have to dip in my g.i. bill for that until i get out. And the g.i. bill will cover 60% of the flight training from instrument and up. I have been so stressed out the past year trying to figure out how to do this. but now that i have a plan thats not borderline and have some room to breathe, i feel a lot better. after i get my 250 req. for comm., i'll find a small p/t job to do on the side of my full time job flying like skydivers or something till my enlistment is up in the airforce(got 4.5 years left).

I hate debt. once i get the certifications i want, my primary goal is to pay any loans off immediately. then on to bigger and better things. i saw somewhere in a forum that you need to look at what yuo have and think about it. if you have the best tv, car stereo, etc..., those are priorities you made in your life. i have made my priority to pay for flight training safely.

- joe.

EDIT - and I'm only 20. lol.

Dark Knight
01-31-2008, 05:01 PM
Hey guys, I'm a regional pilot and I'm wondering if its smarter to pay off student loan debt or make minimum payments while saving for something like a down payment on a home.

I'll make ~$27,000 this year. (I'm looking for part-time work too)
I have ~$50,000 in student loan debt. Here's a breakdown:
$5000 @ 4.5%
$7000 @ 9.21%
$16000 @ 8.65%
$22000 @ 7.2%
No kids - no savings.

Any advice? Thanks.



For the love people.......:(
First off, keep in mind these people are not Certified Financial advisors.....
Yes interest is an issue like vagabond mentioned, but if you do the math and look at your loan notes...
which account will you actually pay more interest ?
the $7000 at 9.21% interest
or
the $22000 at 7.2%
do you see my point, people too often look at interest when they should also consider the other half of the formula....VOLUME.

Dark Knight
01-31-2008, 05:03 PM
I called em (Chase Bank) up and said I was having difficulty making payments, then they referred me to their credit counselors and they set me up on a 36month program to wipe out my credit cards at the lower interest rates. They were able to include my Aopa MBNA account too. There is a service fee like 7 bucks per card but for me it was still way cheaper than the interest I was paying.

Be careful of this, sometimes this is almost as bad as declaring bankruptcy. It will show on your credit report. This is not something you want on your credit report.

Instead maybe call each company and negotiate a better rate because you "are considering paying them off."

slimjim10101
01-31-2008, 05:08 PM
i see it as if it takes you 10 years to pay off the 22k at 7%. then an additional 4 years to pay off the 7k at 9%. you would have been paying 9% on that 7k for 14 years and 7% on the 22k for 10. if you pay off the 7k first, you will be paying 9% on the 7k for 4 years and 7% on the 22k for 14. i'm pretty sure there is a median though between that depending on what the amount is and interest like you are saying. to the point that no matter which you paid off first, wouldn't matter. i'm too lazy to do the math on these numbers. lol. :D

sigtauenus
01-31-2008, 07:36 PM
I'm going to disagree with almost everything above and say you need to have some savings.

$20 a month, $50 a month, whatever, you need to sock something away, in a savings account making 4-5% right now. Sure you will lose 4 or 5% on that money (against the 9% loan), but what is the alternative? Rainy days happen whether you have debt or not. Your car needs tires or a new transmission, what happens? You put the tires or the transmission on credit at 18%. Now where are you? Even if all you do is put together $500 or $1000, that might be pretty significant on a rainy day. If something unexpected changes, well, then take that money and just put it right on the loan principle, but at least you have it available if you need it.

This is my take on debt. Sure you want to pay it off as quick as possible, but paying it off faster at the expense of having a liquid asset to fall back on is setting yourself up for more problems down the road.

Definitely hold off plans for the house until that debt is under control.

daytonaflyer
02-01-2008, 03:50 AM
Why would you even think of buying a house with that low of a salary and that much debt...especially while housing prices are still high?
I earn about $11K more than you do as a first year FO and have around $20K saved up with zero debt and no car payment and I still wouldn't consider buying a house. Pay down your debt and wait till you're on captain pay before you buy a house. By then, the housing prices should have fallen significantly and the interest rates will still be reasonable. You'll be glad you waited.

Don't forget to include PMI and taxes into your mortgage payment estimates. That will add another $400 to $1000 or so each month.

WhiteH2O
02-04-2008, 09:21 PM
If you are asking yourself questions like this, you need to be talking to a financial advisor. Find one in your area that will sit down with you and look all your financial stuff over and give you good advise.

Led Zep
02-07-2008, 10:49 AM
Hey guys, I'm a regional pilot and I'm wondering if its smarter to pay off student loan debt or make minimum payments while saving for something like a down payment on a home.

I'll make ~$27,000 this year. (I'm looking for part-time work too)
I have ~$50,000 in student loan debt. Here's a breakdown:
$5000 @ 4.5%
$7000 @ 9.21%
$16000 @ 8.65%
$22000 @ 7.2%
No kids - no savings.

Any advice? Thanks.

Yep, I got some advice. First, I second the reference to Dave Ramsey posted by someone earlier. Second, make it your lifelong goal to remain free of debt. The only exception to the rule would be for a fixed-rate mortgage one day. To answer your immediate question, I would NOT even think about a mortgage until you clean up ALL of your other debt first. Here is what I would do.

Step One: make a budget. This is important for two reasons. First, you need to know how much is coming in and how much is going out - specifically to where it is going. Second, with this information in hand you will be better able to plan where to allocate your income.

Step Two: set financial goals. Your first goal should be to pay off all of your debt in the shortest amount of time. Your second goal should be to save as much money as you can for something such as a down payment on a home, rainy day fund, car, etc..

Step Three: develop good (read responsible) financial behavior. Read books about wealth and how to attain it. Take notes and learn from those who have done it. Balance your checkbook each month. Every three months, analyze where your money is going per category. i.e., how much are you spending on groceries, fuel, rent, etc.. This will help you to adjust and maintain your budget with realistic numbers and perhaps make adjustments to your personal finance as needed.

Now, I'll give you my advice as to what I would in your current situation. With the numbers you gave me, I see that your TOTAL student loan debt is $50,000.00, and this does not include interest. Assuming that you set a goal to pay all of this off in 3 years, that would be $1, 388.88 per month, 4 years would be $1041.66 per month, and 5 years at $833.33 per month.

You posted an income of $27,000.00 per year, and assuming this is gross and assuming your taxes and other deductions account for 25%, your net yearly income is $20,250.00, or $1,687.50 per month.

You also said you have no kids and no savings. No problem. Put away $1000.00 in a savings account and DO NOT touch it unless it is an emergency. A hot date does not constitute an emergency, a new transmission for your car does. :D

If you are able to do so, I would live in a crash pad or room with someone as inexpensive as I possibly could. If you can do this, the difference in rent that you would normally pay can be considered a monthly raise. A second job is also a good idea, because all of that extra money can be applied to your debt.

Make minimum payments on your loans, and apply extra money to the smallest BALANCE first until it is completely paid off. Once it is paid off, apply that extra money to the next lowest balance and pay it off. Apply this principle your debt until it is completely paid for.

Once your debt is all paid off, then set the goal of saving for a house.

Phuz
02-08-2008, 05:36 PM
Thanks everyone for taking the time to provide such excellent advice. I just want you all to know that it has not fallen on deft ears (eyes?) and I surely hope that other guys out there in the same boat will follow your advice as well. Thank you.

Zapata
02-14-2008, 09:45 PM
I would encourage you to check out Dave Ramsey - radio, books, podcast, what ever you can, and take the advice to heart. He breaks things down into simple steps and will really set you up for life if you stick to it. I am living proof - from over $40K of debt 3 years ago to all the way through step 5 of the Dave plan.

Search the forums here - I know he has been mentioned before....or check out his web site - www.daveramsey.com (http://www.daveramsey.com)

He does give sound financial advice. However, you should be know that he sneaks his Christian values into the presentation of his advice. If you're a Christian, then no problem.....I guess. If you're not, be prepared to turn on your dogma filter.

He also makes it no mystery that he is a right winger.

LJ-ABX
02-15-2008, 07:49 AM
He does give sound financial advice. However, you should be know that he sneaks his Christian values into the presentation of his advice.

He doesn't "sneak" it in. There is no attempt to hide it though he only brings it up with specific callers who say that they are Christian.

If the advice is sound, as you say, what does it matter if it was developed from his Christian values?

furloughman
02-15-2008, 03:39 PM
First step, ask your parents to move back in! Step two, consolidate your debt to a lower percentage rate. Step three, Take the upgrade as soon as possible, build 1,000 PIC then you are on your way!

BaronPete
03-05-2008, 08:42 PM
Refinance your debt all into one loan. I pay 2.9%. Have roughly 4k. I make more with cash just sitting in savings so why bother with paying it off? I also invest. If you want to know the company I go through send me a pm. If you make 24 consecutive payments with automatic deduction from your check it drops to 1.9%. I don't mess around when it comes to things like that so I went through easily over a hundred places before I found this one.

Duck


Hey TD, I'm still about 10 or so posts short of being able to PM, but I hope to get the name of that company from you! I'm about to take out an additional loan, and the Federal Parent Plus loans are frozen at 8.5%. That's insanity!

Hope to hear about it soon, one way or the other.

BP

cfii2007
03-06-2008, 03:09 PM
I made a point to pay off all my debt before even thinking of applying to a regional.

jonnyjetprop
03-06-2008, 04:03 PM
If it were me, I pay the debt down first. I'd still try to get a better rate, so more of your money goes to principle.