1st Semester of Medical School done...but in debt
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  1. #1
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    Default 1st Semester of Medical School done...but in debt

    Hey,

    This is my first time posting. Quick question. My wife and I are 25 and my wife is currently in medical school and I make roughly 60,000 a year. I'll be done with my student loans at the end of 2013. But we are still bleeding since we are paying for medical school with student loans. I've calculated that it'll take us 6 years to pay off medical school loans assuming my salary for 6 years at 6.8% interest(that is conservative, since I should get a raise soon). Given that amount of time. What is better? Should I pay off those loans medical school loans at the start of 2014 (baby step 2) and work through that or save at least 5000 a year in an IRA and the rest goes to debt?

    Look forward to your answers.

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    Moderator aka AmyBob AmyBoz's Avatar
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    I'm a big proponent of paying off debt first, so I'd go the paying off the medical school loans route first. That's just me.

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    This will likely not be a very DR-like answer, but for myself, I would save the $5K in a Roth IRA and take a little longer to pay back the loans. Just because compound interest on the IRA will net you (likely) a lot more in the end then the interest lost by paying back the loans that little bit more slower. $5K/yr is only 8% of your current income and I can't imagine it is that much compared to the student loans total. If you post the amount of the student loans, I'm sure Greebo can do some wonderful magical calculations to show you the difference in payoff time vs. interest paid vs. interest potentially earned.

    Of course, la la la, it would be best to cash flow the medical school and not take out any more student loans, but as your wife is already in the program it may not be feasible to do it at this point. Although any extra money the two of you can make or squeeze out of the budget is one more dollar to not take out in loans the next quarter. Stick around the boards, you'll learn and be amazed at how much money you can "find"!

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    Quote Originally Posted by DCLissa17 View Post
    This will likely not be a very DR-like answer, but for myself, I would save the $5K in a Roth IRA and take a little longer to pay back the loans. Just because compound interest on the IRA will net you (likely) a lot more in the end then the interest lost by paying back the loans that little bit more slower. $5K/yr is only 8% of your current income and I can't imagine it is that much compared to the student loans total. If you post the amount of the student loans, I'm sure Greebo can do some wonderful magical calculations to show you the difference in payoff time vs. interest paid vs. interest potentially earned.

    Of course, la la la, it would be best to cash flow the medical school and not take out any more student loans, but as your wife is already in the program it may not be feasible to do it at this point. Although any extra money the two of you can make or squeeze out of the budget is one more dollar to not take out in loans the next quarter. Stick around the boards, you'll learn and be amazed at how much money you can "find"!
    Thanks for the reply. We'll be in 128000 in debt after medical school at 6.8%. I'm really interested in whether I should contribute to the Roth now.

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    Registered User Greebo's Avatar
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    At this point you're basically digging a hole with one hand and thinking about filling it up with the other. If you pay for school fully w/ loans and then pay on those loans with your current income you're not getting anywhere.

    Similarly - while I LOVE compound interest, the market is so volatile right now there's no guarantee that investing now will put you much ahead in a few years. LONG term, obviously so, but short term having a couple hundred grand in student loans and what... 20k in investments? Looks kinda stupid if you think about it...

    I'm all about investing when the time is right - but you've got a few more years of very expensive schooling ahead of you. If you have extra money that could go to investments, then I suggest you take that money and use it to reduce the amount of money you're borrowing.

    The less you borrow while you're in school, the less you'll have to pay off when you finish Med School. As your income increases, you can borrow even less for the rest of school. When you complete school and... go into residency? (you intern while in school, resident when out right?) your income will go up more and if you AVOID the trap many doctor's fall into and live on the same that you lived in while in school, you can be debt free very fast (compared to your peers) and then play catch-up on your investing once you're in a better financial position to do so.

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    Do you have an emergency fund? Savings? I would make sure I had an emergency fund in place, then I would hit any other debt you have first, then onto the student loans. Do you have a retirement plan at your place of work? Do you contribute to a 401K?

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    Quote Originally Posted by Buckeye5 View Post
    Do you have an emergency fund? Savings? I would make sure I had an emergency fund in place, then I would hit any other debt you have first, then onto the student loans. Do you have a retirement plan at your place of work? Do you contribute to a 401K?

    I'm good with the emergency fund and I have no other debt other than student loans. I'm in the military, so the only thing comparable is a Thrift Savings Plan which is basically a Roth IRA.

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