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WOOHOO! I’m back with another Budget Friday submission! Today we will be going over a very unique budget. Here are the deets:
Today’s budget is another anonymous submission (I have a feeling most of them will be). They have a very unique situation which was a fun challenge when coming up with the modified budget. Here’s the background:
They are a couple who moved out of country while the husband is pursuing a medical degree. They have no kids, no car, no cable and live a very simple lifestyle while he is finishing up medical school. She does teaching and freelance work and he brings in the (borrowed) cash money with a student loan disbursement. They plan on moving back to the states to start residency around the summer of 2014.
Credit Card Debt (Balances):
- CC 1 – $2400.00 at 10%
Student Loan Debt (Balances)
- Her Loans- $38,000.00
- His Loans – $173,000.00 and counting
They will likely end up at $400,000.00 combined by April, 2014.
- Build $5,000.00 Emergency Fund in 12 months
- Save for backpacking trip to Europe in 20 months ($5,000.00)
- Pay off credit cards in 6 months ($2,400.00)
- Note: They stated they wanted to pay off the credit card, but didn’t give me a set date. I find that goals are achieved when they have a timeline. So I said within 6 months.
Notice anything unusual about the above numbers? Yea, me neither. Oh well, moving on.
Here’s their budget submission:
So, where to start…
The Big, White Elephant
So, this couple is going to have $400,000 of student loans to pay off once he is done with medical school. Wow…. It’s hard to even fathom paying off the mountain of debt…ever. BUT, luckily they have some serious earning power in the future. After residency, they can easily pull in $150,000 – $200,000 a year. Doctors get paid well, and the medical field always seems to be growing, so I’m not too worried about them making enough money. They can live off $50k-$70k a year and pay these loans back within 5 years, easily.
The issue is that they want to pay off the loans during residency, which at this amount, will most likely crush them. I worked it into the budget, but my suggestion is that they elect for “forbearance of medical student loans” until after residency. This will allow them to reduce their payment to a more manageable number, or postpone it completely. The downside to this is that they are still paying interest on the entire student loan, which is a massive amount because of the size of their loan.
For the short term, they are able to accomplish their goals with ease. They can pay off their credit card within 2 months, and then put the extra money toward the Emergency Fund, then towards their backpacking trip. Here’s the payoff schedule:
- Credit Card – $2,400.00 (gone by month 2)
- Emergency Fund – $5,000.00 (saved by month 4)
- Backpacking Trip – $5,000.00 (saved by month 6)
By the time they pay off the credit card, they’re rockin’ $2,140 a month extra that they can throw at the emergency fund. They’ll have it saved by month 4, easliy! After that, they’ll have a snowball of $2,390 a month to toss at the backpacking trip. Two months later…BOOM! Saved $5,000 towards their trip. This puts them in February, 2013. That gives them 14 more months until they are out of medical school, moving back to the states and ready for residency.
At this point, their extra every month is $2,390. So the questions is, what to do with it? Well, if they’re serious about killing this student loan ASAP, then I suggest chucking it at that loan. I would start with the 38,000 loan and killing that first. At $2,390 a month, that loan could be PAID FOR by summer 2014. That would put their total around 360,000 in medical student loan debt. I would then say then find a comfortable payment to stick with during residency, and once he’s a doctor, kill the loan in 4 – 5 years. It’s totally doable, it will just take a little perseverance! Sound like a plan? GOOD!
Comments: So…what would YOU do with $400,000 in student loans? Do you think this is a good plan for them? What are some alternative ways to attack this Mt. Everest of student loans debt? And why, when I think of doctors, do I think of that line in the movie “Catch Me If You Can” where’s he’s like “do you concur?” And then the one resident who didn’t later says “I should have concurred!” I think I’m on my own with this one, it sounds really funny in my head though.