How much debt can one reasonably repay per year?

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phillipjg
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Re: How much debt can one reasonably repay per year?

Postby phillipjg » Mon Aug 01, 2011 10:50 am

Transferthrowaway wrote:
blink wrote:
3) :lol: Am I missing something? Good weather, good sports, big steaks...


Your neighbor believes the world is 6000 years old, for starters.

Not just the neigbor, our governor does too.

LawWeb
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Re: How much debt can one reasonably repay per year?

Postby LawWeb » Mon Aug 01, 2011 11:25 am

From my experience, the general rule for what you will take home is: if you earn above 100K, multiply the total salary by .60. This is pretty accurately what you have left after Soc Sec, Med, fed, basic state, paying your share of benefits. (If you earn less, say 50K-90K, multiply by .65.)

So if you earn $160K, you'll take some about about 96,000. A generally realistic budget if rent is $1,500/month and you have a car payment of $400ish is about $4,000/month. So you'll have about 1/2 your salary, $48,000. This budget is with minimal eating out/vacation/etc but generally comfortable living, so if you eat out more, etc., adjust up. Realistically, you will want/need a savings account/rainy day $$, and to live a little larger than this budget is set for. But the target of $25K/year repayment, $20ishK/year savings should be pretty realistic if you earn $160. Any bonuses can adjust a bit, but honestly it will likely be split 3 ways between lifestyle $$, a little extra savings ($20K in the bank is not a big cushion in a bad econ), and some extra repayment.

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XxSpyKEx
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Re: How much debt can one reasonably repay per year?

Postby XxSpyKEx » Mon Aug 01, 2011 5:56 pm

vanwinkle wrote:
XxSpyKEx wrote:All depends on location. You assume NYC, but $75k would probably be pretty reasonable somewhere like Texas. No idea of what taxes, etc would run in Texas, but I wouldn't be surprised if take-home was around $110k, if not more (there's no state income tax from what I hear?). 110-75 = $35k to live off. I'd imagine you could live pretty comfortably off $35k/ year in Texas. Probably could sink another $10k into loans and still live decently.

Having lived and worked in TX, here are my observations:

1) There is no state or local income tax in TX. Sales tax is often 8.25% but you can just deal with paying a little more for things. Money you're putting toward debt reduction isn't being hit by sales tax.

2) Playing with online income tax calculators, it looks like you'd pay about $35K in federal income tax, $11K in social security and $4K in Medicare. So your take-home is around $110K, right where you called it.

3) I had a 2BR apartment, in the "over 1000 square feet" range, in one of the better parts of the major cities. I paid about $950/mo. in rent. Living well is incredibly cheap in TX, which is one of the real advantages of living there.

4) If, out of your post-tax dollars, you took $3K per month and lived off that (and after $1K for an apartment, there's still $2K for car/food/miscellaneous expenses), that'd be $36K per year (like your estimate) and you'd have ($110K-$36K) or $74K left over.

$74K. Seriously. You could pay your entire debt off in less than three years, while still living comfortably.


Damn. I didn't think I would be that dead one with my guessimate.

$2k /month for car/food/miscellaneous expenses is living really comfortably, assuming you already own your car. That's gotta be over $1k /month left for "miscellaneous" (i.e. booze) expenses lol. That's whole lot of booze.

ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.


+1. Also, those 10%+ returns are pretty difficult to find ITE (at least if you want to have a diversified portfolio).

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Mon Aug 01, 2011 7:09 pm

Zazelmaf wrote:There are decent studios to be had in NYC (Manhattan) for well under $2000. I think you can find one for $1500, to be honest, and maybe less.


In a pre-war building with rats, sure.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Mon Aug 01, 2011 7:12 pm

ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.


There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.

ToTransferOrNot
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Re: How much debt can one reasonably repay per year?

Postby ToTransferOrNot » Mon Aug 01, 2011 8:25 pm

rayiner wrote:
ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.


There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.


But if you're talking about bank accounts, then you're talking about a 1% rate - maybe 3% on a good CD (and those CDs are going to have longer times with early withdrawl penalties). That's not worth 7.6% a year on $75k. I can see having a true "safety net" of three months' expenses, but $75k? You're talking almost $10k of interest on that $75k.

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XxSpyKEx
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Re: How much debt can one reasonably repay per year?

Postby XxSpyKEx » Mon Aug 01, 2011 8:30 pm

rayiner wrote:
ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.


There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.


A reasonable person doesn't leave $75k sitting in a bank (unless you're filthy rich and need that much money at a moment's notice because you're blowing something like $75k /month). Short-term investments, on the other hand, are risky, especially when you're talking about 2-3 year investments, like we are here (i.e. the cost of 2-3 year of interest in repaying student loans vs. the potential gain of investing the money for those 2-3 years). Personally, I would rather be debt-free than take risks with hopes of making an extra 2% interest (relative to gains if the money went towards repaying the loans) on that $75k. It'd be a different story if the economy was booming right now, and people were seeing something like 20% returns on large cap stocks.

Just to be clear, I'm not saying it's reasonable to not save anything. But $75k is a lot of money to just sit on when the economy is shitty like it is right now (especially if you live somewhere cheap like Texas), where you can't very easily make returns exceeding your student loan interest rates.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Mon Aug 01, 2011 9:02 pm

XxSpyKEx wrote:
rayiner wrote:
ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.


There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.


A reasonable person doesn't leave $75k sitting in a bank (unless you're filthy rich and need that much money at a moment's notice because you're blowing something like $75k /month). Short-term investments, on the other hand, are risky, especially when you're talking about 2-3 year investments, like we are here (i.e. the cost of 2-3 year of interest in repaying student loans vs. the potential gain of investing the money for those 2-3 years). Personally, I would rather be debt-free than take risks with hopes of making an extra 2% interest (relative to gains if the money went towards repaying the loans) on that $75k. It'd be a different story if the economy was booming right now, and people were seeing something like 20% returns on large cap stocks.

Just to be clear, I'm not saying it's reasonable to not save anything. But $75k is a lot of money to just sit on when the economy is shitty like it is right now (especially if you live somewhere cheap like Texas), where you can't very easily make returns exceeding your student loan interest rates.


It's not about making a return on that money. It's about having short-term assets that you can liquidate relatively quickly just in case. What if you're presented with an unexpected opportunity? It could be a business opportunity or even just finding a great deal on a house.

Say you owe $200k. Your payments are $2,400 per month. You put an extra $1,100 per month into your loans, for a total of $3,500. Now, say your take-home is roughly $8,500 (you live in NJ). Allowing for $2,500 rent and $1,000 other expenses, you've got $1,500 left over each month. What to do with it?

If you don't put it towards loans, your total loan interest over the life of the loan will be $50,000. If you do put it towards your loans, you'll save $20,00 in interest. But, in the first scenario, even with a weak rate of return of 5%, you'll have earned $17,500 in interest, $15,000 after capital gains. So you're only down $5,000. What is the value to you of being able to take advantage of an opportunity by having a relatively large liquid savings?

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XxSpyKEx
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Re: How much debt can one reasonably repay per year?

Postby XxSpyKEx » Mon Aug 01, 2011 9:48 pm

rayiner wrote:
XxSpyKEx wrote:
rayiner wrote:
ToTransferOrNot wrote:Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.


There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.


A reasonable person doesn't leave $75k sitting in a bank (unless you're filthy rich and need that much money at a moment's notice because you're blowing something like $75k /month). Short-term investments, on the other hand, are risky, especially when you're talking about 2-3 year investments, like we are here (i.e. the cost of 2-3 year of interest in repaying student loans vs. the potential gain of investing the money for those 2-3 years). Personally, I would rather be debt-free than take risks with hopes of making an extra 2% interest (relative to gains if the money went towards repaying the loans) on that $75k. It'd be a different story if the economy was booming right now, and people were seeing something like 20% returns on large cap stocks.

Just to be clear, I'm not saying it's reasonable to not save anything. But $75k is a lot of money to just sit on when the economy is shitty like it is right now (especially if you live somewhere cheap like Texas), where you can't very easily make returns exceeding your student loan interest rates.


It's not about making a return on that money. It's about having short-term assets that you can liquidate relatively quickly just in case. What if you're presented with an unexpected opportunity? It could be a business opportunity or even just finding a great deal on a house.


Borrow money. Duh. :lol:

No, more seriously though, the interest rates are lower on a mortgage than the 8% rates we're getting for student loans. My buddy bought a house a year ago at under 5% fixed interest rate*. It seems to make more sense to just pay off the higher interest rate student loans and borrow at a lower interest rate on that house. Guess the business opportunity situation presents challenges since the interest rate on that will likely be higher than 8% (depending on the riskiness), if you can get the money at all. But then again, not sure that investing in riskier business ventures (or any business ventures for that matter) would be on my to-do list with $200k in non-dischargable 8% interest rate debt. But I do see your point re: the cost of having additional liquidity. I guess if you think you're going to be presented with highly profitable business investments in the near future, taking the $5k risk makes sense.

*I just googled mortgage rates and the first thing that came up was this:
30-year fixed from 3.875% (4.478 APR)
5/1 ARM from 2.500% (2.952 APR)
15-year fixed from 3.250% (3.406 APR)

Definitely seems like it makes more sense to borrow money for a house than save money that could be going to student loans for a house, because student loans are at 8% interest.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Mon Aug 01, 2011 10:58 pm

XxSpyKEx wrote:
rayiner wrote:
XxSpyKEx wrote:
rayiner wrote:
There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.


A reasonable person doesn't leave $75k sitting in a bank (unless you're filthy rich and need that much money at a moment's notice because you're blowing something like $75k /month). Short-term investments, on the other hand, are risky, especially when you're talking about 2-3 year investments, like we are here (i.e. the cost of 2-3 year of interest in repaying student loans vs. the potential gain of investing the money for those 2-3 years). Personally, I would rather be debt-free than take risks with hopes of making an extra 2% interest (relative to gains if the money went towards repaying the loans) on that $75k. It'd be a different story if the economy was booming right now, and people were seeing something like 20% returns on large cap stocks.

Just to be clear, I'm not saying it's reasonable to not save anything. But $75k is a lot of money to just sit on when the economy is shitty like it is right now (especially if you live somewhere cheap like Texas), where you can't very easily make returns exceeding your student loan interest rates.


It's not about making a return on that money. It's about having short-term assets that you can liquidate relatively quickly just in case. What if you're presented with an unexpected opportunity? It could be a business opportunity or even just finding a great deal on a house.


Borrow money. Duh. :lol:

No, more seriously though, the interest rates are lower on a mortgage than the 8% rates we're getting for student loans. My buddy bought a house a year ago at under 5% fixed interest rate*. It seems to make more sense to just pay off the higher interest rate student loans and borrow at a lower interest rate on that house. Guess the business opportunity situation presents challenges since the interest rate on that will likely be higher than 8% (depending on the riskiness), if you can get the money at all. But then again, not sure that investing in riskier business ventures (or any business ventures for that matter) would be on my to-do list with $200k in non-dischargable 8% interest rate debt. But I do see your point re: the cost of having additional liquidity. I guess if you think you're going to be presented with highly profitable business investments in the near future, taking the $5k risk makes sense.

*I just googled mortgage rates and the first thing that came up was this:
30-year fixed from 3.875% (4.478 APR)
5/1 ARM from 2.500% (2.952 APR)
15-year fixed from 3.250% (3.406 APR)

Definitely seems like it makes more sense to borrow money for a house than save money that could be going to student loans for a house, because student loans are at 8% interest.


You're not getting those interest rates without 20% down ($60-100k on a typical house in a major metro area). Also, business loans in an economy like this are not exactly easy to come by, and in any case many of the types of businesses you might want to invest in will require you to put some money down. Remember the economy sucks and credit is scare --- in such circumstances having capital is a huge advantage.

As for $200k of non-dischargable debt, meh. What are the odds of getting Lathamed. 5%? If that? What are the odds of coming across a moderately profitable business venture? At the end of the day you can't be scared shitless by $200k. The years you'll be paying off your student loans are the most intellectually productive of your life. If you think there is nothing you can do with $50k that'll beat 7.7% interest, fine, pay off your loans. But that's comically risk averse.

Anecdote: I was at the UPS store the other day (across the street from my office), and overheard two of the delivery people talking about a potential site for a UPS franchise. Guys who have (comparatively) no money and no education, driving trucks for a living, were less risk averse than most law students.

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Re: How much debt can one reasonably repay per year?

Postby Fark-o-vision » Mon Aug 01, 2011 11:19 pm

ITT: Rayiner is wrong, gets called out on it, and becomes wronger-er.
100K is a twenty percent down payment on a "great deal" in a major metro? Whose house are you buying? Michael Jackson's?

Not to say that many houses in L.A. or Chicago don't run that steep, but it's laughable to think you can't a very serviceable place, for the foreseeable future, with a fraction of that.

Also, mortgages don't seem to be quite as bad as you're making them out to be. My friend just got cleared for 80K (a relatively cheap place, to be sure, so that may influence things) with a little over 5% down. I'm not even clear if that was required, or if he just had it.

Mortgage through Wells Fargo, if it matters.

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Re: How much debt can one reasonably repay per year?

Postby merc280 » Mon Aug 01, 2011 11:52 pm

There are very few investment opportunities that are one time only and require liquid cash to be on hand. If you know the right people and have been making money or have some assets you can usually find someone to give you a loan if it does turn out to be a once in a lifetime opportunity.

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instra:mental
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Re: How much debt can one reasonably repay per year?

Postby instra:mental » Tue Aug 02, 2011 12:15 am

Other than the UPS "once in a lifetime investment opportunity" example, does anyone have any examples of the types of investments we're talking about here? Just wondering, I'm not very knowledgeable when it comes to "once in a lifetime business ventures" and the like.

Thanks!

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XxSpyKEx
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Re: How much debt can one reasonably repay per year?

Postby XxSpyKEx » Tue Aug 02, 2011 12:28 am

instra:mental wrote:Other than the UPS "once in a lifetime investment opportunity" example, does anyone have any examples of the types of investments we're talking about here? Just wondering, I'm not very knowledgeable when it comes to "once in a lifetime business ventures" and the like.

Thanks!


The UPS example is far from a once in a lifetime example.. Doesn't every bum have some idiotic business venture (which they think is a great idea) that they dream of one day starting, but never will? I don't even think rayiner's example shows that "[g]uys who have (comparatively) no money and no education, driving trucks for a living, were less risk averse than most law students" at all. Everyone without money dreams about how they are going to one day start some "great" business venture that will make them rich. I remember after high school, some of my friends and I had the idea of starting a pizza place in Florida. We talked about it like as if we were actually one day going to start this business, and like as if the business idea was viable. Obviously the idea was retarded just like 99% of ideas that most people have, which is why so many of them never are actually implemented, and even out of the ones that are, half of them fail in the first five years.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Tue Aug 02, 2011 12:39 am

Fark-o-vision wrote:ITT: Rayiner is wrong, gets called out on it, and becomes wronger-er.
100K is a twenty percent down payment on a "great deal" in a major metro? Whose house are you buying? Michael Jackson's?

Not to say that many houses in L.A. or Chicago don't run that steep, but it's laughable to think you can't a very serviceable place, for the foreseeable future, with a fraction of that.

Also, mortgages don't seem to be quite as bad as you're making them out to be. My friend just got cleared for 80K (a relatively cheap place, to be sure, so that may influence things) with a little over 5% down. I'm not even clear if that was required, or if he just had it.

Mortgage through Wells Fargo, if it matters.


What exactly is your definition of "serviceable"? $400,000 will buy you a reasonable 1 bedroom apartment in a reasonably nice area of Brooklyn. $300,000 will buy you a fairly nice 2BR in Arlington, Ballston, etc. $80k will not buy you a "serviceable" place anywhere within a 30 minute train ride of downtown NYC/DC/SF/LA.

Putting 5% down will not get you the rates that XxSpy quoted, because you will have to pay for mortgage insurance.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Tue Aug 02, 2011 12:40 am

merc280 wrote:There are very few investment opportunities that are one time only and require liquid cash to be on hand. If you know the right people and have been making money or have some assets you can usually find someone to give you a loan if it does turn out to be a once in a lifetime opportunity.


Recent law grads don't have any assets, and ITT, law students advocate spending all their excess cash paying of loans instead of buying assets.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Tue Aug 02, 2011 12:55 am

XxSpyKEx wrote:
instra:mental wrote:Other than the UPS "once in a lifetime investment opportunity" example, does anyone have any examples of the types of investments we're talking about here? Just wondering, I'm not very knowledgeable when it comes to "once in a lifetime business ventures" and the like.

Thanks!


The UPS example is far from a once in a lifetime example.. Doesn't every bum have some idiotic business venture (which they think is a great idea) that they dream of one day starting, but never will? I don't even think rayiner's example shows that "[g]uys who have (comparatively) no money and no education, driving trucks for a living, were less risk averse than most law students" at all. Everyone without money dreams about how they are going to one day start some "great" business venture that will make them rich. I remember after high school, some of my friends and I had the idea of starting a pizza place in Florida. We talked about it like as if we were actually one day going to start this business, and like as if the business idea was viable. Obviously the idea was retarded just like 99% of ideas that most people have, which is why so many of them never are actually implemented, and even out of the ones that are, half of them fail in the first five years.


Nobody is talking about once in a lifetime business ventures that will get you rich. We're talking about simple investments that will net you more than the $5,000 you save by paying off your loans quicker. During my SA I sublet a room in a house on the UWS that must've been worth $1.5 million. The guy who owned it probably never made more than $100k in his life. How? He bought it cheap in the 1990s when the area was shit. He spent $100k fixing it up. He lives on one floor and rents out 2-3 apartments on the other floor for $1,700 per month to CLS students. Is it going to make him rich? No. Does it beat saving $5,000 by paying down your loans quicker? Hell yeah.

Fark-o-vision
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Re: How much debt can one reasonably repay per year?

Postby Fark-o-vision » Tue Aug 02, 2011 2:23 am

rayiner wrote:
Fark-o-vision wrote:ITT: Rayiner is wrong, gets called out on it, and becomes wronger-er.
100K is a twenty percent down payment on a "great deal" in a major metro? Whose house are you buying? Michael Jackson's?

Not to say that many houses in L.A. or Chicago don't run that steep, but it's laughable to think you can't a very serviceable place, for the foreseeable future, with a fraction of that.

Also, mortgages don't seem to be quite as bad as you're making them out to be. My friend just got cleared for 80K (a relatively cheap place, to be sure, so that may influence things) with a little over 5% down. I'm not even clear if that was required, or if he just had it.

Mortgage through Wells Fargo, if it matters.


What exactly is your definition of "serviceable"? $400,000 will buy you a reasonable 1 bedroom apartment in a reasonably nice area of Brooklyn. $300,000 will buy you a fairly nice 2BR in Arlington, Ballston, etc. $80k will not buy you a "serviceable" place anywhere within a 30 minute train ride of downtown NYC/DC/SF/LA.

Putting 5% down will not get you the rates that XxSpy quoted, because you will have to pay for mortgage insurance.


If by "Major metro" you meant New York or (possibly) DC, okay. But then you're a moron. You can, especially ITE, get a good house for 250K in LA metro, San Diego, San Francisco, Dallas, Houston, Chicago metro or any number of secondary markets. I'll admit that I'm not sure about Boston or DC, but I suspect the same is true.

Also, you were talking a rare deal, which immediately required 75k in liquid capital. Don't tell me about averages.

80K wasn't an example in a major metro, just a guy I know I who got his loan at either 4.5% or 5.5% percent. I'd have to confirm. Sorry, though, because I understand how that could have been misleading.

San Diego:
http://www.homesalessandiego.com/search ... s&type=con

Los Angeles:
http://www.homefinder.com/CA/Los_Angele ... _Blvd_E201

Again: LOL at your 100K 20% down payment.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Tue Aug 02, 2011 2:48 am

Fark-o-vision wrote:
rayiner wrote:
Fark-o-vision wrote:ITT: Rayiner is wrong, gets called out on it, and becomes wronger-er.
100K is a twenty percent down payment on a "great deal" in a major metro? Whose house are you buying? Michael Jackson's?

Not to say that many houses in L.A. or Chicago don't run that steep, but it's laughable to think you can't a very serviceable place, for the foreseeable future, with a fraction of that.

Also, mortgages don't seem to be quite as bad as you're making them out to be. My friend just got cleared for 80K (a relatively cheap place, to be sure, so that may influence things) with a little over 5% down. I'm not even clear if that was required, or if he just had it.

Mortgage through Wells Fargo, if it matters.


What exactly is your definition of "serviceable"? $400,000 will buy you a reasonable 1 bedroom apartment in a reasonably nice area of Brooklyn. $300,000 will buy you a fairly nice 2BR in Arlington, Ballston, etc. $80k will not buy you a "serviceable" place anywhere within a 30 minute train ride of downtown NYC/DC/SF/LA.

Putting 5% down will not get you the rates that XxSpy quoted, because you will have to pay for mortgage insurance.


If by "Major metro" you meant New York or (possibly) DC, okay. But then you're a moron. You can, especially ITE, get a good house for 250K in LA metro, San Diego, San Francisco, Dallas, Houston, Chicago metro or any number of secondary markets. I'll admit that I'm not sure about Boston or DC, but I suspect the same is true.

Also, you were talking a rare deal, which immediately required 75k in liquid capital. Don't tell me about averages.

80K wasn't an example in a major metro, just a guy I know I who got his loan at either 4.5% or 5.5% percent. I'd have to confirm. Sorry, though, because I understand how that could have been misleading.

San Diego:
http://www.homesalessandiego.com/search ... s&type=con

Los Angeles:
http://www.homefinder.com/CA/Los_Angele ... _Blvd_E201

Again: LOL at your 100K 20% down payment.


I gave a range: $60k-$100k. LA housing is actually fairly cheap, and the $250k price you listed means 20% down of $50k, just under my range. In NYC, a similar property (2BR condo in the city), if you consider that serviceable, would be a stellar deal at $500,000, ie: $100,000 down. DC and SF are closer to NY than LA. So what's wrong with the range I gave?
Last edited by rayiner on Tue Aug 02, 2011 3:45 am, edited 1 time in total.

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Corwin
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Re: How much debt can one reasonably repay per year?

Postby Corwin » Tue Aug 02, 2011 2:59 am

ToTransferOrNot wrote:I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% ... if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans

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IAFG
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Re: How much debt can one reasonably repay per year?

Postby IAFG » Tue Aug 02, 2011 3:58 pm

If you lose your six figure job, you'd be better off having the cash than less debt. IBR/LRAP ain't gonna pay your mortgage/rent or car payment.

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brose
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Re: How much debt can one reasonably repay per year?

Postby brose » Tue Aug 02, 2011 4:03 pm

Please don't tell people on here the glory of Texas. Stay the fuck out!

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DaveBear07
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Re: How much debt can one reasonably repay per year?

Postby DaveBear07 » Tue Aug 02, 2011 4:21 pm

This is probably the best thread on budgeting/loan repayment on TLS. Good work people.

As a soon to be married 1L, my fiancee and I are looking at potentially 150k total in student loans (maybe a little more since next year we won't have the government paying any interest for us.) Anyways--- she is currently in Physican Assistant school and our plan upon graduating is to immediately pay off our debt. We're hoping for 70k-80k starting for her and BigLaw for me (yes, I know). And with the budgets I've been running, (approx. 30k living expenses), we're going to try to pay it off in 3 years.

But I'm in the camp that isn't intending to try to do any investing (except maybe outside of the 401k matching) until the debt is paid off at the for-sure-interest-rate.

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vanwinkle
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Re: How much debt can one reasonably repay per year?

Postby vanwinkle » Tue Aug 02, 2011 4:29 pm

brose wrote:Please don't tell people on here the glory of Texas. Stay the fuck out!

This is what you'll be told at OCI if you interview without Texas ties, btw.

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rayiner
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Re: How much debt can one reasonably repay per year?

Postby rayiner » Tue Aug 02, 2011 4:31 pm

IAFG wrote:If you lose your six figure job, you'd be better off having the cash than less debt. IBR/LRAP ain't gonna pay your mortgage/rent or car paymentfood.


Seriously, though, this is credited. If you do get Lathamed having a big cushion is going to let you keep looking for a good job (rather than just some job) a lot longer. This will have a bigger impact on your lifetime earnings than will paying down your loans faster.
Last edited by rayiner on Tue Aug 02, 2011 4:33 pm, edited 1 time in total.




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