How Long Should it Take to Get Out of Debt on Big Law Salary

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nealric
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby nealric » Mon Aug 15, 2011 11:06 pm

Paying it all off in three years is ridiculously stupid. Invest the money and pay a good $500-$1000 a month on your loan. Pay it off like a house, over a long period of time. If you save up and invest well you'll have more money in the long-term especially if you lose the big law job.


You should keep ~$20k in reserve, but paying off in three years is not stupid at all.

As discussed above, it's a guaranteed tax-free 8% investment. Nothing short of wildly speculative investments is going to beat loan repayments unless you can refi to a much lower rate (which is usually not possible the first few years out of school). Also, someone taking out a full 250k debt load will owe $1.8k a month even on a 30 year payment plan. Can't do the $500 a month thing unless you are in forebearance or defaulting.

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BunkMoreland
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby BunkMoreland » Mon Aug 15, 2011 11:36 pm

Don't forget about bonuses - they're hopefully going back up and should be a decent chunk toward your loans as well.

ToTransferOrNot
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby ToTransferOrNot » Mon Aug 15, 2011 11:40 pm

BunkMoreland wrote:Don't forget about bonuses - they're hopefully going back up and should be a decent chunk toward your loans as well.


Not an amount you can really plan for though, especially with ITE seemingly set to continute into the forseeable future. Even as a future K&E-er, I'm nto confident enough to factor potential end-of-year bonuses into my repayment plans.

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Julio_El_Chavo
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby Julio_El_Chavo » Mon Aug 15, 2011 11:43 pm

nealric wrote:
Paying it all off in three years is ridiculously stupid. Invest the money and pay a good $500-$1000 a month on your loan. Pay it off like a house, over a long period of time. If you save up and invest well you'll have more money in the long-term especially if you lose the big law job.


You should keep ~$20k in reserve, but paying off in three years is not stupid at all.

As discussed above, it's a guaranteed tax-free 8% investment. Nothing short of wildly speculative investments is going to beat loan repayments unless you can refi to a much lower rate (which is usually not possible the first few years out of school). Also, someone taking out a full 250k debt load will owe $1.8k a month even on a 30 year payment plan. Can't do the $500 a month thing unless you are in forebearance or defaulting.


Credited.

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Tiago Splitter
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby Tiago Splitter » Tue Aug 16, 2011 1:25 am

IrwinM.Fletcher wrote:
Tiago Splitter wrote:
The leveraged ETFs are designed to mimic the daily performance of the underlying index, not the long term performance.

You can contribute to an IRA and then immediately convert without tax consequences if you have no other IRA, SEP, or SIMPLE assets. You can also make Roth salary deferrals to your 401(k) if the plan allows for them. Of course, on the biglaw salary, the tax deduction becomes more enticing.

/tangent


Credited. See the performance of SKF and DUG in 2008-09. Inverse ETFs are a nightmare for retail investors and most major firms have proprietary rules restricting them from being held in retirement accounts to limit their own liability.


I was talking about the 2x and 3x ETFs. The no-leverage inverse ones aren't so bad.

And you can buy puts (and calls) in IRAs with most firms that trade options. So bearish positions aren't out of the question in an IRA.

Anonymous User
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby Anonymous User » Tue Aug 16, 2011 11:02 am

Can someone show or link to whatever sites they are using to find estimates on calculations for taxes? And is it seriously much less if you are married? I might want to find a wife soon.

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Patriot1208
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby Patriot1208 » Tue Aug 16, 2011 11:14 am

Anonymous User wrote:Can someone show or link to whatever sites they are using to find estimates on calculations for taxes? And is it seriously much less if you are married? I might want to find a wife soon.

Figure out what city and state you are living in, use google, profit.

It's not hard to find out how much you'd pay in federal, ss, mc, state, and city taxes.

Here's one I did awhile back for NYC assuming single and 180k total comp.

Federal Income Tax - 44,517
State Income tax - 13,275
City income tax for a single person - 6,448.40
Social Security Tax - 6,621.50
Medicare Tax - 2610

Total tax = 73,471.90
Post tax income = 106,528.10
Last edited by Patriot1208 on Tue Aug 16, 2011 11:17 am, edited 1 time in total.

SpiteFence
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby SpiteFence » Tue Aug 16, 2011 11:16 am

Anonymous User wrote:Can someone show or link to whatever sites they are using to find estimates on calculations for taxes? And is it seriously much less if you are married? I might want to find a wife soon.


http://www.moneychimp.com/features/tax_brackets.htm
http://en.wikipedia.org/wiki/Income_tax ... ted_States

The difference in fed income between married/single filing is for a first year associate is $5,547.

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rayiner
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby rayiner » Tue Aug 16, 2011 11:20 am

Anonymous User wrote:Can someone show or link to whatever sites they are using to find estimates on calculations for taxes? And is it seriously much less if you are married? I might want to find a wife soon.


--LinkRemoved--

Single guy/girl making $160k living in NYC will net $8150/month and get a small tax refund. Married guy/girl will take home about $8820/month, and get a somewhat larger tax refund.

SpiteFence
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby SpiteFence » Tue Aug 16, 2011 11:20 am

Is it stupid to do a federal consolidation loan? It seems like you end up paying more interest than if you were to pay down the individual loans strategically, or am I not understanding how the consolidation loan works?

terrybhs06
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby terrybhs06 » Tue Aug 16, 2011 11:27 am

SpiteFence wrote:Is it stupid to do a federal consolidation loan? It seems like you end up paying more interest than if you were to pay down the individual loans strategically, or am I not understanding how the consolidation loan works?


The federal loan consolidation simply combines the loans on one bill and uses a weighted average for the interest rate. For instance, if you have 90k at 7.5% and 10k at 6.8% the interest rate will be [.9*7.5+.1*6.8=~7.4%].

I have been told by many currently practicing lawyers to try my best to be on a 5 year repayment plan. That comes out to a monthly payment of around $3,500-4,000 depending on actual debt.

SpiteFence
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby SpiteFence » Tue Aug 16, 2011 11:32 am

terrybhs06 wrote:
SpiteFence wrote:Is it stupid to do a federal consolidation loan? It seems like you end up paying more interest than if you were to pay down the individual loans strategically, or am I not understanding how the consolidation loan works?


The federal loan consolidation simply combines the loans on one bill and uses a weighted average for the interest rate. For instance, if you have 90k at 7.5% and 10k at 6.8% the interest rate will be [.9*7.5+.1*6.8=~7.4%].

I have been told by many currently practicing lawyers to try my best to be on a 5 year repayment plan. That comes out to a monthly payment of around $3,500-4,000 depending on actual debt.


So then wouldn't it be best to not consolidate, extend the repayment period as long as allowable on the loans, and then pay down the 7.9% loan as quick as possible with the money I would otherwise be spending on the 5 year consolidation loan?

terrybhs06
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby terrybhs06 » Tue Aug 16, 2011 11:42 am

SpiteFence wrote:
terrybhs06 wrote:
SpiteFence wrote:Is it stupid to do a federal consolidation loan? It seems like you end up paying more interest than if you were to pay down the individual loans strategically, or am I not understanding how the consolidation loan works?


The federal loan consolidation simply combines the loans on one bill and uses a weighted average for the interest rate. For instance, if you have 90k at 7.5% and 10k at 6.8% the interest rate will be [.9*7.5+.1*6.8=~7.4%].

I have been told by many currently practicing lawyers to try my best to be on a 5 year repayment plan. That comes out to a monthly payment of around $3,500-4,000 depending on actual debt.


So then wouldn't it be best to not consolidate, extend the repayment period as long as allowable on the loans, and then pay down the 7.9% loan as quick as possible with the money I would otherwise be spending on the 5 year consolidation loan?


depends on the specifics of how much more extended the other loans are. If you were going to pay all loans off in 5 years but instead you decide to pay off the 7.9% faster but in doing so extend the repayment of the other loans by "x" years at a certain point "x" gets high enough to overcome any interest savings from the 7.9%. I dont think there is much opportunity for some arbitrage type savings here.

SpiteFence
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby SpiteFence » Tue Aug 16, 2011 11:47 am

terrybhs06 wrote:
SpiteFence wrote:
terrybhs06 wrote:
SpiteFence wrote:Is it stupid to do a federal consolidation loan? It seems like you end up paying more interest than if you were to pay down the individual loans strategically, or am I not understanding how the consolidation loan works?


The federal loan consolidation simply combines the loans on one bill and uses a weighted average for the interest rate. For instance, if you have 90k at 7.5% and 10k at 6.8% the interest rate will be [.9*7.5+.1*6.8=~7.4%].

I have been told by many currently practicing lawyers to try my best to be on a 5 year repayment plan. That comes out to a monthly payment of around $3,500-4,000 depending on actual debt.


So then wouldn't it be best to not consolidate, extend the repayment period as long as allowable on the loans, and then pay down the 7.9% loan as quick as possible with the money I would otherwise be spending on the 5 year consolidation loan?


depends on the specifics of how much more extended the other loans are. If you were going to pay all loans off in 5 years but instead you decide to pay off the 7.9% faster but in doing so extend the repayment of the other loans by "x" years at a certain point "x" gets high enough to overcome any interest savings from the 7.9%. I dont think there is much opportunity for some arbitrage type savings here.


But the idea is not that I would actually repay the non-7.9% loans in "x" years, but just make the reduced payments while I am paying down the 7.9%. After the 7.9% has been paid in full, I would make the same payment amount just apply i to the non-7.9% loans. There has to be some savings in doing that right?

Staberinde
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Re: How Long Should it Take to Get Out of Debt on Big Law Salary

Postby Staberinde » Tue Aug 16, 2011 1:03 pm

The only advantage of federal consolidation is the convenience of 1 account and 1 payment. The downside, as you mention, is that you can no longer target your payments. It is to your benefit to pay the minimums for each loan and then direct any excess payments to the highest interest loan.




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