bk1 wrote: Anonymous User wrote: bk1 wrote:
Danger Zone wrote:I'm not positive refi and aggressively pay down is the right answer for this anon, but I'm always happy to offer my FRB referral haha. Really it's up to you OP, what you feel most comfortable with. With that level of debt, you will definitely have to pay it all off, just a matter of now or later.
I think getting rid of loans ASAP is the more obvious call. What's the point of the banked money? Is it to get better EV than just paying down the loans? It can't really be to pay for something since OP will have to live off of the sub-30k salary. Since OP will be living off that low salary, I think getting OP's financials as streamlined as possible before it makes the most sense. I would get an e-fund set up and get debt-free. With savings beyond that, I would max retirement accounts since OP won't be able to save that much on the sub-30k salary. If there's more savings after that, maybe save for a down payment, or maybe spend the money on stuff OP enjoys (since it appears that OP won't enjoy being a biglawyer).
Having some sort of liquidity safety net gets more important, not less, as your salary--and therefore margin for error--decreases. How much more important it is for the OP is going to be based on a lot of info that (s)he has yet to provide (family support, family obligations, area COL, etc).
That's the point of setting up the e-fund. OP has small enough debt that I don't think it's an either or. And I think that having one less obligation is more valuable than having the even larger e-fund.
Not necessarily -- it entirely depends on the OP's situation. Someone planning on dropping down to a 25k/year salary in a high COL area with no safety net needs a much bigger e-fund than someone planning on dropping down to that salary in a low COL area with a wealthy and supportive family, spouse, etc. Someone who wants to buy a house within the next ~5 years needs a much bigger pot of liquidity than someone who plans on renting for the next 20. Someone who is supporting a family off of his or her income needs more liquidity than someone who is single (and plans on remaining single for the foreseeable future). We can't really weigh the value of liquidity to the OP against the cost of a monthly debt obligation without knowing more details about the OP's goals and situation.
Here's an illustration: let's imagine that the OP doesn't have much of a safety net and expects her salary to remain low for the foreseeable future. Let's further imagine that she's planning on moving to a low COL city with affordable real estate (like, say, Cleveland) at the point she drops down to 25k/year. And let's imagine that the OP then plans on settling in Cleveland--and wants to eventually own a house. It may well be more valuable to someone in the OP's position to move to Cleveland with $60k/7 years remaining on her debt and with $80k in the bank than it will to have $0k in debt and $20k in the bank (either way the OP has "invested" $100k in debt/savings). Why? Assuming $15k/10k of the OP's savings are earmarked e-fund (more in the former situation because of her debt obligations), that leaves the OP with $65k/$10k in true liquidity. In the former circumstance -- in which the OP has debt and liquidity -- the OP can buy a house immediately on moving to Cleveland. The cost-savings of owning a house vs renting and the non-pecuniary value to someone who wants to settle down of homeownership can be pretty substantial. The OP could even buy a duplex and use the rent in the first unit to cover her whole mortgage -- thereby reducing her effective rent to $0. Her monthly rent/debt obligations ($0/m effective mortgage + $800/m debt) might not even be greater than had she paid off her debt ($800/m rent + $0/m debt) -- but she'll have additional extra money in the bank (~20k after buying the home, not including the e-fund) and
will own/be building equity in a house. On the other hand, if the OP goes to Cleveland with no debt and $20k in the bank ($10k in true liquidity), she might have to save for five or ten years to be able to afford an equivalent house.*
What debt/liquidity strategy best suits your needs is not necessarily going to be the strategy that best suits the OP's needs. Debt is bad and annoying and stressful -- but there are very real benefits to liquidity as well, especially for someone (potentially) in the OP's circumstances. I'm not arguing that saving to buy a home in Cleveland is always or usually the right call -- but I hope that it's obvious from the above example that for some people, at least, it is.
Without knowing more, if it was me, I'd save as much as is humanely possible while working, over the course of the ~3 year time frame, on getting my debt down to something that is manageable on a $25k/year salary (something like $25k in debt)--and refinance that debt on a 10-year payment plan towards the end of my time in biglaw. So, in the above situation (e.g., $100k to put towards debt/savings/e-fund), I'd "move to Cleveland" with $25k in debt newly refinanced on a 10-year plan and $45k cash in the bank. That would provide me with a pretty manageable monthly debt load (~$200/m), a decent e-fund (~$15k), and still enough leftover to put down a payment on a modest house in a low COL area ($30k, which is 20% down on a $150k house). That's probably pretty safe generic advice that splits the baby.
*The other advantage of liquidity in this house-buying circumstance is the flexibility it can allow OP with respect to when
she applies for a mortgage. If the OP knows she wants to buy a house in Cleveland, it may be in her best interest to buy one in the last six months of her job at biglaw--so that she has no issue qualifying for a competitive mortgage with terms that meet her interests. That's only possible if the OP has liquidity. On the other hand, if the OP has to wait until she's living in Cleveland and making $25k/year to buy the house, she is more likely to end up getting a mortgage--assuming she qualifies at all--with worse terms, PMI, etc.