how long does it REALLY take to pay the debt!?

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thedogship
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Re: how long does it REALLY take to pay the debt!?

Postby thedogship » Tue Jul 29, 2008 5:53 pm

YoungFogey wrote:It's good to plan to pay off things fast. It generally isn't good to count on doing it.

Smartest thing yet said in this thread.

SenatorDoherty wrote:Ok, but we can still make payments far in excess of 20k/year. And you will save tons of money on interest on student loans if you pay more money. All the extra payments go against your principal rather than your interest, it will make a huge difference. I see no reason for someone making BigLaw money to have student loans more than 5 years after school. If you do, I'd hope you invested that money hoping for better returns against the added-interest you'd accumulate.

I'd talk to a bunch of big firm attorneys about this. I think you'll find that it's not uncommon to still be paying off debt 10-15 years out, if not more. It's not necessarily that people want to do that, but more important things come up (families, house payments, car payments, etc...) - and your student debts tend to be something that you can pay off at a reasonable regular rate over a long time when those other items get in the way.

snotrocket
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Re: how long does it REALLY take to pay the debt!?

Postby snotrocket » Tue Jul 29, 2008 6:05 pm

I think you lowballed federal tax and fica by a bit. Also if you net 10,019 a month and pay 5610 in loans then your monthly disposable income is only 4,049.


You are correct sir: 5,600 + 5,300 != 10,000. Looks like that should have been $4,409 spendable after taxes and loan payments. I don't know what I was thinking there. I got the federal tax from the IRS withholding calculator (Single; one job; no credits or exemptions; $200k wages, $15,500 + $5,650 = $21,150 retirement / HSA contribution; no itemized deductions). That gives me $41,879. As noted above, FICA caps at $102,000, but Medicare's 1.45 percent goes all the way up. So the FICA/Medicare line should be $9,100.

http://www.irs.gov/individuals/page/0,,id=14806,00.html

After corrections, it comes out to $4,300 per month spendable rather than $5,300.

snotrocket
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Re: how long does it REALLY take to pay the debt!?

Postby snotrocket » Tue Jul 29, 2008 6:26 pm

I thought the standard bonus was around 15-20 does anyone know this conclusively.

It varies all over the place depending on the firm, from 0% up to 100% of base salary. Assuming lower bonuses, you could just take no retirement deductions and come out more or less the same. Or you might have to extend to four or five years.

Then again, Big Law salaries may be higher three years from now, which is the time period people are talking about. And your salary goes up each year as well. As a ballpark estimate, three years is probably about the least anyone can think of paying off $150 - 200k of debt in, and most people could probably do it within four or five years, given the discipline to write those checks every single month.

Whether you or any other given person actually will do this is a whole other matter. As noted above, money has a way of getting away from you when spending is your only outlet from a hellish job. And things do happen. Throw in a few little "splurges" and $4,300 per month disappears real quick ... mortgage on a house or condo in a major urban market ... lease payments on that $80,000 pimpmobile ... wardrobe upgrades, bottle service ... and so it goes.

nellie06
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Re: how long does it REALLY take to pay the debt!?

Postby nellie06 » Tue Jul 29, 2008 6:41 pm

Awesome responses. Glad people had some insider perspectives to shares as well. I'm a pretty humble guy, and the whole need to be young, fly, and flashy is superceded by my need to not have a mountain of debt over my head. The same people who are going to burn thru their big firm paychecks most likely would burn thru their credit lines to live the 'life' anyhow in my opinion. I guess for those planning to get married, etc its a bigger deal to worry about but I don't really plan to get hitched until my debt is at a very reasonable level. As a guy whats the rush anyways haha :P

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edcrane
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Re: how long does it REALLY take to pay the debt!?

Postby edcrane » Tue Jul 29, 2008 7:41 pm

snotrocket wrote:
I thought the standard bonus was around 15-20 does anyone know this conclusively.

It varies all over the place depending on the firm, from 0% up to 100% of base salary. Assuming lower bonuses, you could just take no retirement deductions and come out more or less the same. Or you might have to extend to four or five years.


I definitely wouldn't advise foregoing retirement contributions to make more loan payments. Even if you anticipate being in a higher tax bracket when you retire (unlikely if you're a biglaw associate) you probably have the option of using a roth 401(k), which means you're dealing with a pretty substantial opportunity cost.

MPaulE
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Re: how long does it REALLY take to pay the debt!?

Postby MPaulE » Tue Jul 29, 2008 10:50 pm

edcrane wrote:I definitely wouldn't advise foregoing retirement contributions to make more loan payments. Even if you anticipate being in a higher tax bracket when you retire (unlikely if you're a biglaw associate) you probably have the option of using a roth 401(k), which means you're dealing with a pretty substantial opportunity cost.


Off course if you don't plan on retiring and/or decide to die early, those retirement saving will be a waste... But then again paying off your loans early might be one as well.......

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JSASS
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Re: how long does it REALLY take to pay the debt!?

Postby JSASS » Wed Jul 30, 2008 9:51 am

paul1454 wrote:
I think you lowballed federal tax and fica by a bit.


FICA is only paid up through $102,000. He is right on that.


Until Obama (and a democratic congress) raises the FICA income cap.

edit: not hating, I have a huge non-sexual crush on Obama :oops:

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edcrane
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Re: how long does it REALLY take to pay the debt!?

Postby edcrane » Wed Jul 30, 2008 9:54 am

JSASS wrote:
paul1454 wrote:
I think you lowballed federal tax and fica by a bit.


FICA is only paid up through $102,000. He is right on that.


Until Obama (and a democratic congress) raises the FICA income cap.

edit: not hating, I have a huge non-sexual crush on Obama :oops:


Donut hole.

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JSASS
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Re: how long does it REALLY take to pay the debt!?

Postby JSASS » Wed Jul 30, 2008 10:02 am

edcrane wrote:
JSASS wrote:
paul1454 wrote:
I think you lowballed federal tax and fica by a bit.


FICA is only paid up through $102,000. He is right on that.


Until Obama (and a democratic congress) raises the FICA income cap.

edit: not hating, I have a huge non-sexual crush on Obama :oops:


Donut hole.


I don't know what that means, but I doubt it's flattering

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edcrane
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Re: how long does it REALLY take to pay the debt!?

Postby edcrane » Wed Jul 30, 2008 10:16 am

JSASS wrote:
edcrane wrote:
JSASS wrote:
paul1454 wrote:FICA is only paid up through $102,000. He is right on that.


Until Obama (and a democratic congress) raises the FICA income cap.

edit: not hating, I have a huge non-sexual crush on Obama :oops:


Donut hole.


I don't know what that means, but I doubt it's flattering


:lol: Obama is proposing a donut hole, where FICA is paid up until 102k, then income between 102 and 200k is exempt, and income in excess of 200k is once again subject to FICA. As a result of this, the FICA increases will not have a huge effect on associates in their first couple of years.

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mumbling2myself
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Re: how long does it REALLY take to pay the debt!?

Postby mumbling2myself » Wed Jul 30, 2008 10:21 am

Edcrane: I agree that it's often a poor decision to forgo early savings for retirement entirely in an effort to pay off educational debt, but your example of Roth IRA's is a poor one. While regular IRA's are accessible to all, Roth's have an income cap which biglaw salaries exceed substantially. If you're making a low enough salary to be eligible for a Roth, even making a minimum repayment on 180k would probably make it difficult to save for retirement.

Personally, I plan to pay off loans as quickly as possible primarily to give myself the freedom to walk away from a biglaw gig if I end up deciding it's not for me. I also have considerable debt to deal with from my wife (combined, our educational debt will be around 250k), but her salary as a resident will nearly cover the minimum payments so I can (hopefully) pay down some extra principal early. This will give both of us more mobility (once she's done with her residency - small animal oncology - we may have to move so that she can find good work).

If I was positive that I would want (and be able) to stay with one biglaw firm for decades, I would probably focus much more on retirement savings. Career mobility, at the moment, is more important to my wife and I, though obviously the best outcome will be her getting a faculty appointment at the same school at which she does her residency (or a private practice gig in the same city that would pay enough for me to move into public interest work).

YoungFogey
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Re: how long does it REALLY take to pay the debt!?

Postby YoungFogey » Wed Jul 30, 2008 11:26 am

mumbling2myself wrote:Edcrane: I agree that it's often a poor decision to forgo early savings for retirement entirely in an effort to pay off educational debt, but your example of Roth IRA's is a poor one. While regular IRA's are accessible to all, Roth's have an income cap which biglaw salaries exceed substantially. If you're making a low enough salary to be eligible for a Roth, even making a minimum repayment on 180k would probably make it difficult to save for retirement.


Edcrane was talking about Roth 401ks which are different than Roth IRAs. Some companies offer the option (or offer as the only option) a Roth 401k in lieu of the traditional 401k. They follow similar rules to the traditional 401k (with a $15,500/year cap with no income restrictions unless you fall into limits as a highly compensated employee subject to limits because of low company-wide participation). The major difference is that you are contributing with post tax dollars rather than pre tax.

There is a lot of math and crystal ball work to deciding whether a traditional or Roth 401k is the better route.

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mumbling2myself
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Re: how long does it REALLY take to pay the debt!?

Postby mumbling2myself » Wed Jul 30, 2008 11:29 am

YoungFogey wrote:
mumbling2myself wrote:Edcrane: I agree that it's often a poor decision to forgo early savings for retirement entirely in an effort to pay off educational debt, but your example of Roth IRA's is a poor one. While regular IRA's are accessible to all, Roth's have an income cap which biglaw salaries exceed substantially. If you're making a low enough salary to be eligible for a Roth, even making a minimum repayment on 180k would probably make it difficult to save for retirement.


Edcrane was talking about Roth 401ks which are different than Roth IRAs. Some companies offer the option (or offer as the only option) a Roth 401k in lieu of the traditional 401k. They follow similar rules to the traditional 401k (with a $15,500/year cap with no income restrictions unless you fall into limits as a highly compensated employee subject to limits because of low company-wide participation). The major difference is that you are contributing with post tax dollars rather than pre tax.

There is a lot of math and crystal ball work to deciding whether a traditional or Roth 401k is the better route.


Ah, gotcha. Nevermind ed, I didn't read carefully enough... carry on :)

YoungFogey
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Re: how long does it REALLY take to pay the debt!?

Postby YoungFogey » Wed Jul 30, 2008 11:33 am

mumbling2myself wrote:
Ah, gotcha. Nevermind ed, I didn't read carefully enough... carry on :)


Yeah, the gov't needs to work on better branding.... all these things blend together.

Amory Blaine
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Re: how long does it REALLY take to pay the debt!?

Postby Amory Blaine » Wed Jul 30, 2008 11:35 am

no one's calculations included the lambo that you have to get after your first couple of paychecks- not to use, but to keep parked in a garage under your nyc apt. recalculate.

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JuryDueT1000
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Re: how long does it REALLY take to pay the debt!?

Postby JuryDueT1000 » Wed Jul 30, 2008 11:35 am

This thread truly demonstrates how little most people here know how managing finances and living in the real world, with a real job.

Luckily I made enough money to pay for law school out of pocket, I own a home, etc...

If you people think it's that easy to pay of that kind of debt, no matter how much you make, you're only kidding yourself...

It's practically like having a mortgage, except you have no asset but you education which doesn't appreciate and you owe over $150k+...

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orangeswarm
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Re: how long does it REALLY take to pay the debt!?

Postby orangeswarm » Wed Jul 30, 2008 11:41 am

Glad you could enlighten us.

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JuryDueT1000
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Re: how long does it REALLY take to pay the debt!?

Postby JuryDueT1000 » Wed Jul 30, 2008 11:45 am

paul1454 wrote:Glad you could enlighten us.


Take it for what it's worth. You'll live the reality soon enough.

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voltron
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Re: how long does it REALLY take to pay the debt!?

Postby voltron » Wed Jul 30, 2008 11:46 am

nellie06 wrote:Ok I know that a lot of people repeat the adage that 'hey don't sweat the debt, few years in biglaw will take care of it'. Ok so let's say someone comes out of law school with 180k in debt.

From my ballpark estimates, it seems like paying off 20k a year would be possible if someone were pretty frugal which basically means about 6 to 7 years in biglaw. That isn't exactly a short stint considering people usually last that long only if they want to make partner not pay off bills and take on other opportunities...am I underestimating the amt people could pay every year especially in living in nyc or a similary expensive metro area?


Debt can be paid for real fast. The only problem I notice wth recent grads of a professional school, is the the shoppin spree starts as soon as they get out. I have seen many people go buy a corvette or something fancy, their first house, fancy clothing etc. If you can avoid the trap and concentrate on the student loan you can pay it off real fast. Just avoid the temptation.

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orangeswarm
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Re: how long does it REALLY take to pay the debt!?

Postby orangeswarm » Wed Jul 30, 2008 11:58 am

ChrisMike624 wrote:
paul1454 wrote:Glad you could enlighten us.


Take it for what it's worth. You'll live the reality soon enough.


Until then will I be in the Matrix? :D

un3r3stimat3d
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Re: how long does it REALLY take to pay the debt!?

Postby un3r3stimat3d » Wed Jul 30, 2008 12:05 pm

a corvette is NOT fancy.

Darth Topher
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Re: how long does it REALLY take to pay the debt!?

Postby Darth Topher » Wed Jul 30, 2008 12:10 pm

good thread

pdennis1000
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Re: how long does it REALLY take to pay the debt!?

Postby pdennis1000 » Wed Jul 30, 2008 12:25 pm

ChrisMike624 wrote:This thread truly demonstrates how little most people here know how managing finances and living in the real world, with a real job.

Luckily I made enough money to pay for law school out of pocket, I own a home, etc...

If you people think it's that easy to pay of that kind of debt, no matter how much you make, you're only kidding yourself...

It's practically like having a mortgage, except you have no asset but you education which doesn't appreciate and you owe over $150k+...


Sounds like someone is mad they didn't get their lambo.



In all seriousness, though. I work in banking now and I regularly see large income folks make foolish choices in regards to their finances. It doesn't matter the career field (I see mostly engineers and IP/patent attorneys). There is a negative savings rate in this country because people like to spend, often beyond their means (even if their means are $160/year). People have an awful habit of saying to themselves "I'll pay it later," rather than dealing with it right away. That being said, it comes down to knowing your lifestyle needs and maintaining the discipline needed in order to pay down your debt, be it student loans, credit cards, mortgage etc....

lollypotter
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Re: how long does it REALLY take to pay the debt!?

Postby lollypotter » Wed Jul 30, 2008 12:31 pm

I think the financial analysis shows that you can pay off the debt quite quickly, the only issue is whether you will. Most people probably won't but then they probably would make the same poor financial decisions regardless of how much they were making, so it's besides the point.

I'm living in NY right now on $30'000 a year (after tax). It can definitely be done. Yes, it can suck in NY because the commute is so long and even one night out can cost hundreds. Yes, food costs here are insane and apartments are crazy expensive. BUT philo-sophia - there are tons of free stuff to do in NY all the time, and the subway runs all night. I know as an associate you are not gonna use that but as a recent college grad you should be able to live in NY on $40'000, especially with help. So maybe you are right that YOU cannot pay off the debt but I think a lot of people could.

Also, DC is a different story (please DC biglaw!). I lived comfortably in DC in a shared house on $22'000 a year (after tax). Really comfortably. I mean, nice bars and restaurants, lived in NoVa and commute to town was basically 30 min. One of my roommates was on $55'000 and was saving $10'000 a year for law school. Another one of my roommates lived on a stipend for his internship which was $1000 per month. None of us were wrist slitting misers. Honestly my $22'000 there went a LOT LOT further than my $30,000 does here. In NY, only ibankers have enough money to impress people, and if you look around a bar, I doubt any of them have any savings. Even the ones in Armani suits buying the rounds. In DC, most people I met had savings because they all expected to be poor. Mentality makes all the difference.

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BradyToMoss
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Re: how long does it REALLY take to pay the debt!?

Postby BradyToMoss » Wed Jul 30, 2008 12:34 pm

ChrisMike624 wrote:
paul1454 wrote:Glad you could enlighten us.


Take it for what it's worth. You'll live the reality soon enough.


Thank you ChrisMike. I love the advice of those in their late-20s who have lived through it all and can tell us what life in the real world is like. $10 on ChrisMike being a gunner and finishing in the bottom third.




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