Anyone else struggling to pay off debt? Forum

[Anonymous User]

All I see here are people who have paid off or will pay like $275 in five years and similar stories. I don't live extravagantly but I'm a single person in NYC. My debt really isn't moving much and I don't live extravagantly. What am I missing? (Admittedly, it might be because I help an ailing relative a lot.)

[AureliusCapital]

Yes because I spend money to cope with the hours.

[Anonymous User]

If you have an extremely high interest rate, it makes sense to prioritize your debt (or refinance to get a lower rate). I graduated with about $45k in debt (had a full ride) and it took me a full decade to pay off because I had a low rate and didn’t prioritize it.

There are some great threads in here about refinancing and different ways to handle debt though if you’re looking for guidance.

[Anonymous User]

(Admittedly, it might be because I help an ailing relative a lot.)

I would do an audit of your cashflows: make a spreadsheet or something (doesn't have to be fancy) cataloging cash in and cash out. Is helping your ailing relative the cause of your inability to pay down debt? Maybe, but the easiest way for you to answer this question is to take a critical eye towards where all your cash is actually going.

[Anonymous User]

I am doing fine, but I agree that the megathread about debt/net worth is so disgustingly not representative of the average biglaw associate that it’s probably on balance a bad thing for most of them to look at. If you had no or few student loans, have a spouse who also makes a lot of money, and happened to plug your money in to the market during one of the best bull market stretches in world history, you are going to be doing great. Someone who is about to graduate law school with $150k in debt and move to Manhattan by herself is not likely to have a remotely comparable experience.

[Anonymous User]

If you had no or few student loans, have a spouse who also makes a lot of money, and happened to plug your money in to the market during one of the best bull market stretches in world history, you are going to be doing great.

This is exactly it. Assuming 16%/year over the last 5 years, as a fifth year:

If instead of paying $18k/year to help family, you invested in a broad ETF, you would have $143k extra net worth today
If instead of paying $50k/year to pay down loans, you invested this, you would have $400k extra net worth today. $150k more than if you just used that same cash to pay down loans.

The numbers are even further inflated because of 401ks given our marginal taxable rates are near 50%.

For instance, if couple A spent $19k ($38k pre-tax)/year to help family but couple B took that $38k pre-tax and invested for 5 years in a 401k, couple B would have $300k more net worth than couple A after 5 years assuming the 16% average market returns.

[nealric]

As mentioned above, you really need to put together a spreadsheet and figure out where your money is going. It should never be a mystery.

My experience is that most NYC associates get sucked into paying way too much for rent and spend too much on bars/eating out.

If you insist on living on your own in a doorman building on the UES, that's going to suck away a pretty healthy chunk of your take home. Living with roommates in a non-doorman building in less exciting area can often cut rent in half.

I get the feeling of not having time to cook and having a pretty crummy kitchen for doing so, but $1,000 a month on drinks/food out adds up over a year.

The two things I just mentioned could easily add $3k a month ($36k/yr to your cash flow). An extra $36k a year to your student loans will significantly accelerate your payoff.

[Sackboy]

Other than figuring out what your cash flow looks like, you need to look at what you can refinance to and what your current rates are. If you are carrying 7.5% mixed, which is very possible, in federal loans, on $200k and could be getting 3.25%, that's ~$8.5k/yr. that you're losing out on. If you can refinance to something like 3.25% and are OK with losing federal protections, the next question is what is your timeline for repayment? Do you want to knock this out ASAP ditch biglaw to represent non-profits or is this something you'd like to do for 5yrs and then move to another high paying in-house job? If the answer is the former, then you should pour everything into your loans. If it's the latter, then you need to consider what you can make in the market. If you can get something close to 3%, you can probably rely on making 7-8%/yr. in the market in the medium term. At that point, you can make your monthly payments and invest the remainder in the market and come out ahead in the medium and long term.

[UMich11]

Take a look at resources like personal capital or Mint. Very helpful to see where all your money goes and where you can adjust. I was pretty stupid at the start and didn't prioritize debt; but I did prioritize IRA and 401k and thankful for that. Not too late to catchup.

[UMich11]

Other than figuring out what your cash flow looks like, you need to look at what you can refinance to and what your current rates are. If you are carrying 7.5% mixed, which is very possible, in federal loans, on $200k and could be getting 3.25%, that's ~$8.5k/yr. that you're losing out on. If you can refinance to something like 3.25% and are OK with losing federal protections, the next question is what is your timeline for repayment? Do you want to knock this out ASAP ditch biglaw to represent non-profits or is this something you'd like to do for 5yrs and then move to another high paying in-house job? If the answer is the former, then you should pour everything into your loans. If it's the latter, then you need to consider what you can make in the market. If you can get something close to 3%, you can probably rely on making 7-8%/yr. in the market in the medium term. At that point, you can make your monthly payments and invest the remainder in the market and come out ahead in the medium and long term.

I support this, with a big "but" wait to refi until we see what happens closer to September and federal student loan interest rates. At this point, you're better off opening a CD with Goldman or a savings at Ally, throwing your money into that and let it accrue your .5% interest while student loan interest is at zero. Then you can either keep that in savings or put it all towards loans once interest rates kick up and payments start up again. You'd be foolish to not put the money to work now and at least get some interest rather than pay it down. but, either pay it down or save, do put the money into other spending.

[jotarokujo]

Yes because I spend money to cope with the hours.

the hours are far from the worst thing. the worst thing is not being able to make or having to cancel plans on any given week night.

[Sackboy]

the hours are far from the worst thing. the worst thing is not being able to make or having to cancel plans on any given week night.

I solved this problem simply by not making plans during weekdays. yay. me.

[Anonymous User]

Yes because I spend money to cope with the hours.

the hours are far from the worst thing. the worst thing is not being able to make or having to cancel plans on any given week night.

Exactly correct, and COVID era WFH has made this much worse in my experience. Some of the especially psychotic partners stopped any pretense and set up standing calls on weekends and after 9 PM because they knew that we were essentially on house arrest.

[Chrstgtr]

My debt really isn't moving much and I don't live extravagantly)

This is relative. I know friends who say this and I would consider them to have outrageously extravagant lifestyles for someone with their debt. I also know people who think they spend way too much and I think they're beyond frugal. (All this coming from someone who saved more than the numbers you quote above in a shorter time period).

The thing that I find that impacts most people's ability to save, especially the first year or two, is that person's rent? Are you living alone in a one bedroom? Are you paying >$3000 in rent every month? >$3500? If so, then it won't really matter what else you are doing because your fixed monthly costs are so high.

I will also add that it gets a lot easier to pay down debt as you move up class years. You will make like $37K more post-tax when you are a 3rd year compared to your first year and it only jumps from there. Be careful about lifestyle creep or else this isn't true.

[nealric]

My debt really isn't moving much and I don't live extravagantly)

This is relative. I know friends who say this and I would consider them to have outrageously extravagant lifestyles for someone with their debt. I also know people who think they spend way too much and I think they're beyond frugal. (All this coming from someone who saved more than the numbers you quote above in a shorter time period).

The thing that I find that impacts most people's ability to save, especially the first year or two, is that person's rent? Are you living alone in a one bedroom? Are you paying >$3000 in rent every month? >$3500? If so, then it won't really matter what else you are doing because your fixed monthly costs are so high.

I will also add that it gets a lot easier to pay down debt as you move up class years. You will make like $37K more post-tax when you are a 3rd year compared to your first year and it only jumps from there. Be careful about lifestyle creep or else this isn't true.

Yes. It's basically impossible to live truly extravagantly in NYC on a Biglaw associate salary. You aren't buying a UES Townhouse and summer "cottage" in the Hamptons. A $3,500/mo rental in NYC may feel pretty basic, but it's twice what you could be spending.

[sparty99]

All I see here are people who have paid off or will pay like $275 in five years and similar stories. I don't live extravagantly but I'm a single person in NYC. My debt really isn't moving much and I don't live extravagantly. What am I missing? (Admittedly, it might be because I help an ailing relative a lot.)

The key to paying off debt is income and debt amount. You didn't comment on any of those as it pertains to you. Your interest rate, rent, food, and annual trips are key.

[Anonymous User]

The critical accounting of where you are is the necessary first step to determining how you can improve the situation. Personally, my debt is so astronomically high I’ve given up on paying it off because it’s hard to stomach paying so much to move principal so little (and likely that reduced principal gets wiped out by interest over the future years anyway). I do an income-based repayment plan, so don’t want to refinance and forego potential forgiveness at the end of 20 years. I’ve since adjusted my approach to making minimum payments on loans and throwing as much money as possible at acquiring income producing assets that I hope by the time I leave biglaw will produce enough income to meet my debt obligations and eventually other expenses. I view this as quasi paying off loans because, from my perspective, I am not paying them though they are still being paid (obviously this ignores debt-to-income ratios). Food for thought. https://www.biglawinvestor.com is a good resource to learn about what you can do differently and generally just learning different approaches.