Student loans are $300,000. Prepay them or save?
Student loans are so high, couple wonders whether to pay them off early or save $5,000 a year for retirement. Question on student loans is No. 6 in this reader mailbag.
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Q7: Walking away?
Got myself into a little bit of a pickle during the housing boom/crash. Bought a newly built house for $145,000 in 2004. Then over the course of the next 2.5 years, I refinanced 3 times, taking advantage of some “pocket cash” opportunities. My employer filed for bankruptcy in June 2010 and cut my pay by 22%, none of which has yet been restored. I’m using maxxed out credit cards to help make ends meet for now. So I’m stuck in a home I for which I owe $192,000 and which has a value (according to zillow.com) of $71,400. I have a first and second mortgage, with payments adding up to $1,557 monthly. So, basically, I’m a prisoner in this home. It’s close to my work, and it’s big enough for my needs. I have a 15-yr-old and a 13-yr-old living at home with me as a 48-yr-old single dad. I live in AZ, meaning I can “strategically default” and only be held accountable for the total of the second mortgage, which is around $16K. I’d walk away in a heartbeat if not for the damage to my credit score. My question is this: would I be smarter to just stop paying the 1st and apply the whole $1557/month toward the second, and plan to do a short sale later in the process when I’ve paid a big chunk on the second? I know my credit score would dip into the 400s, but can I realistically expect to come out ahead on this mortgage by riding out the insanely huge underwater amount? I’m torn and conflicted. Any advice would be appreciated.
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The first thing I’d do is understand fully how the Arizona “strategic default” rules work. The right step here is to contact an Arizona property lawyer, since it seems as though the specifics of the laws regarding this have been changing steadily over the last few years due to court decisions.
What I’d suggest you think about in the interim is how important your credit rating is to you over the next several years. Are you going to need to make a major purchase that involves debt? If your plan to rent your home over the next several years and don’t anticipate needing a car loan, I wouldn’t worry too much about my credit and I’d focus on making moves that preserve the most money in your pocket.
Again, I think the best step for you is to talk this over with an Arizona property lawyer who specializes in such things.
Q8: Garden vegetable choices
What vegetables do you and Sarah plant in your garden? I have a patch of land where I could start a garden and am thinking about what to grow. I’m mostly interested in things that are easy to grow but produce veggies I can easily eat!
We plant mostly beans, tomatoes, and cucumbers each year. We eat these three vegetables by the pound in August and September and often end up freezing some for later in the fall and winter. The rest of our garden is perennial herbs and asparagus that are really low maintenance.
Honestly, part of the reason we grow these three vegetables is that they’re pretty hard to mess up. While I like to garden, I don’t exactly have the greenest thumb in the world, and the same is true with Sarah. Through all of our efforts to kill the plants in our garden due to our mistakes, we have the most luck not killing beans, tomatoes, and cucumbers.
I’d suggest visiting your local garden center and asking them for some very hardy and disease-resistant and pest-resistant examples of tomatoes, beans, and cucumbers, and plant those.
Q9: Roth 401(k) and Roth IRA?
I have a 401k with my company and if I contribute 9% they will match up to 8%. They also offer a Roth 401k version and the 8% is matched whether one is contributing to traditional or Roth 401k. I contribute 10% to traditional and 4% to Roth. The company 401k is setup through T Rowe Price. I also have a Roth IRA setup through Vanguard and I contribute $300 a month to it.
My question, does it make sense to contribute money to a Roth 401k and Roth IRA instead of just contributing to one, specifically my regular Roth IRA? If both Roths were equal in maintenance fees would the only benefit of the Roth 401k be that the money is taken out before I receive a paycheck? I am trying to maximize my take home pay now while still contributing the same level of money to retirement whether its through payroll deductions or after the fact. Thanks for your time and great work on the blog, I read it everyday.
The money that you put into a Roth IRA or a Roth 401(k) is post-tax money. In terms of contributions, they’re pretty similar.
If you’re contributing less than $5,000 per year and your income is significantly below $100,000 per year, the only difference between the two with respect to contributions is whether it comes home to you or not. The difference is, as you mention, maintenance fees and investment options.
This of course hints at some of the differences between the two. The Roth IRA has an income cap – if you earn much above $100,000 per year, you’re going to find yourself unable to contribute the full amount to a Roth IRA. There’s also an annual contribution limit for a Roth IRA, which is $5,000 a year if you’re under the age of 50. There are other differences, too, such as the investment offerings.
The basic recipe for homemade playdough is 2 cups flour, 2 cups warm water, 1 cup salt, 2 tablespoons vegetable oil, and 1 tablespoon cream of tartar.
You can use almost any kind of vegetable oil for the oil, so soy is not a requirement. I generally use whatever we have on hand.
The real key to making playdough is storing it in a sealed container so that it doesn’t dry out after the first use. If you let it dry out, you might as well just toss it.
Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.
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