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Would you change that suggestion if the fresh grad had near 100k in loan debt, some of which was private and high-interest? The benefit of 10k sitting in saving

Would you change that suggestion if the fresh grad had near 100k in loan debt, some of which was private and high-interest? The benefit of 10k sitting in savings when it could pay off a savage Chase loan seem less great. (To be explicit, that person is me, and I tend to throw all buffer money right at student loans before they grow like a hydra, faster than I can kill them.)

redler 14y ago
Even if you have expensive debt, you should aim to have some ready cash for whatever situations life presents. Paying down ten percent of that 100K will be the opposite of helpful if you find yourself unable to go grocery shopping or to cover a co-pay for X-rays on your twisted ankle.
- alexkus 14y ago
  X-ray a twisted ankle?
  - redler 14y ago
    Sure. At the margins, people make adverse health care decisions when they have no money, even if they're insured. Call it the flip side of moral hazard: co-pays, co-insurance, multiple deductibles, and all the other methods insurance companies have invented to be sure everybody has "skin in the game" and ensure economically rational decisions. I have "good" health insurance, yet I'd have to pay a $150 "advanced imaging fee" for any X-ray (and, I believe, $1500 for a CT or MRI). What's the economically rational decision when you badly twist an ankle and ought to have it examined, but you expected to use that $150 for groceries?
  - graeme 14y ago
    Probably meant sprained. I had a pretty rough ankle sprain a few years back, mobility still isn't 100% of what it was.
brador 14y ago
The 6 months is what you need to cover expenses until you hit another payday. If you have an in demand skillset like OP or can run to mom and dad for rent free living then you can reduce the total required with little additional risk.
patio11 14y ago
I did the damn-the-emergency-fund-full-speed-ahead loan repayment plan myself. You're basically gambling that you won't suffer a cash shock. That can be a reasonable gamble if you are e.g. well-insured, have very stable employment, have family support, have other income streams, etc etc etc. Otherwise, you'd consider the marginal 10% APR or whatever you're paying an insurance premium against a cash shock. There is no circumstance where student loans will grow when you are actively making scheduled payments on them. Your balance will decrease monthly if you make your normal payments. Just mentioning that for sake of clarity -- some smart people I know don't necessarily have a lot of personal finance knowledge. Your loans will only grow if you either default on them or do something like triggering one of the income-contingent payment plans (which are a lot less good of an idea than people usually think, BTW). Unsolicited financial advice: go to the institution you deposit your paychecks in and ask about consolidating student loans. (Another option, if you've been diligent about building your credit history, is taking a CC cash advance for a year, or take an unsecured loan. I'm getting unsolicited offers for either "1% fee, 0% APR for 12 months, then normal interest" from my CC at BoA or "9% interest, no fees" for signature loans from Discover at the moment.)
- textminer 14y ago
  Thanks for the advice. Honestly, being that I work in startups, am a year and a half out of grad school, don't have to well-to-do parents, and support my partner, I think you've helped me realize it's definitely not so smart to be bufferless. Honestly, part of this mania began when I looked at my statements for just one provider (Chase) and realized the minimum payments they were asking for (~$300) covered ONLY the monthly interest. That sort of freaked me out, and I got spooked at the prospect of allowing that bank to rent-seek on my back for the next few decades, while I lack any sort of consumer rights to even ask a court for bankruptcy protection.
  - larrys 14y ago
    "don't have to well-to-do parents" Statement like this (details that is) prove what I am always saying about advice you read online. When I read your comments my first thought was what other safety net you had. If you had reasonably secure middle class parents I would give you different advice then I would if you had no safety net at all. The answers to all these questions totally depends on details and when people are giving general advice there may be something that is left out that could change the advice greatly. As an example, I generally fill my gas tank when it is down to 1/4. But if I hear a storm is coming I fill up no matter what the level.
textminer 14y ago
My first downvote! Thanks for the constructive feedback, stranger.

redler 14y ago

Even if you have expensive debt, you should aim to have some ready cash for whatever situations life presents. Paying down ten percent of that 100K will be the opposite of helpful if you find yourself unable to go grocery shopping or to cover a co-pay for X-rays on your twisted ankle.

alexkus 14y ago
X-ray a twisted ankle?
- redler 14y ago
  Sure. At the margins, people make adverse health care decisions when they have no money, even if they're insured. Call it the flip side of moral hazard: co-pays, co-insurance, multiple deductibles, and all the other methods insurance companies have invented to be sure everybody has "skin in the game" and ensure economically rational decisions. I have "good" health insurance, yet I'd have to pay a $150 "advanced imaging fee" for any X-ray (and, I believe, $1500 for a CT or MRI). What's the economically rational decision when you badly twist an ankle and ought to have it examined, but you expected to use that $150 for groceries?
- graeme 14y ago
  Probably meant sprained. I had a pretty rough ankle sprain a few years back, mobility still isn't 100% of what it was.

brador 14y ago

The 6 months is what you need to cover expenses until you hit another payday. If you have an in demand skillset like OP or can run to mom and dad for rent free living then you can reduce the total required with little additional risk.

patio11 14y ago

I did the damn-the-emergency-fund-full-speed-ahead loan repayment plan myself. You're basically gambling that you won't suffer a cash shock. That can be a reasonable gamble if you are e.g. well-insured, have very stable employment, have family support, have other income streams, etc etc etc. Otherwise, you'd consider the marginal 10% APR or whatever you're paying an insurance premium against a cash shock. There is no circumstance where student loans will grow when you are actively making scheduled payments on them. Your balance will decrease monthly if you make your normal payments. Just mentioning that for sake of clarity -- some smart people I know don't necessarily have a lot of personal finance knowledge. Your loans will only grow if you either default on them or do something like triggering one of the income-contingent payment plans (which are a lot less good of an idea than people usually think, BTW). Unsolicited financial advice: go to the institution you deposit your paychecks in and ask about consolidating student loans. (Another option, if you've been diligent about building your credit history, is taking a CC cash advance for a year, or take an unsecured loan. I'm getting unsolicited offers for either "1% fee, 0% APR for 12 months, then normal interest" from my CC at BoA or "9% interest, no fees" for signature loans from Discover at the moment.)

textminer 14y ago
Thanks for the advice. Honestly, being that I work in startups, am a year and a half out of grad school, don't have to well-to-do parents, and support my partner, I think you've helped me realize it's definitely not so smart to be bufferless. Honestly, part of this mania began when I looked at my statements for just one provider (Chase) and realized the minimum payments they were asking for (~$300) covered ONLY the monthly interest. That sort of freaked me out, and I got spooked at the prospect of allowing that bank to rent-seek on my back for the next few decades, while I lack any sort of consumer rights to even ask a court for bankruptcy protection.
- larrys 14y ago
  "don't have to well-to-do parents" Statement like this (details that is) prove what I am always saying about advice you read online. When I read your comments my first thought was what other safety net you had. If you had reasonably secure middle class parents I would give you different advice then I would if you had no safety net at all. The answers to all these questions totally depends on details and when people are giving general advice there may be something that is left out that could change the advice greatly. As an example, I generally fill my gas tank when it is down to 1/4. But if I hear a storm is coming I fill up no matter what the level.

textminer 14y ago

My first downvote! Thanks for the constructive feedback, stranger.