50K, what to do with it? [duplicate]

Question

I'm 26 and a double masters student in transportation planning and engineering. I have received 50k in settlement money; I don’t know what’s the best course of action with this money. Im looking at 56,000 in student loans at 6% APR over 10 years. I graduate in two years, then, upon finding a job, I expect a minimum starting salary of 50k. I earn a small stipend from an internship, about 800 a month. I pay 550 in rent. Should I invest or should I try to reduce the loan? Should I save it all and worry about it when I graduate? Should I buy a condo and rent it to other students?

Answer 1

Reduce your loan.

Currently, stocks are especially in United States rather highly valued. If you subtract taxes, you probably won't exceed 6% per year over 10 years. By reducing the loan, you are having an investment that guarantees 6% return.

See your situation like this: you have an investment with 6% guaranteed return. Most people don't. Now invest in the guaranteed return!

Answer 2

Don't buy a condo, that would be kind of a horrible idea, even if you can qualify.

If it was me, I would stick it in a boring savings account, something like Ally. Once you graduate, get settled in potentially a new location, I would use the money to pay off your student loan. Until then, the money becomes an insurance policy to make sure you have enough money to graduate.

Your best investment, right now, is yourself. What can you do to raise your future income?

Answer 3

juhist has a good answer, but it's only part of a full answer.

Saving

You should save a couple thousand so you don't rack up credit card or other debt due to everyday living expenses plus unexpected bills. You don't want to go broke because of car repair, health care bills, or something else you might not be able to predict or prevent. What you make after college is future money. You don't have it now so don't count on it now. Banking on future money is how most people stay broke for their whole lives.

Income

Also, no matter how good you are in school, you won't get $50k right out of graduation. You don't have the experience dozens of other applicants applying for the same jobs have. If you get lucky, or you already have an agreements in place, you might be able to turn your internship into a job, but without that prior agreement in hand, that's not guaranteed either. When I was in high school, I was told that going into a career in computers was a guarantee to get a minimum of $45k a year job right out of college. That was just over 20 years ago. Because of a wide variety of things, such as the stock market and a flood of other people doing the same thing, I didn't make half that for years after going to college. In fact, because of various reasons that I'm not going to share, I didn't get to $45k until about 3-4 years ago.

You might have to get a lower paying job for a year or more before you get your first "real" job in your industry. Finding a job takes a lot of time and effort. Unless you are absolutely at the top of your field and are well known for your work, you aren't likely to see anyone waiting to give you a job when you graduate. It's a hard pill to swallow, but it's unfortunately the truth for the vast majority of us.

Education

You getting a double masters might help, but it might not. My mom and one of my sisters both have masters degrees and it didn't help them. I have another sister that has multiple masters and bachelors degrees and she's decently well off. Just having a masters doesn't guarantee anything. What you do with it and are willing to do to make it matter matters much more.

My one sister that's using her advanced education got it while in the military, so they paid for most of it and she also has massive experience in those fields. She can literally get any job in her field because of her experience and her education.

One of my brothers-in-law has an advanced degree that his job paid for. I don't remember what it is, but he spent years getting it while working full-time. A couple years ago, he got "reduced" from his upper management job when the company was bought, and hasn't found a replacement job since, due to how specialized his position was. He's now doing a travelling maintenance job that probably pays less than half what he used to get. It's a lot less stress and he likes it, but it's not what he was told would happen when he was getting his degree.

Getting to the real answer

The general recommendation is to have 3-12 months worth of living expenses saved in case of emergencies. What number of months you pick depends on how stable you think your income is. Getting $800 a month and then paying $550 in rent leaves only $250 a month, which isn't very much. In fact, that's less than most people pay in groceries a month for a single person, not to mention eating out any, paying utilities, car insurance, gas, and a dozen other bills that are easy enough to incur. Even if you take public transportation, those fares can add up.

If you already have credit card debt or a car loan, pay them off first with what you decide not to save. If you have any other debt, pay that next.

Student loans

Student loans have a variety of ways to defer payments. Not to mention that in the US, they are specifically not allowed to be predatory lenders by law, unlike other debt collectors. Also, student loans are considered differently on your credit history than most of the rest of your debt. You should still want to clear out student loans as fast as possible, but not to the detriment of your health or even other debts. And having a long term loan on your credit history that you are on good terms with (paying regularly or otherwise not defaulting on) is actually beneficial to your credit report. Yes, it means that your debt to credit ratio is affected, but it shows that you are a good debt risk since you are actually paying your loans. Also, deferring your student loans doesn't show up on your credit report, except that you are still in good standing with your student loan creditor.

I've gone through hell with my student loans to where I've been 180+ days late. I finally talked to the creditor and got one of the many deferments they offer and my credit report suddenly said I was in good standing the very next month. The credit reporting agencies don't care about that type of detail in a report, they go off what the creditor says about the loan, and if the creditor is happy with the state of the loan, so is the credit report.

People talk about student loans being a noose around their neck. Sometimes this is true, but it also ignores all of the other debt they have, which oftentimes happens to be a boulder holding them to the bottom of their river of debt. Because student loans are so forgiving and flexible, you should pay them off last*. Once you start getting bills for them, keep paying them on time and the full amount, but always consider that the other loans you'll have to take out are always going to be worse to deal with if you default on them than student loans. Default on a vehicle loan and they repossess it. Default on your house or apartment, and they kick you out.

*The only thing that should be fully paid off after your student loans is a house/condo. Make sure that your future monthly mortgage payment is paid in full before paying the monthly student loans, though. Also, paying more on your mortgage than the minimums will save you thousands by the time you pay it off. Because of the difference in size of loans, the savings of paying more on your house vs paying more on your student loans weights in favor of paying more to the mortgage.

More budgeting information

If you want more information about budgeting and how to deal with money, you can't go wrong with the book "America's Cheapest Family Gets You Right on the Money". I'm not affiliated with this book or family in any way, I'm just another satisfied customer. They go into a lot of detail about how to budget your money as well as how to deal with loans and creditors.

Answer 4

We don't have enough info for this specific situation, but here's a checklist to follow:

1. Emergency fund

Depending on the difficulty of finding a job, save 3-6 months of living expenses.

2. High-interest debt

Credit cards, personal loans, anything over 10% APR needs to be reconciled immediately.

3. Tax-advantaged accounts

After high-interest debt, you should start looking into tax-advantaged accounts. A 401k is typically better if you plan to retire with little extra income, and a Roth is typically better if you want to retire with a large amount every month (You will be limited by how much you make, be sure to check with a registered financial advisor, as this information can't be taken as investment advice.)

4. (optional) Other investments

This one highly depends on what you know, but if you think you can do real estate, then go for it. Typically, condos are bad investments, so be sure to do plenty of research if you decide to go that route.

5. Pay off student loans

You can defer student loans in a ton of different ways, so this is a really low priority to hit. That being said, if you don't have anything else that can make you more money, then paying off your student loan early is guaranteed money.