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Posted: 11 Jun 2013 01:29 AM PDT
Here's an email I recently received from a reader:
I'm a recent law school graduate who has spent the last year working for the federal government; in a few months, my job will end and I'll begin working for a corporate law firm. Along with the salary increase ($60k to $175k), I'll be getting a $50k bonus from my new firm for having spent the last year in the government position. My question for you and your readers is how to use the bonus, which after taxes will be $30-40k. Let me give you some background:
What's your advice for him?First, I have about $150k in law school debt. I haven't consolidated the loans yet because I'm in an income-based repayment program and consolidating would've negatively affected me for that purpose, but when I leave the government full repayment will kick in and I'll be making monthly payments of between $1500 and $2000. That's obviously a lot but manageable given my salary. The worst loan—by both principal and rate—is around $50k at 8%; the others are lesser in amount and rate. Second, my wife has a trust in her name with around $150k in it that distributes fully upon her 35th birthday, which is two years from now. We plan on using the bulk/entirety of that for a down payment. (Aside from the trust, which we can't get at yet, we have about $10-12k available cash, and no credit card debt/car payments.) Third, we've recently discovered we're that expecting twins. This is awesome, but also complicating, as it will knock out my wife's salary for a while, possibly permanently. So the increase in my salary, while great in absolute terms, ends up being only about $50k more than our two current salaries combined. So what do you think the best use of the bonus is? Should we use it entirely for my loans? I plan to consolidate the loans, but using the bonus to first pay down a big chunk of the loan with the worst terms could significantly improve the results of consolidation. Should we lump it in with the trust for a bigger down payment (which in all likelihood would not mean bigger house but instead smaller mortgage)? Should we keep it as cash on hand for unforeseeable but inevitable baby expenses? Split it up into, say, thirds, and put $10k toward each option? Some other option altogether that I'm overlooking?     |
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