Match Day is an exciting yet stressful time for new doctors. One of the more stressful things is that you are now transitioning from a debt accumulation stage to a sort of stalled-out debt payment stage of your career. This is really the first time that young doctors need to start planning and thinking about their debt. So, I’ve teamed with Doc2Doc Lending, one of our key resources, to share some debt management tips!
Some background
Each March, tens of thousands of medical students will get their results for residencies and fellowships. Reports shows that the 2022 Main Residency Match was the largest in NRMP’s 70-year history with 39,205 positions offered and 36,943 positions filled.
If you’ve experienced Match Day, or you’re about to, you’ll know it’s an auspicious time… but from a financial perspective, it can be very stressful.
You’re about to go through a major transition in your career. That transition often comes with relocating, increased living expenses, and student loans coming due. Unfortunately, you are also often years away from earning the salaries that physicians command after their residencies and fellowships.
This combination of events often adds even more stress to an already stressful time.
(I do also recognize that not everyone will match. So, here are some tips and alternatives for unmatched doctors…)
What not to do
Basically, when you enter training, don’t do what I did.
Which was to completely ignore my finances and make huge mistakes. You can read all about them here. Now don’t get me wrong, your primary focus in training is to learn to be the best doctor possible. But you can’t ignore your financial well-being. Trust me.
That’s what I did and one of my biggest mistakes was that I ignored my debt completely during my 7 years of training. This non-strategy just led my debt to compound on itself over and over, making the situation when I finished training much worse.
That is what I want you to avoid. That’s also why it’s important to form healthy personal finance habits like these from the start.
5 Debt Management Tips for New Doctors
So, here are 5 debt management tips so you can get started on the right foot!
1. Understand the Ins and Outs of Your Spending
The first step to taking control of your finances involves gaining awareness of all of your income and expenses. Get to know everything coming in and going out. To accomplish this, some people use a spreadsheet or browser-based software. Others use an app on their phone. I use a spreadsheet that you can download and use yourself here.
To newer medical practitioners, it may not seem practical (or desirable) to do this. Many medical students allow themselves to continue growing in debt, knowing that later in their career, they’ll be able to pay everything off. However, if you take control of your finances now, you’ll be in a much better position overall by the time you advance in your career.
This habit will also help yo avoid accumulating unnecessary high interest credit card debt.
Doc2Doc Lending importantly points out that one thing that many people forget about is to add up their monthly subscriptions. In an increasingly subscription-based economy, it can be very easy to lose track of all the little fees going out of your accounts each month.
Therefore, to clarify your expenses, use your actual bank statements from the past few months and identify where you’re actually spending your money. This is also a good time to get rid of any subscriptions you don’t really need.
2. Tabulate all of your debt
This was something I avoided until the very end of my training when I began my financial comeback story.
I avoided it because I was scared to see how much debt that I had. However, this fear led me to make a ton of mistakes with my debt. Like deferring all of my loans for 7 years.
So, one of my top recommendations is to create a spreadsheet listing out all of your debts separately. This will include:
- Credit card debt
- Student debt
- Car debt
- Home debt
- And anything else
Doing this will give you perspective of your debt situation. You can then use the information that you now have to make the best decisions for your situation instead of flailing in the dark.
Lastly, I will say that there is a therapeutic emotional effect to doing this. Where I was scared of tabulating my debt beforehand, when I finally did it I felt relief. I finally knew what my situation was and could work to make it better. Similar to calculating my net work for the first time…
3. Manage High Interest Debt
Now that you have tabulated your debt and understand your debt landscape, the next step is to consider actions
And the first place to start is high interest debt – the most damaging kind of debt. The most common forms of high interest debt are credit card or other private debt. The best way to manage high interest debt is to avoid it. That’s why tracking your expenses – cough, budget, cough – is so important. But if you already have high interest debt, that advice doesn’t help right now.
And while I strongly advice avoiding high interest debt, sometimes as a medical student or trainee, it happens for expenses like:
- Interviews
- Exam fees
- Licensing
Consolidating high interest debt
If you currently make multiple payments to different high-interest lenders every month, consider simplifying your life and saving some money by consolidating them. Consolidating loans simply means putting them all in one place, usually using a larger, single loan from a different financial institution that lowers your payments, reduces your interest rate, simplifies your finances, or a combination of all three.
Doc2Doc Lending is founded and run by physicians, so they understand your future earning potential and are able to get you better rates for these high interest debt consolidations.
Reducing High-Interest Debt Rates
Sometimes newer physicians use credit cards to offset expenses during their training. This might help in the short term but often creates a high-interest debt to pay down later. Most credit cards today have an APR of 13% or above, which can add up quickly when you leave debt unpaid.
To take control of your finances, consider reducing high-interest debt such as that from a credit card. You can do this very similarly to the previous tip: Getting a personal loan with lower interest and a longer term. This gives you some flexibility as far as repayment goes, and enables you to tackle the interest head-on.
If you’re interested in a personal loan to help consolidate or reduce high-interest debt, take a look at some of Doc2Doc Lending’s programs. They specialize in helping doctors and dentists with their personal and professional goals and truly do help make sure that finances are not the barrier.
4. Create your student loan payback strategy
So, keep in mind, the previous advice was largely applicable to high interest debt like credit card or some other types of private debt.
After you determine a course of action for that debt, you will want to start thinking about your plan for any student loan debt. This is debt usually accrued to pay for undergraduate and medical studies. Now that you are no longer a student, your loans for the first time will go into repayment. So, you really do need a plan. Here are some student debt management tips to help…
Federal student debt
For trainees with federal student debt, the answer is usually simple. During your training, you can enroll in an income-based repayment plan for federal loans. Since your income is low, your payments are low. These payments also qualify for the Public Service Loan Forgiveness (PSLF) program – a government program where any doctors making these types of payments for 10 years while working for a non-profit medical institution gets the rest of their debt forgiven.
Even if you are not sure if you will work for a non-profit institution after training, it still makes sense to make these payments as a trainee. Then, when you become an attending, you have less time to forgiveness. And if you decide not to work for such a hospital/clinic, you just change your plan to aggressively pay off your debt within 5 years of graduating like I do.
The one thing I generally do not recommend doing in training is refinancing your federal student debt. This precludes you from PSLF eligibility in the future. And there is no reason to do that when your payments are so low based on income anyway.
Private student debt
If you are like me, you have the distinct pleasure of having both federal and private student debt.
Unfortunately, private student debt does not qualify for any forgiveness like federal student debt. Therefore, you need a plan to pay it off. And there are a few options:
- Use any deferment or forbearance options. Just keep in mind that your interest continues to accrue during any forbearance period.
- Call the loan company and arrange a special payment option. When all of my deferment and forbearance options were used up, I was able to negotiate an interest only payment for some of my private loans.
- Refinance the loans to a better interest rate and pay them off through training (if possible).
5. Don’t stress too much
If there is one thing that I would say to my former self in training about my huge debt, it would be not to stress about it too much.
Because I stressed about it a lot. I didn’t seek out any debt management tips because my stress paralyzed me. And I’m sure many of you can relate. It sits over your head. And as a trainee, it is hard to comprehend how you will ever pay it off.
However, now sitting on the other side, I am proof that it will be ok and you will be able to effectively manage your debt and greatly improve your financial well-being.
I have never yet met a resident finishing training in a worse financial situation than myself. And yes, you have to take action to improve your financial well-being, but they are simple ones like this. So, if I can do this, you can too!
Here are some additional resources for young doctors to improve their financial well-being!
- 11 Finance Steps for a Resident That Will Make You Over $1 Million
- 7 Step Guide to Budgeting for Early Career Doctors
- 7 Steps to Survive Intern Year…Financially
- Graduating Residency Creates a Big Problem, Here is the Solution
You can also watch my Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
What do you think? Do you have any debt management tips for new doctors? What worries you? Or what did you do right? Let me know in the comments below!
