Many physicians have had a hard road to get through residency and fellowship. They put themselves through undergraduate programs and medical school. Then, they barely have enough income in residency/fellowship and rely partially on credit cards to maintain a decent standard of living.
Some have more and some have less. One particular couple that we work with has combined $550,000 in student between the two of them! They’ve often said that it feels like a hole they keep on digging themselves further and further into. They don’t know what to do while they finish fellowship with this mountain of debt.
Then, a so-called financial professional comes along. They come along with promises of 7%, 8%, 9% returns with no downside. They say don’t worry about the student debt (or mortgage) and invest because you’ll make more on your investments than paying down your debt.
This is insane! Are you kidding me? Here are a few principles to consider:
- If you have ANY interest rate that is not deductible and it is over 5%, you are GUARANTEED a return of 5% by paying down that debt. I know of no investment that has that kind of safety and that kind of security. On the other hand, if you don’t have a substantial “cash-cushion” account, you’ll want to simultaneously build it up as you are paying down your debt until you have $30k and more in the bank. (You’ll want to keep building up that account, but the main focus should be debt in that scenario).
- If possible, move higher interest rate non-tax-deductible debt to lower interest rate tax-deductible debt.
- There a couple of situations for physicians where this may not be applicable including if you are participating in the Public Service Loan Forgiveness program (PSLF). In that case, forget about it!
Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation