As a new physician, emotions run high. There's relief at having completed your residency, the anticipation of starting the next chapter of your life, and the feeling of dread surrounding the mound of debt you've accumulated.
Now that your earnings have dramatically increased, it's time to start thinking about how to spend it. Should you focus on loan repayment? Investment opportunities? Exploring and understanding your options is the key to financial stability and success. Here are some timely tips for physicians, designed to help you achieve an acceptable balance between paying off your loans, planning for your future, and making some well-deserved purchases.
There is no right or wrong answer when it comes to making a choice between paying off your student loans or investing your money. One of the most sound tips for physicians regarding such a weighted issue is this: do whatever allows you to sleep at night.
For example, if your debt is akin to a black cloud hanging over your head, consider paying off your loan as soon as you can, regardless of your interest rate. Even if it's low, you can't put a price on your peace of mind. If, on the other hand, you sleep just fine at night with or without debt, you have two options:
If the interest rate is high. Refinancing may be beneficial, particularly if the interest rate is above four percent. Odds are that your investment return won't be any higher than the interest rate you're paying on your debt.
If the interest rate is low. Keep up with monthly loan payments, and invest any spare money in a long term account for your retirement. Start by investing the maximum allowable amount into your employer-sponsored plan, to take advantage of your employer matching a portion of your contribution.
Loan Payment Vs. Investment: What's At Stake?
According to Student Loan Hero, in 2014, the average medical school graduate had $176,000 of debt. Repaying your loan over a 10-year period, at a rate of six percent interest, can amount to nearly $60,000 in interest charges. These numbers not only make refinancing more attractive, they're great incentive to pay down your debt early.
The stock market is volatile - a game of chance typically favorable only to those who can afford to be patient. Loan repayment on the other hand, has an immediate impact on your net worth, including some beneficial tax deductions. Should you be fortunate enough to make gains in the market, after paying the necessary taxes, as well as any associated fees, you may find you're no further ahead.
Expert Advice: Understanding Your Options
As a new physician, you can appreciate the value in seeking out an expert opinion, from an educated professional. One of the most beneficial tips for physicians, is to hire a financial adviser early on in your career. Choose one who is a fiduciary, and legally bound to act in your best interest.
Additional Tips For Physicians
Your student debt load negatively impacts your credit, making it more challenging to obtain financing for a new home, or other major purchases. Relieving yourself of this burden in a timely manner, expands your options for financial security. Other tips for physicians include:
Inquire about a signing bonus. These bonuses are meant to entice new physicians, looking to join an existing practice, or gain employment in a hospital. Read the fine print on your contract to ensure the bonus is yours to keep, and not to be repaid, and potentially use the money to reduce the principal on your student loan.
Explore your repayment options. Working in the public service sector for example, may make you eligible for the Public Service Loan Forgiveness Program.
Forgo additional debt. Large-scale purchases, such as a home, are best left until your student loans are greatly reduced. In the event that the real estate market takes a downturn, your debt load could be high as well as you being “underwater” with your home loan balance being greater than the market value of your home.
As a new physician, you're already facing an array of challenges and changes. Understanding your options regarding loan repayment or investments can help you make the decision that best suits your goals and lifestyle. But whatever you decide to do, just remember that the choices you make now will impact your lifestyle for years to come.