It can be done. I did not think it could be accomplished. My net worth looked horrible during my first year of medical school. It looked even worse after 3 years of accrued interest during fourth year medical school when I was burning through my loans for my residency interviews. During residency and fellowship my mid 5-figure salary tempered the immediate pain of debt, but my net worth was still decidedly negative. At this time, I decided to take control of my debt and kick its ass. By the end of my first year of medical practice, that debt was gone.
Like many other aspiring doctors, I did not consider the price tag involved with getting a medical degree. I worked hard, and went to the best medical school that accepted me to become a super doctor. I had about $230 in my bank account when I enrolled, and my mother gave me $50 of “emergency money” in case I got into trouble. The tuition alone per year was around $50,000. With room and board, annual expenses were beyond $60,000. I even received a solid 5-figure scholarship to attend medical school. The rest of my expenses came out of governmental and private loans.
According to my loan statements, I had the following principal loan amounts:
- Federal Subsidized Stafford Loans: $17,000 @ 6.8%
- Federal Unsubsidized Stafford Loans: $89,260. The majority was at 6.8%, with some at 4.75%, and about $10,000 at 2.8%
- Federal Perkins loan: $23,000 @ 5%
- University private loan: $19,000 @ 10%
The total principal loan debt amounted to $148,260. Including the years of interest accruing, I paid close to $190,000 in total.
Smart Money Tips to destroy your loans (simple in principle but challenging in practice):
- Track how much is going in and leaving your bank account. You must spend less than you earn. Only then will you be able to take control of your debt. This means no credit card debt, pawn shop dealings, and no payday loans.
- Live way below your means. With six-figure debts, you really have to make frugal decisions. MMM calls it “hair on fire debt”. For me, that meant limiting $5 lattes, excessive restaurant and bar expenses, and frivolous materialistic purchases. No yachts, new cars, fancy clothing, or accessories. I kept a respectable appearance for a physician but did not have any sign of wealth to flaunt. I brought my lunch to work, and ate dinner at home. I bought discount groceries and chose to eat what I considered inexpensive yet still healthy.
- Funnel what you have left over to your loans, high interest loans first. Dave Ramsey refers to debt snowballing and eliminating the smallest debt first to achieve a psychological victory–B.S. With turbocharged debt elimination for doctors and professionals, we want to pay the least amount of interest. Period.
That’s it. Three fundamental principles. In my five years of training, I commanded a $50,000 annual stipend. After taxes and living expenses, I was able to fund about $15,000-$17,000 annually toward my debt. I lived quite comfortably, although I was fortunate that I did not have extra mouths to feed. You can still sustain a family of four easily on that income, although you may have less leftover to contribute to loans. When I became an attending physician, my housing expenses decreased slightly since I moved to a lower cost of living area. I maintained a similar quality of living and chipped away the rest of the debt. By the end of my first year in practice, all of my student debt was paid off!
- Contribute to your Roth IRA fully if you can. I only funded it two out of five years. In retrospect, I wished that I contributed every year. There is a fine line between paying down a loan versus investing, but having a tax-drag free vehicle that you carry throughout your entire working career vs chipping away at a relatively low interest loan is a no brainer. For a simple interest loan at 5%, 6.8%, or even 10%, funding the Roth IRA is the better option if you know that your income will increase significantly within the next few years.
Good luck to those who were in my shoes! If you have any questions, sound out below!