By Michael J. Searcy
According to the Medscape Physician Compensation Report for 2017, the top physician earners were orthopedists, plastic surgeons and cardiologists, earning an average of $446,333 per year. The lowest earners were pediatricians, endocrinologists and family physicians, earning an average of $210,333 per year. By many accounts, these salaries are high, but they don’t show the whole financial story of a physician. They don’t show that in 2016, the average salary for a resident was $56,500 and that many are in the resident stage for 6-8 years. They don’t show that 40% of residents have over $200,000 in medical school debt or that 41% of physicians in their early 40s are still trying to pay off their student loans. Physicians are not immune to debt; here are some questions about debt we frequently hear:
I have multiple medical school loans to pay off; where do I start?
Debt can snowball and quickly overwhelm you if you’re not keeping it front of mind. While it may seem like a good idea to put your loans into forbearance for a period of time, you may find that you can accomplish more during residency than you’d expect so consider paying a little along the way. Assuming you aren’t taking a path that will allow forgiveness of your loans, you may have the option to refinance them at a lower interest rate.
One key factor to managing debt is living below your means so you have funds available to tackle your debt over time. Consider paying more than your minimum required payment on debts that carry the highest interest rate so you can feel like you’re making progress. Once that highest-interest debt is paid off, channel those extra payment funds into tackling the next debt, and so on, until you have them wiped out.
Can I still buy a car or house while I’m carrying medical school debt?
There are necessities in life that you need to survive and carry out your work, and a place to live and transportation are high on that list. However, that doesn’t mean you need a 4,000 square foot house and a luxury car to meet your needs. Going back to the concept of living below your means doesn’t mean you can’t purchase these things while you have other debt, but be smart about your purchases.
Remember, physicians may look very attractive to lenders but just because you qualify for a large home loan doesn’t mean you need to take the offer.
Can I just borrow or use credit until my income increases?
We get it. After years of living on little, it would be nice to have the rewards that come along with a high income such as some nice vacations or toys, but if you’re buying on credit, you could be paying for them long after the excitement wears off. Deciding to not take on more debt may be one of the hardest decisions to make and stick to, but without taking a stance to stop adding debt to your life, the temptation to buy more and more could get you in trouble.
The chances that your income will increase after medical school and completing residency is almost guaranteed but that doesn’t mean wealth comes instantly. You may be paying off medical school debt, paying more in taxes in a higher tax bracket, and could have other factors impact your income that are beyond your control. By focusing on what you can control, you can set yourself up for a much greater reward in the long run!
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published on May 25, 2017 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.