Mr. And Mrs. Doctor
There once was a man whose last name was Doctor, and who taught geometry at a local high school, where he was frequently referred to as Mr. Doctor. His wife was Mrs. Doctor. Now, the Doctors weren’t physicians, but that was a running joke. They were educators, a job which has its own financial difficulties. And perhaps they were the only wed “Doctors” in that region.
But in today’s world, there are many couples who both pursue a career in medicine and find one another along the way. Another thing they find along the way is crippling debt. A physician fresh from the MD factory is likely going to have $166,000+ in debt. When two get married, $332,000 could be pushing them down. But there’s a way to get that paid off quickly.
Here’s the thing, though. That’s mostly “good” debt. It may come as a surprise to many, but debt can be both good and bad. Good debt is usually that associated with the credentials to a lucrative career. There are few careers more lucrative than being a physician of some variety.
So getting in debt for such knowledge will likely pay off in due course. Bad debt is frivolous, or won’t return anything for what ends up being a large investment. Gambling debt is bad, so is most credit-card debt.
For physicians, enough is made through average yearly wages that most bad debts can easily be overcome—and so can the good ones; it just requires discipline. A primary care physician will average about $195,000 a year, while a specialist will clock in at around 284,000 a year. If we assume below the average in order to calculate conservatively, a physician couple can expect to earn $300,000 between them in their first year as “minted” MDs.
Life Doesn’t Go As Expected
But “expect” is a key word, isn’t it? There are a lot of things that will get in the way of that sum. You’ve got vehicles, housing, food, unexpected expenses, taxes, and the aforementioned student loans to contend with. You’ll be able to get rid of them just by coasting, but the fact is, if you really want to enjoy the benefit of such a career, you want to be done with them as soon as possible.
Now many will tell you to make investments, plan your retirement — these are brilliant plans for the future. They are great means of strategizing your retirement into the comfortable green. But right now, you’ve got to work harder for less, and the loan doesn’t diminish nearly as quickly as you would prefer. It’s that darn interest!
Budgetary Considerations
Let’s start by looking at your budgets. You’re a married couple, what are your monthly expenses? Do you have a mortgage? That can be anywhere from $500 to $5,000, depending on your level of spending. How about a car payment? That’s probably around $100 to $500 a month, unless you’ve managed to buy one outright (a better option—go the “used” route).
Now you’ve got your student loan debt. If you’re only paying $700 a month on that, without any interest, you’re looking at a minimum of 19 years for a $160k debt. But you’re going to have interest. At 3.5% interest, paying $718.47 a month, it would take 30 years to pay off that sum, and you’d end up paying $98,649.74 in interest for a total of $258,649.74.
You’ve got a real issue on your hands! Especially if some monkey wrench like credit card debt is thrown into the works by one of the parties in your medically-saturated marriage. You may even have to look at consolidating your debt. However, there is a better solution.
If combined you and your spouse are making $300,000 a year, that means you’re pulling in $25k a month between you. So if you’re paying $5,000 on a mortgage, and $500 on a car, and $718 on a student loan debt, and say another $1,000 in miscellaneous debt like that from a credit card, in total you’re spending about $7,218 a month—well below your earnings threshold.
Live Beneath Your Means
Why not downsize for a while and pay the debt off first, then worry about mortgages and financing? First, cut out that mortgage. Sell the house for what you’ve paid in and turn that money into both your debt, and a means of transportation. Next, sell that new car. Between the two you’ll likely be able to pull in at least $50,000.
If you spend $5,000 on a dependable car, and $45,000 either on a very small cottage, a prefabricated home, or a motorized vehicle, you can live without mortgage or rent; only paying property taxes. Go with a motorhome (and you can find some excellent ones for around $40k) and you don’t even have to deal with that; though it can cost around $500 a month to plug in at a park.
At any rate, you can eliminate $5,500 of your monthly expenses, leaving only miscellaneous debt and your student loan, plus food and utilities. It’s very reasonable for you to expect to get your monthly expenses down below $2,000—even throwing in gas. Now between the two of you there is $23,000 a month available paying off your student loans. Make it $22,000 just so you’ve got an extra grand should something unexpected happen; but if you’ve properly financed your debts, you won’t be in any trouble if you miss a month’s payment; you’ll just eat it in interest.
If you’re paying $22k a month against $332,000 in debt, that’ll only take fifteen months to pay off. Call it an even two years to factor in unexpected emergencies and the 25%+ you’ll lose from the tax man. Taxes could really hit you as a physician, depending on your state, because you’re in a much higher bracket. This is another reason to cut as many unnecessary costs from your budget as possible in the first several years you and your spouse practice medicine.
Still, even with outrageous taxes, if it only took you five years to pay off your loans, that’s a lot more expedient than paying them off little by little for thirty years, isn’t it? The key here is to live as far beneath your means as possible until you’re out of debt.
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