By Lizette Blackwell
If you are like most students in medical school and residency, you incur a lot of debt in your training to become a doctor. On June 22, 2012, we crossed the finish line.
And with debt.
A LOT of debt.
About a month after graduation when we had started to settle into our rental home in a suburb of Dallas, Texas, we listed out how much money we owed each lender. We then added the credit card debt we incurred from several cross-country moves, interviewing for residency, etc.
Did you catch that? I mean the part about being in a rental home as a full-fledged doctor and doctor’s wife?
We had always believed it was better to buy than rent because the American dream is to be a homeowner. We are conditioned to believe that you are throwing your money away if you rent. When my husband was in residency, we watched a video on renting versus buying a home. What we learned is that you actually end up spending a lot more money when you own a home if you live in it for less than five years. We were also well aware of the statistics that doctors don’t typically stay at their first place of post-residency employment permanently. There’s a great article here that explains this.
Since we weren’t sure if we’d be calling Dallas home, we were convinced that renting was going to be the first big step into living debt-free. Even though our plan may or may not be the right one for you, I believe that more knowledge and information can help you make an informed decision.
In my opinion, one of the key areas that helped us to pay off our loans in less than three years post-residency was our mindset. We were committed to not giving into the social pressures of what society says being a doctor should look like. We also made a conscious decision that material things weren’t going to make us happy at the end of the day. What would make us happy were our relationships with others and ourselves. When we received our first invoice from the loan company, the term of the loan was the minimum payment to be paid out over 480 months.
We did the math to see if we would be alive that long.
Yes, we would. THEIR plan was to have us pay them back slow and steady over the next 40 years. I had heard of doctors paying their student loans for 30 years. We had already seen that seven years had gifted us $35,000 of compounded interest. We cringed at the idea of how much interest we’d pay out if we extended the pay off to 40 years. Also, debt keeps you from really enjoying that family vacation. Debt leaves you feeling guilty for making that non-essential purchase. Most importantly for us, debt would keep us from blessing others financially.
After we made our list, we made a line-by-line budget with the help of intuitive budgeting software called You Need A Budget. Having a budget helped us maintain laser focus in paying off our debt. You must tell your money how it is going to be spent because when you and/or your spouse bring home the first paycheck, that money will tell you where it wants to be spent.
Tip: I do a weekly budget balance to make sure we are on track. I also do a review with the man who brings home the bacon at the beginning of the pay period and then two weeks after.
We put into practice the teaching of financial guru Dave Ramsey and began to snowball the debt starting with the smallest amount of debt first.
Auto Loan $12,999 (minimum $350)
Credit Card- $16,075 (minimum $250)
ACS Loan #1- $47,248 (minimum $307)
ACS Loan #2- 85, 831 (minimum $997)
Total Debt: $207,219.98
YIKES! As I look at those numbers now, I feel the same weight I felt three years ago when we first calculated them.
We started by making the minimum payments on everything. Then we added whatever surplus we had for that month after budgeting into the smallest loan. We were thrilled to have the auto loan paid off in the first three months of doing our budget; so, then we were able to roll the minimum monthly payment of $350 from the auto loan into the credit card debt.
There is a psychology to eliminating debt: if you pay the smallest loan first, you feel better about what you are doing and your plans gain momentum. For some people, if they start with the largest loan, they see numbers getting smaller but the debt is still there so they have a chance of not sticking with the plan. In my opinion, we set ourselves up for success by starting with the smallest amount first.
We created momentum and I started to look at the money we put into debt as monopoly money. Almost as if it really didn’t have any value to it because it was already accounted for through debt.
There have been times when we have had to halt the snowball to pay the IRS. This is a hard reality that no one told us would happen. We got bumped to the 33 percent income bracket and our tax withholdings weren’t enough when it came around to tax season. One year, we scrambled to pay $9,000 and another year, $13,000. At the time, the IRS became the priority; then, we picked up where we left off.
We also felt it was paramount to invest in the retirement plan my husband’s job had offered even though it was unmatched contributions because we had a taste of compounded interest via loans. Without a penny saved in retirement, we thoughtfully made the decision to start savings for retirement.
One of the first pieces of mail we started to receive when my husband was in his final year of residency were fliers on physician loans from banks and fliers on luxury car leasing programs. There’s marketing that’s intended to entice doctors to start spending their money before they see their first paycheck. Don’t give into the social pressure of incurring more debt. Pay off those loans as soon as possible and you will feel liberated!
We stuck to our plan and we have succeeded at becoming student loan debt-free in three years.
Lizette Blackwell married her high school sweetheart, Adrian, just before completing her four-year enlistment in the Air Force. She kept busy during his medical school and residency by birthing three babies in three different states and caring for them almost single-handedly until he finished his education. She loves cooking (but hardly ever makes the same recipe twice), exercising when she needs some alone time and writing while her husband finishes his ER shift.