SEVEN Techniques for Tackling Student Debt
As a dentist, I know we face financial challenges every day. Like many others in the workforce we juggle monthly expenses such as rent/mortgage, car payments and other such living costs. Though unlike others, we also manage an astronomical loan debt (whether for our dental school educations or our dental practices) with a comparatively modest salary.
I’ve personally spoken to a number of peers to ask what tactics they’ve employed to address their ever-growing debt burden. Below I have compiled a variety of strategies that my household employs to tackle our dental loan debt.
- REFINANCE or Pick a suitable Repayment Plan
Admittedly, it took several years before my wife and I considered refinancing her student loan (see my story here). In hindsight, it is hard to understand what we were waiting for. There Is really no time to waste. Securing a lower interest rate means paying less in accrued interest. Functionally, when you delay refinancing, you leave free money on the table.
Read more about our decision to refinance in posts to follow.
With that being said, there are situations in which refinancing may not be the best option such as lack of secure income/inability to make the monthly payments, planned participation in an income-driven repayment plan, working towards student loan forgiveness or already having good loan terms (low interest rates). In these situations, it might be more financially beneficial to choose an appropriate repayment plan.
- Secure a higher paying job
While this seems obvious, I think it is still worth mentioning for a couple of reasons. Firstly, I think often times new dentists looking for work do not necessarily consider the financial opportunities associated with working in “less desirable” areas of the country. Higher incomes in areas with lower costs of living translate to huge dividends for loan repayment.
Additionally, progress in your current position. Track production at offices daily to understand what offices are profiting based on your contribution. Also, don’t be afraid to ask for raises once you’ve established value in your practice. Take time to think about what questions to ask when applying, securing and growing in your associate positions.
- WORK MORE
Another no-brainer, but offices are always looking for dentists who are willing to work on the weekends. Willingness to work can translate to additional income. Pay dues early, build a reasonable savings/nest egg and taper back once you’ve really started to feel established.
- Explore avenues of passive income.
With all the stresses of our daily lives, exploring additional streams of income is a fantastic way to alleviate some of the debt burden. There are a variety of ways in which many doctors today are identifying reliable sources of income outside their day-to-day work lives. Strategies include investing in rental properties, moving money to high-yield savings accounts and building investment portfolios. See additional ideas for passive income at www.passiveincomemd.com.
- Make a budget
A simple practice that I’ve found to be helpful is to make a budget. Allocate how much will be spent each month on “unnecessary” expenses. Mentally exercising conscientious spending helps with saving. Live in the present but consider the future as well.
- Live below your means. Look for ways to cut costs or cut spending.
Eat out less. Live minimally. The temptation is to buy a new car or to really enjoy weekends. Keep a balanced lifestyle but understand that student debt is always going to exist as long as the loan remains unpaid. Determine what you find to be valuable and spend accordingly.
- Borrow from someone who loves you.
Intra-family loans can be a great method for approaching loan repayment affordably. Borrowers can offer to pay grandma or grandpa at an interest rate somewhere lower than that of the federal loan (<7%), but higher than that of a typical savings account (>2%). The benefit for the family lender can be two-fold: 1) help out a loved one in need and 2) “guaranteed” return on their money (granted the borrower is able to make regular payments).
Of note, there are some considerations with an intra-family loan that should be considered before proceeding such as family dynamics and more importantly terms of the loan agreement. To stay in the good graces of the Internal Revenue Service, lending more than $10,000 requires a minimum IRS-set interest rate. For example, the February 2018 rate for a long-term loan greater than 9 years is 2.66%. Regardless of the agreement, rates and repayment terms should be fully documented to avoid tax complications.
Putting it all together
There are numerous strategies for tackling loan debt. No single approach is likely to work for every person or situation, but finding the way that works best for you is important. Multiple methods are always better in my opinion. In my life, I have pursued nearly every method outlined above (minus the intra-family loan). I still have a long way to go before I’m debt-free, but I think constant progress is the key.
What methods have you explored to tackle student debt? Which tactics have you found to be more successful? I would love to hear your thoughts.