The rise in student loan debt is one of the most significant challenges for a new doctor. It’s not uncommon to meet recent graduates with loans that exceed $500,000, with interest at 7 percent or more. New doctors and residents almost always start their careers with a goal of working for several years while paying down burdensome debt.
With student debt looming, and promises of signing bonuses and a predicable work environment, we can see why many young dentists find the corporate dentistry route appealing. A good salary to start paying down debt is hard to pass up. This strategy could impact their ability to own their own practice in the future and, consequently, have a negative impact on their financial future from missing out on income, strategic tax benefits and other perks owners receive, which allow them to accumulate their wealth. It’s vital that new doctors understand how their debt decisions can affect their future. The wrong post-graduate choices can cost millions of dollars over their lifetime.
You can own your own practice, and this major career decision is one of the secrets to not only paying off your student debt, but it can also pave the way for a financially flexible and secure future.
So how does a young doctor get on the right path? We’ve summed it up in six steps:
1. Join a busy private practice to hone skills and increase production.
As an associate, think of how to position yourself to find an opportunity for ownership. During this time, pay the minimum amount on your student loans. The goal is to save as much cash as you can to look good to a lender.
2. Invest in professional growth.
Take CE courses, network, create relationships and soak up knowledge about both dentistry and running a business.
3. Secure a practice ownership opportunity.
This can be through entering a partnership or buying a walk-away practice or even creating a start-up, but the goal is to own something two years post-graduation or at the completion of residency.
4. Invest in your practice.
Market and grow the practice to a point where you are busy and make the practice lean, reducing the overhead as much as possible.
5. Set up a pension plan.
When you begin the process of buying a practice, it is the perfect time to hire a CPA who can help you navigate your current career situation and your future financial ambitions. Remember, compounding interest and saving early is the key to success.
6. Pay yourself.
Not all debt is created equal. Student loans are arguably in the “good debt” category, and paying the minimum payment is sufficient. Now that you own a practice and receive the benefits of ownership, you make more money. It’s the perfect time to refinance your student debt and start to quickly pay it off. You are now at the place in your life where you can have more money to both pay toward debt, while still investing and living.
The key to this puzzle is not who gets out of debt first, but who ends up with the most flexibility financially and the largest net worth to maintain your standard of living long into retirement.
~Charles Loretto, IAR, Partner, Cain Watters and Associates
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