If you’re just starting out, chances are high there’s a substantial amount of debt in your financial picture. According to the American Dental Association, the average debt for all dental school graduates who owed money was $247,227. Over 30 percent of dental school graduates with student loans reported debt in excess of $300,000.
OK, you have substantial debt. What will you do about it?
While every situation is different, generally it’s not advisable to pay off your student loans at the expense of current living expenses or saving for the future. What if all you did was pay off your loans and didn’t set anything aside for other financial goals? Fast-forward 10 years, and you may be proud to be debt-free, but you will have few assets to your name.
It’s important to look at your debt within the context of your larger financial picture. It makes sense to come up with an overall financial plan, within which debt can be addressed. Your cash flow will have a lot to do with how you proceed.
It’s advisable to pay off your loans within a 10- to 15-year period if your interest rate is 6 percent or less. Typically, we do not recommend accelerating payment because that will take away cash flow that you could use for longer-term savings programs.
If your student loan interest rates are higher than 6 percent, you have two approaches. First, you could potentially refinance the loans. There are banks that offer highly competitive student loan refinancing specifically for dental specialists.
If you’re not a candidate for refinancing, you can use a debt “laddering” approach, where you rank your loans from the highest interest rate down to the most affordable. See if you have cash flow to allocate a little bit more to debt repayment than you would under “ordinary circumstances.” Start paying off the most expensive loans, and work your way down until you get to the 6 percent category. Stay on course and see if you can pay off your remaining debt within a 10- to 15-year time frame.
Debt repayment should be balanced with adequate means to live comfortably today, while setting aside what is possible to provide for future goals.
Help! I can’t start a business without borrowing money.
You are not alone. Your line of work is capital intensive, and many dentists and specialists look to lenders for startup capital to either purchase an existing practice or to build one from the ground up.
If you’re looking for a business loan, do your homework and shop around. Though most banks are highly competitive, it’s important to compare offers.
Especially if you’re buying a practice, it’s smart to hire a professional firm to conduct a valuation. You want to make sure you are obtaining it at a fair price. Don’t overleverage yourself in the business by borrowing more than you should to buy something that’s not going to produce as much as you need. Hire an experienced accountant who can advise you as you evaluate the practice’s financials.
Even “good debt” needs a tactical plan.
We often refer to student loans, business loans and even mortgages as “good debt.” After all, you may need a student loan to get an education, a business loan to start your career and a mortgage to have a roof over your head.
The key to managing all of this debt is to be an educated consumer. Be curious, ask questions and don’t feel badly about shopping around. This is your hard-earned money, after all.
More importantly, don’t focus all your cash flow on debt repayment. As a high-earning professional, you should have sufficient cash flow to both service your debt and to set aside enough for retirement and other future goals.
~Joshua C. Miller, Wealth Advisor, District 5 Trustee, Treloar & Heisel
Investment Advice offered through WCG Wealth Advisors, LLC a Registered Investment Advisor doing business as Treloar & Heisel Wealth Management. Treloar & Heisel Wealth Management is a separate entity from The Wealth Consulting Group and WCG Wealth Advisors, LLC. TH-180009
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