Good idea to pay off all debt in 1-2 years?

[LargeDocGuy2]

I will be in around 100k debt once I graduate. this will balloon to around 130k after 4 years of residency. Now, say I am making 200k after residency (135k take-home after taxes), is it smart to pay it all off in 2 years or is it better to do a 30 year payment plan and hope that the inflation growth will outweigh all the added interest?

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[rfvbnmju]

$200k after residency?

I thought most residents only make ~$50k..It's basically the time where you're making less than minimum wage..

 

[link2swim06]

Depends on your interest rate. If it is high then paying it off early will be a better move.

Your personal situation will also dictate a lot.If you are supporting a family you might need more money to live on and not be able to pay it off as fast.

Also, remember you will want to save money for other things when you become an attending (i.e. emergency fund, down payment on a house, etc).

 

[mvenus929]

In *general*, it's better to pay off debts earlier, because there's no benefit to keeping them as long as possible. Besides, once you pay them off, you can actually do something with the income that had been tied up making payments.

However, you may have circumstances after residency that prevent you from paying them off that quickly. Depends on your situation in life and priorities.

 

[Winged Scapula]

$200k after residency?

I thought most residents only make ~$50k..It's basically the time where you're making less than minimum wage..

The OP is suggesting that once he/she is done with residency he will be making approximately $200K/year, not DURING residency.

As above, it depends on your circumstances. I have a very low interest rate (< 3%) so it behooves me to take my sweet time to pay off. YMMV.

 

[IJL]

The OP is suggesting that once he/she is done with residency he will be making approximately $200K/year, not DURING residency.

As above, it depends on your circumstances. I have a very low interest rate (< 3%) so it behooves me to take my sweet time to pay off. YMMV.

How exactly did you go about getting <3% and will that be available to me in a year or so?

 

[CuttingCorneas]

How exactly did you go about getting <3% and will that be available to me in a year or so?

Private loans, son. Just make sure you have dat collateral.

 

[tco]

How exactly did you go about getting <3% and will that be available to me in a year or so?

She's a surgical attending that went through fellowship. It's been at least a decade since she entered medical school... It's a completely different world now with loans.

 

[Textbookversion]

I will be in around 100k debt once I graduate. this will balloon to around 130k after 4 years of residency. Now, say I am making 200k after residency (135k take-home after taxes), is it smart to pay it all off in 2 years or is it better to do a 30 year payment plan and hope that the inflation growth will outweigh all the added interest?

Paying off loans is like making an investment with a guaranteed return equal to your interest rate. So yeah, usually it's an excellent idea to put as much money towards paying off debt as you can. Inflation growth doesn't matter, what matters is another investment opportunity with a greater return. However, investing on the margin with personal funds seems reckless to me.

 

[IJL]

She's a surgical attending that went through fellowship. It's been at least a decade since she entered medical school... It's a completely different world now with loans.

That's what I assumed. Do people still consolidate? Is there any way at this time to get under 5%?

 

[CuttingCorneas]

That's what I assumed. Do people still consolidate? Is there any way at this time to get under 5%?

Fixed rate, very doubtful. Variable interest rate, ~3.5%. Like I said, private loans--if you have collateral and the means to pay them off in a timely manner.

 

[JustMeditate]

Wait...wait...wait....

You're only going to have 130k in loans?

I mean, I go to my state school, and the tuition is only 30k/year. But even then, on top of that, I have to take out ~20k/year in living expenses loans, at high federal direct interest rates (fixed). I've been aiming to leave med school with under 250k of debt, but should I be aiming for something lower? How is it even possible to have only 130k in debt? Is there some secret I am missing out on...

 

[Winged Scapula]

She's a surgical attending that went through fellowship. It's been at least a decade since she entered medical school... It's a completely different world now with loans.

Yep it's actually been closer to 20 years since I started medical school. I presume things are different now in terms of consolidation and interest rates.

 

[link2swim06]

Yep it's actually been closer to 20 years since I started medical school. I presume things are different now in terms of consolidation and interest rates.

Consolidation doesn't real exist how it did for you. We are basically locked in at ~7% for the life of the loan.

 

[yehhhboiii]

Yep it's actually been closer to 20 years since I started medical school. I presume things are different now in terms of consolidation and interest rates.

thought you went to australian medical school

 

[LargeDocGuy2]

Wait...wait...wait....

You're only going to have 130k in loans?

I mean, I go to my state school, and the tuition is only 30k/year. But even then, on top of that, I have to take out ~20k/year in living expenses loans, at high federal direct interest rates (fixed). I've been aiming to leave med school with under 250k of debt, but should I be aiming for something lower? How is it even possible to have only 130k in debt? Is there some secret I am missing out on...

generous parents

 

[thefritz]

How is it even possible to have only 130k in debt? Is there some secret I am missing out on...

Lots of things.
First it's possible to borrow everything and come out with that debt depending on where you go and where you live:
1. state school with need based grants. My school is 28k/year if you are in-state and you qualify for full need status (basically as long as your parents aren't doctors you get it). That's $112k total tuition and living expenses is do-able at 5k/year. Other schools are even cheaper than this.
2nd, it's possible to not have to borrow for everything if...
2. You get a little help from mom and dad
3. Your spouse works
4. You work (yes, this goes on. I have seen everything from nurses to pharmacists to test prep instructors to professional ebayers make a decent part-time living in med school)
5. You have savings coming into med school and spend some or all of it on tuition and expenses.
6. You have a partial tuition merit scholarship
7. You have an outside scholarship

I am sure there are other examples I am not thinking of. Point is don't get too bent out of shape because other people aren't borrowing full COA. Yes, a lot of people have to borrow full COA, but a lot of people don't and have more unique situations. There are some people who would consider borrowing full COA not worth it or too risky and find alternate means of funding medical school or else just not go because they can't/won't afford it.

 

[Winged Scapula]

thought you went to australian medical school

I did.

What does that have to do with the topic?

 

[lovemango]

Wait...wait...wait....

You're only going to have 130k in loans?

I mean, I go to my state school, and the tuition is only 30k/year. But even then, on top of that, I have to take out ~20k/year in living expenses loans, at high federal direct interest rates (fixed). I've been aiming to leave med school with under 250k of debt, but should I be aiming for something lower? How is it even possible to have only 130k in debt? Is there some secret I am missing out on...

It's also possible if you're in Texas Most of the Texas public med schools average about $16-17k for tuition, so COA ends up being about $35-40k per year.

 

[BlueCode]

It's also possible if you're in Texas Most of the Texas public med schools average about $16-17k for tuition, so COA ends up being about $35-40k per year.

Truth. Texas resident here, tuition is ~15k/year at my school. With living expenses I budgeted to use roughly 38k a year depending on how responsible I am with my free time.

 

[yehhhboiii]

I did.

What does that have to do with the topic?

because it was 20 years ago in a different country where the political climate is different, interest rates are different and the currency is different
i don't see how it's applicable especially since with the new law, graduate loans will be 3.6% at the very minimum
the funniest thing is how news articles are harping about how interest rates went down when they actually went up for undergrads and will go up for us in a few years (if it even takes that long)
1984 is such a prescient book

 

[Winged Scapula]

because it was 20 years ago in a different country where the political climate is different, interest rates are different and the currency is different
i don't see how it's applicable especially since with the new law, graduate loans will be 3.6% at the very minimum
the funniest thing is how news articles are harping about how interest rates went down when they actually went up for undergrads and will go up for us in a few years (if it even takes that long)
1984 is such a prescient book

Of course all that is true. If you reread my original post I said that it may not be applicable to the current users problem. My loans were still US government loans so the country is irrelevant, which is why I asked. I also only consolidated a few years ago to get that low rate.

Furthermore, my point was that paying off your loans if you have a high interest rate is a good idea but if the interest rate is low, even 3.6%, it may be better to pay slowly and invest elsewhere. I was in no way implying that the OP would be able to do what I did or get the same interest rate.

 

[Staradmiral]

Wait I don't understand, Why would your loan increase from 100 -> 130 during residency? Shouldn't you starting paying it off during residency and have like 50k left to pay when your done.

As long as you don't live lavishly you should be able to through 15k of your 50k/year towards your loan.

 

[Winged Scapula]

Wait I don't understand, Why would your loan increase from 100 -> 130 during residency? Shouldn't you starting paying it off during residency and have like 50k left to pay when your done.

As long as you don't live lavishly you should be able to through 15k of your 50k/year towards your loan.

That's $50,000 gross not net. While it's not a bad idea to pay off loans early if you can, in many places where the cost of living is very high, a resident is not going to be able to get by on $20k per year (50-15-taxes-insurance etc).

 

[yehhhboiii]

Wait I don't understand, Why would your loan increase from 100 -> 130 during residency? Shouldn't you starting paying it off during residency and have like 50k left to pay when your done.

As long as you don't live lavishly you should be able to through 15k of your 50k/year towards your loan.

taxes
mortgage/rent
utilities
car payments + gas (and any other upkeep)
food
children
miscellaneous expenses
emergency money
money to pay for exams that residents take

how far do you think a 50k salary goes? these are just the essentials

 

[Staradmiral]

taxes
mortgage/rent
utilities
car payments + gas (and any other upkeep)
food
children
miscellaneous expenses
emergency money
money to pay for exams that residents take

how far do you think a 50k salary goes? these are just the essentials

well yeah if you have children then I can understand. My comments were more for a single male/female. Nonetheless one should continue to make their minimum monthly payment on the loan. It should never increase during residency.

 

[Buttermellow]

What about Public Service Loan Forgiveness? I know it's not guaranteed (they could get rid of the program anytime between when we graduate and have worked 10 years in public service). But in that case, it would be more beneficial to pay off your loans very slowly, right?

 

[mehc012]

taxes
mortgage/rent
utilities
car payments + gas (and any other upkeep)
food
children
miscellaneous expenses
emergency money
money to pay for exams that residents take

how far do you think a 50k salary goes? these are just the essentials

Yeah, having lived in a low-20k-with-child household growing up, it's certainly doable, if not exactly ideal. You pretty much have to cut out car payments (a new car is not essential) and emergency money(it's a good idea, but also not essential), and your grocery trips are planned. The food isn't quite as good, either.

I don't think the issue here is the impossibility of doing this - a single resident can and could live just fine on, say 25k...it's that generally, no matter how much you make, your lifestyle expands to fit your paycheck. Partly that's because living on a budget is hard work, and the other part seems to be some sort of voodoo magic like the fact that living in an apartment with lots of storage space will magically increase your belongings to fill all the possible space.

 

[yehhhboiii]

a new car will probably end up costing less than a used car since you end up taking it to get fixed all the time and aint nobody got time fo dat
unless you're looking for a bmw or benz

 

[mehc012]

a new car will probably end up costing less than a used car since you end up taking it to get fixed all the time and aint nobody got time fo dat
unless you're looking for a bmw or benz

You clearly have no idea what you're talking about. If that's what you want to tell yourself to rationalize that new car you're eyeing, go for it...but that doesn't make it true. New cars break down too, but the parts cost more and you still have your payments. If you're smart about used car shopping, you can end up with a great car that breaks down infrequently and costs you less than 3k. Don't even try to tell me that that doesn't save money...and also is better for the environment. Also don't forget about the cost of full insurance vs only liability.

 

[yehhhboiii]

lol wat

 

[tco]

If you aren't an attending, buying a cheap but reliable car with liability is the way to go. Don't buy a new one...I probably won't buy a new one even when I am an attending...

 

[mehc012]

If you aren't an attending, buying a cheap but reliable car with liability is the way to go. Don't buy a new one...I probably won't buy a new one even when I am an attending...

Personally, I can't see myself buying a brand-new car ever (though if I'm ever debt-free, who knows, maybe I'll miss the feeling ) At some point, though, I will probably graduate myself from $1-2k used cars to $5-7k used cars. I don't understand the point of buying something that loses thousands of dollars worth of value as soon as you drive it off the lot, when you can just buy one a few years old and not spend those lost thousands in the first place! Plus, it really bothers me to get rid of a perfectly functional car and relegate it to the dump or something. Yeah, sure, maybe a newer one will have slightly better gas mileage, but once you factor in the energy costs of manufacturing the new car (not to mention the cost of all of those fluids and materials seeping into the environment), I feel like used cars are better both for my wallet and otherwise.

At any rate, the point was that a new car is hardly a necessity and choosing to buy used during residency could help you have more money left over to tackle your debt.

 

[mvenus929]

What about Public Service Loan Forgiveness? I know it's not guaranteed (they could get rid of the program anytime between when we graduate and have worked 10 years in public service). But in that case, it would be more beneficial to pay off your loans very slowly, right?

The whole not knowing whether it's going to be there in 10 years is a rather important point. Plus, not everyone will qualify for it, even if they work at a non-profit hospital. And, you have to pay taxes on the amount you discharge, which isn't such a big deal if it's a couple thousand, but if you're still up over 100K, that's a rather significant chunk of change you have to fork over that year.

 

[Buttermellow]

The whole not knowing whether it's going to be there in 10 years is a rather important point. Plus, not everyone will qualify for it, even if they work at a non-profit hospital. And, you have to pay taxes on the amount you discharge, which isn't such a big deal if it's a couple thousand, but if you're still up over 100K, that's a rather significant chunk of change you have to fork over that year.

Isn't paying the tax worth having the debt discharged, even if it is over 100K? Well, especially if it's over 100K. And yeah, the whole uncertainty in the program scares me.

 

[colbgw02]

Isn't paying the tax worth having the debt discharged, even if it is over 100K? Well, especially if it's over 100K. And yeah, the whole uncertainty in the program scares me.

Sure. It just requires some planning because you're paying taxes on money that never actually entered your bank account. If the discharge is large enough, then it could take a couple of years to save money for the tax bill to avoid dipping into retirement accounts or an emergency fund.

There's that, plus it decreases the attractiveness of the deal proportional to the tax rate on the debt.

 

[SouthernSurgeon]

What does that have to do with the topic?

I think they are calling you OLD

 

[circulus vitios]

What about Public Service Loan Forgiveness? I know it's not guaranteed (they could get rid of the program anytime between when we graduate and have worked 10 years in public service). But in that case, it would be more beneficial to pay off your loans very slowly, right?

It depends on what Congress is going to do with the tax bomb. As it stands, the amount forgiven will be treated as taxable income e.g. if you still owed $200k after 10 years of PSLF, you would have to pay taxes on that $200k for the year on which it was forgiven. Depending on your tax bracket, it's anywhere from 33-40%. I remember hearing that a few Congressmen/women were working on removing the tax bomb, but who knows how that will play out.

 

[Iampanic]

Yeah, having lived in a low-20k-with-child household growing up, it's certainly doable, if not exactly ideal. You pretty much have to cut out car payments (a new car is not essential) and emergency money(it's a good idea, but also not essential), and your grocery trips are planned. The food isn't quite as good, either.

I don't think the issue here is the impossibility of doing this - a single resident can and could live just fine on, say 25k...it's that generally, no matter how much you make, your lifestyle expands to fit your paycheck. Partly that's because living on a budget is hard work, and the other part seems to be some sort of voodoo magic like the fact that living in an apartment with lots of storage space will magically increase your belongings to fill all the possible space.

I'm an M1 now and living on a budget of approximately $1500.00 a month. I agree that you don't need to get a new car and even if I increase my budget by 20% during residence, I should be able to pay at least $1000.00 a month for my loan. Of course , I'm not planing to have a family during my residence.
I have also heard that you can do some moonlighting during residency. I don't know at what extend this is possible, but if I could make at least $500.00 dollars a month I will use this also to pay for my loan.

 

[DoctorDermis]

I'm an M1 now and living on a budget of approximately $1500.00 a month. I agree that you don't need to get a new car and even if I increase my budget by 20% during residence, I should be able to pay at least $1000.00 a month for my loan. Of course , I'm not planing to have a family during my residence.
I have also heard that you can do some moonlighting during residency. I don't know at what extend this is possible, but if I could make at least $500.00 dollars a month I will use this also to pay for my loan.

During my residency application process, none of the programs that I interviewed at openly allowed moonlighting, and most of them specifically forbade moonlighting. ( i wonder if i even used forbade correctly lol... )

Moonlighting privileges vary widely amongst programs, and more time-demanding specialties are much less likely to allow it since moonlighting is supposed to count towards your resident-work hours. However...there are some programs that still violate work hours on a regular basis and under-report...so the only way for you to know is by contacting the programs or residents of programs that you are interested in.

VI.G.1: Maximum Hours of Work Per Week
“Duty hours must be limited to 80 hours per week, averaged over a four-week period,
inclusive of all in-house call activities and all moonlighting.”

 

[Winged Scapula]

I think they are calling you OLD

:crying:

Interestingly enough, I always said I would never do just a beach vacation where I'm just laying around and relaxing until I'm old

I'm leaving for Bora-Bora in a month. LOL.

 

[Iampanic]

During my residency application process, none of the programs that I interviewed at openly allowed moonlighting, and most of them specifically forbade moonlighting. ( i wonder if i even used forbade correctly lol... )

Moonlighting privileges vary widely amongst programs, and more time-demanding specialties are much less likely to allow it since moonlighting is supposed to count towards your resident-work hours. However...there are some programs that still violate work hours on a regular basis and under-report...so the only way for you to know is by contacting the programs or residents of programs that you are interested in.

VI.G.1: Maximum Hours of Work Per Week
“Duty hours must be limited to 80 hours per week, averaged over a four-week period,
inclusive of all in-house call activities and all moonlighting.”

Yes, It is only wishful thinking. If I could, it will be good. I'm only hopping I could do it a few hours a week.