Has Anybody Successfully Paid Off their Loans Early?

[UnderwaterDoc]

As 3rd year of residency approaches (and hopefully lots of moonlighting), it has gotten me thinking about loan repayment and what my approach is going to be once I am an attending, as well as some questions about it.

I am hoping to be able to live with minimal monthly expenses by not splurging on anything early on and because of a prior apt that I owned before medschool/residency. Here is how I think things will break down.

Net income = 220K(gross) - 45%(taxes) = 121K(yearly) = 10K(monthly)*
Monthly expenses = I will over-estimate it at 2K even (I own a very cheap car/have no kids) = 8K left every month for loan payments
Moonlighting = I plan on doing around 4 shifts/month = ~1K/shift = ~4K/month which I plan on putting all into my loans

*I don't plan on putting anything away towards retirement in my first two years out of residency.

If my breakdown is correct and barring any unforeseen circumstances I will be able to put ~12K every month into my loans, which would mean that I would be paid off in about 18 months (right now I owe about 220K). What do you guys/gals think? anything I did not think of? has any attending here been successful in paying off their loans significantly earlier?

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[la gringa]

you underestimate expenses:
- disability insurance
- need a rainy day fund/regular savings (TRUST ME as someone who had a catastrophic event)
- you WILL need a vacation

as far as retirement - it actually won't cost you much to put $$ towards retirement if you have a [pre-tax 401k and it will reduce your taxable income. contribute something, if not the max (it's about $17k/yr). it will pay off big time in the end.

 

[dchristismi]

You really should consider the tax advantages retirement accounts provide. Dump as much as you can in there. Compounding interest is your friend, and you, like all of us, and 10 years behind the rest of our age group. Maximize this, and your taxes drop. Trust me, just do it. (I'm maxxing both the 17K 401K and a 457 plan... you do not have time to play catch up down the road.)

How high are your interest rates? Take this into consideration. Mine, because I was lucky, are locked in lower than inflation, so it's better for me to pay off mortgages, etc.

Also totally agree about the emergency fund. That, and you never know what might happen. My disability insurance is pretty cheap, but you never know. In our field, that should never be far from your mind.

Ultimately, I could have paid off my med school loans in about 5 years. Unfortunately, that's what my divorce cost me. (Lawyer fees + 4 years of alimony were, well, about the cost of a state-school education.) I just now, 5 years out, broke the 100K mark. I figure I'll pay a little extra every month, but again, the rate is ridiculously low.

Oh, and it's REALLY hard not to spend a little here or there. And by a "little," I mean 2K to Hawaii, or 2K for new furniture, or whatever. There's a thread on here about finances... I can't remember the title, but it was a really good breakdown of what it costs to live and how many of us do it.

 

[Birdstrike]

...has any attending here been successful in paying off their loans significantly earlier?

The answer to this question is a simple, "No."

 

[Xerxes1729]

My loans are at 6.8%, which I imagine a lot of other current residents' are as well. This is higher than inflation and most mortgages, so to me it makes since to pay of my loans as quickly as possible. Also, it's high-risk debt to me, in the sense that it can only be discharged by dying, and there's no asset associated with it like a house or car that could be sold, even at a loss, to cover some of the debt.

 

[UnderwaterDoc]

you underestimate expenses:
- disability insurance
- need a rainy day fund/regular savings (TRUST ME as someone who had a catastrophic event)
- you WILL need a vacation

as far as retirement - it actually won't cost you much to put $$ towards retirement if you have a [pre-tax 401k and it will reduce your taxable income. contribute something, if not the max (it's about $17k/yr). it will pay off big time in the end.

I think I actually overestimated them. I counted 2K/month just for myself, which is going to be more than enough to cover disability/utilities/insurance costs/property taxes/gas/food/random dinners out/ etc.

As far as the rainy day fund, I am counting on my apartment's market value for that. Right now it is valued at around 100K, and completely paid off, so I could always take out a loan against the apartment in a true emergency.

100% agree about the vacations, however there are vacations and there are vacations. 2K/year to go somewhere exotic is factored into my calculations. I will not be vacationing more than once/year until the loans are gone.

As was said above, putting away towards retirement makes little sense to me when my student loans are accruing at a rate of 6.8, and capitalizing every year. No retirement plan that I am comfortable with will give me a ROI higher than what it will cost me to keep slugging along with my loans year after year.

 

[Janders]

You do understand the tax implications of contributing, say, 17k to a retirement fund, and thus avoiding all taxes (you estimate 45%... ) on that money, right?

Lets just pretend by putting 17k into your 401k, you get no match. But you save $5k in taxes. You also get to use 17k of tax advantaged space you'll never have again. $5k for 17k is a NICE ROI, and better than paying off your 6.9% loans.

Anyway, trust the people WAY smarter than me, who will basically ALWAYS say:
(1) Have enough rainy day money to get through a couple months, available as cash
(2) Pay off any stupid credit cards or truly HIGH interest loans (15%)
(3) MAXIMIZE any tax advantaged retirement space you have (i.e. 401k, especially if any matching)
(4) NOW use all the rest to pay off your loans

I do very much commend your drive to get rid of those loans. By living frugally and getting the yoke of loans off your back, you'll end up ahead. I just bet it will be worth your while to put a touch in retirement in the meantime...

 

[The White Coat Investor]

45% is an awfully high estimate.

 

[Deuce Doc]

You do understand the tax implications of contributing, say, 17k to a retirement fund, and thus avoiding all taxes (you estimate 45%... ) on that money, right?

Lets just pretend by putting 17k into your 401k, you get no match. But you save $5k in taxes. You also get to use 17k of tax advantaged space you'll never have again. $5k for 17k is a NICE ROI, and better than paying off your 6.9% loans...

Exactly this.

As a responsible saver it feels good to get the student loan monkey off your back, but the habit of maximizing tax sheltered retirement accounts is one you are unlikely to regret. Every year you don't put that 17.5 K in is a missed opportunity.

 

[deleted6669]

one of my attendings paid off all of his undergrad + medschool loans in 2 years.
he lived like a resident for those years. same crappy apt, same 10 yr old toyota, no new luxury anything. now he takes nice vacations and goes on surfing sabbaticals every few years for a few months where he gets free room and board at a surf resort in exchange for being the camp doc.
he works for a lg hmo and they cover all of his job related expenses/retirement/disability/malpractice/etc

 

[The White Coat Investor]

Exactly this.

As a responsible saver it feels good to get the student loan monkey off your back, but the habit of maximizing tax sheltered retirement accounts is one you are unlikely to regret. Every year you don't put that 17.5 K in is a missed opportunity.

And if you're lucky, that limit will be $51K, not $17.5K. Plus $10K into Roths. Plus possibly a defined benefit plan. But at a certain point, the guaranteed investment of paying down a 7% student loan is pretty attractive, even if you're giving up a tax break for it.

Keep in mind also that putting $17.5K into the 401K doesn't save you taxes, it just defers them. The savings comes in when you withdraw it in retirement at a lower effective tax rate. So if you're saving taxes at 45%, then paying them later at 20%, there's definitely a savings, but it isn't $5K, it's less.

I paid off my "loans" in 46.5 months. That was early I guess, since I owed the military 48 months. (I saved up 6 weeks of leave over those 4 years)

 

[survivordo]

To the OP, I feel like you might like the website mrmoneymustache.com if you haven't stumbled across it already. It is one of my favorite reads.

Survivor DO

 

[Deuce Doc]

And if you're lucky, that limit will be $51K, not $17.5K.

Good point. That's why you write the blog and I read it.

...Stupid 403b...mutter, mutter.

 

[Taxguy]

I think I actually overestimated them. I counted 2K/month just for myself, which is going to be more than enough to cover disability/utilities/insurance costs/property taxes/gas/food/random dinners out/ etc.

As far as the rainy day fund, I am counting on my apartment's market value for that. Right now it is valued at around 100K, and completely paid off, so I could always take out a loan against the apartment in a true emergency.

100% agree about the vacations, however there are vacations and there are vacations. 2K/year to go somewhere exotic is factored into my calculations. I will not be vacationing more than once/year until the loans are gone.

As was said above, putting away towards retirement makes little sense to me when my student loans are accruing at a rate of 6.8, and capitalizing every year. No retirement plan that I am comfortable with will give me a ROI higher than what it will cost me to keep slugging along with my loans year after year.

Look for a home equity line of credit. You can access it with a check when you need it. Look in your local papers for a deal and they usually do not cost that much to put in place.

 

[Textbookversion]

As 3rd year of residency approaches (and hopefully lots of moonlighting), it has gotten me thinking about loan repayment and what my approach is going to be once I am an attending, as well as some questions about it.

I am hoping to be able to live with minimal monthly expenses by not splurging on anything early on and because of a prior apt that I owned before medschool/residency. Here is how I think things will break down.

Net income = 220K(gross) - 45%(taxes) = 121K(yearly) = 10K(monthly)*
Monthly expenses = I will over-estimate it at 2K even (I own a very cheap car/have no kids) = 8K left every month for loan payments
Moonlighting = I plan on doing around 4 shifts/month = ~1K/shift = ~4K/month which I plan on putting all into my loans

*I don't plan on putting anything away towards retirement in my first two years out of residency.

If my breakdown is correct and barring any unforeseen circumstances I will be able to put ~12K every month into my loans, which would mean that I would be paid off in about 18 months (right now I owe about 220K). What do you guys/gals think? anything I did not think of? has any attending here been successful in paying off their loans significantly earlier?

You are way overestimating your tax burden. You need to look up how progressive taxes work. Google a tax calculator there are a gazillion of them, that will give you a better idea of your realistic tax liability. Also keep in mind the gross income you owe taxes on is after you take all your deductions which should be a lot of things if you do it right.

 

[link2swim06]

You are way overestimating your tax burden. You need to look up how progressive taxes work. Google a tax calculator there are a gazillion of them, that will give you a better idea of your realistic tax liability. Also keep in mind the gross income you owe taxes on is after you take all your deductions which should be a lot of things if you do it right.

It's amazing how many smart people have no clue to how income taxes works in the US. I have this conversation nearly once a month.

 

[Groove]

A lot of good advice here. I would recommend finding a financial advisor and discussing your financial goals and getting some assistance in developing the best strategy. I'm graduating this year but most of my loans are in the 6.9% range also. My loans are so large that the interest alone is staggering, and I think that residents graduating these days are forced to adopt a more aggressive payback strategy compared to pre 2005 when the interest rates were much lower. It will also depend on whether you are W2 or 1099. I'm 1099 and my CPA and lawyer are incorporating me for a variety of reasons that should allow me at least a few advantages. My financial advisor and CPA brought it up and I really didn't know that much about it at the time and am still learning.

Everybody has different goals. For myself, I'm in debt out the wazoo, went through a divorce during residency which cost me a nice chunk that I'll be continuing to pay off, and am graduating several years ahead of my peers and in need of accelerating investment retiring. It's incredibly tempting to just say... Fine, I'll work 20 shifts a month and live in a 500 square foot apt eating ramen noodles and have this all taken care of in 3 years. Don't give in to that. You're going to come out of residency having endured an awful lot of education and arduous training. Improve your standard of living, but not enough to grow accustomed to "high roller" living or else you'll never curb your spending and be able to reign in your debt. I'm leasing a house that's a bit on the big side for me, but whatever. Bought a new car, but it's no benz, and under $25K. I plan on aggressively investing and paying down my loans, but balancing work also and enjoying some vacations and spending time with friends and family. Enjoy your life and try not to let this debt load ruin your happiness. You'll get it paid off in time. I'm hoping to have mine paid off in under 10 years with a moderately aggressive investment strategy while enjoying a standard of living that is comfortable, makes me happy, but isn't excessive.

Also, as others have said, you can write off all types of stuff with 1099. If you can moonlight, I'd recommend moonlighting during residency, even if you end up being a hospital employee simply because you can write off so many expenses on your 1099 taxable income. I wrote of thousands this past year... It makes a big difference. Good luck. Either way though, you can't go wrong in finding a good financial advisor and getting their input. You have nothing to lose. Good luck.

 

[deleted206819]

Joseph Wood and Larry Weiss on the AAEM podcast episode 2 warn about EPs and 1099 status and how the IRS is starting to crack down as EPs don't necessarily meet the criteria as independent contractors.

http://www.aaem.org/publications/podcasts

 

[John Lannister]

It's amazing how many smart people have no clue to how income taxes works in the US. I have this conversation nearly once a month.

What do you expect? People who have never paid significant taxes probably won't know much.

Humans tend to learn things when they are of use.

 

[UnderwaterDoc]

This is exactly why I posted here because I knew I would get great advice. Thanks to all for your responses. Couple of thoughts.

-As activeduty said, you are not really avoiding taxes by maxing out pre-tax accounts, you are postponing payment and then paying out at a lower tax rate, when you sit down and actually crunch the numbers the advantage is not nearly as enticing, and to me the prospect of being debt free is much more attractive. No debt = freedom.

-As far as 1099 status, from my limited experience I don't think this will be advantageous to me in any way, My last tax year I made almost 10K from a freelancing gig that was paid out to me as a 1099 and I ended up shelling out almost 4K in taxes at the end of the year. I simply don't have significant deductions because I am not married and I have no dependents. Keep in mind that I am a PGY 2 resident in NY (high taxes) making 48K/year and I paid over 3K in loan interest last year alone (all of which I deducted). I maxed out all my possible deductions and it ended up being a drop in the bucket. I had long discussions with my CPA, who is also a tax attorney, and there were no other options available to me as far as I was told. I shudder to think how much I will be shelling out to uncle sam once I'm raking in the dough if I'm paid as a 1099. I plan on moonlighting my butt off during third year and I will make sure that I am not paid as a 1099 because tax day was no fun this year.

-to those saying that I overestimated my tax burden, I don't think I was that far off. Right now, as a PGY 2, I am shelling out nearly 33% every paycheck in taxes, I think we can assume that percentage rate will be significantly higher once I'm on a higher tax bracket. I've also had discussions with attendings that work in the same area (I plan to work in FL) and I was told that is roughly what they pay. I know our attendings here in NY are right around the 40% tax rate, since I have seen their paychecks.

Regardless I will take all your suggestions to heart and reevaluate my plan after I've done some more reading about this.

 

[deleted109597]

If your attendings are paying 40%, they should move.
NYC does have some of the worst marginal tax rates in the nation. Guess that's your "penalty" for living in the city you want to.
I prefer my nice house and no state income tax and fantastic malpractice reform.

 

[UnderwaterDoc]

If your attendings are paying 40%, they should move.
NYC does have some of the worst marginal tax rates in the nation. Guess that's your "penalty" for living in the city you want to.
I prefer my nice house and no state income tax and fantastic malpractice reform.

If only, I'm in upstate NY. I'm hoping FL will be better since they, like TX, have no state income tax.

 

[dchristismi]

Yep, FL is nice in that regard. Have a group in mind? Hint hint.

I worked down into the 24% bracket this year... because I had a ton of deductions, mostly in charitable gifts and mortgage interest and socked a bunch away pretax. 45% is pretty high. I'll take my sovereign immunity and home an hour from the beach...

6+% loans are painful. My condolences.

 

[The White Coat Investor]

This is exactly why I posted here because I knew I would get great advice. Thanks to all for your responses. Couple of thoughts.

-As activeduty said, you are not really avoiding taxes by maxing out pre-tax accounts, you are postponing payment and then paying out at a lower tax rate, when you sit down and actually crunch the numbers the advantage is not nearly as enticing, and to me the prospect of being debt free is much more attractive. No debt = freedom.

-As far as 1099 status, from my limited experience I don't think this will be advantageous to me in any way, My last tax year I made almost 10K from a freelancing gig that was paid out to me as a 1099 and I ended up shelling out almost 4K in taxes at the end of the year. I simply don't have significant deductions because I am not married and I have no dependents. Keep in mind that I am a PGY 2 resident in NY (high taxes) making 48K/year and I paid over 3K in loan interest last year alone (all of which I deducted). I maxed out all my possible deductions and it ended up being a drop in the bucket. I had long discussions with my CPA, who is also a tax attorney, and there were no other options available to me as far as I was told. I shudder to think how much I will be shelling out to uncle sam once I'm raking in the dough if I'm paid as a 1099. I plan on moonlighting my butt off during third year and I will make sure that I am not paid as a 1099 because tax day was no fun this year.

-to those saying that I overestimated my tax burden, I don't think I was that far off. Right now, as a PGY 2, I am shelling out nearly 33% every paycheck in taxes, I think we can assume that percentage rate will be significantly higher once I'm on a higher tax bracket. I've also had discussions with attendings that work in the same area (I plan to work in FL) and I was told that is roughly what they pay. I know our attendings here in NY are right around the 40% tax rate, since I have seen their paychecks.

Regardless I will take all your suggestions to heart and reevaluate my plan after I've done some more reading about this.

As a single 1099 worker who hasn't maxed out his SS taxes it's pretty easy to have a very high marginal rate- 15.3% in payroll taxes plus say 25-28% in Federal plus another 5-10% in state.

Remember to calculate your effective rate as well as your marginal rate. Also keep in mind that taxes withheld does not equal taxes paid. Lots of people have way too much withheld (loaning the government money for a few months) but actually owe quite a bit less.

If you haven't seen this, it's worth taking a look:

http://whitecoatinvestor.com/10-reasons-why-i-pay-less-tax-than-mitt-romney/

 

[fahimaz7]

Ya, 6.9% hurts. Makes me want to move to Alaska for a few years to pay off the loans.

 

[FSU2013]

Yep, FL is nice in that regard. Have a group in mind? Hint hint. I'll take my sovereign immunity and home an hour from the beach...

Wait 3 years.....I'll be calling you.

6+% loans are painful. My condolences.

Agree. And thank you.

 

[NEATOMD]

It is possible. I just graduated residency last year. I paid my educational loans (and my wife's) off in about 8 months post graduation from residency (I was paying on them all through residency with moonlighting, etc). I hit them hard, but I feel better not having to ever worry about them. I still owe about 220k on my home at a 2.7% interest rate as well as 30k on my cars at 2% each (planning to pay this off in the next 3 months). I'm set to max my 401k and contributing to 529's for my 2 children. I'm starting some moonlighting work and will probably apply as much as possible to any other retirement account I can.

On top of all of this, we give heavily to charity (probably about 15%).

We don't live extravagantly. But, I live in a nice neighborhood and my wife and I drive cars that are 2 to 3 years old. Neither of us have expensive hobbies.

Earlier this month, we went on a nice vacation to Florida.

I don't kill myself on hours to do all of this. I work about 150 hours per month in an ED with about 70k volume (the work is a bit intense at times) and I project making about 320k per year. It probably helps that I chose to live in the midwest where the cost of living is low.

 

[UnderwaterDoc]

I don't kill myself on hours to do all of this. I work about 150 hours per month in an ED with about 70k volume (the work is a bit intense at times) and I project making about 320k per year. It probably helps that I chose to live in the midwest where the cost of living is low.

Unfortunately for me these salaries are out of the question, at least initially since I plan on working in south florida, and down there 220s seems to be the average, at least from what I've heard. I keep pestering my SO to come with me to TX to make a big fat paycheck for a year but she won't budge

 

[Apollyon]

It is possible. I just graduated residency last year. I paid my educational loans (and my wife's) off in about 8 months post graduation from residency (I was paying on them all through residency with moonlighting, etc). I hit them hard, but I feel better not having to ever worry about them. I still owe about 220k on my home at a 2.7% interest rate as well as 30k on my cars at 2% each (planning to pay this off in the next 3 months). I'm set to max my 401k and contributing to 529's for my 2 children. I'm starting some moonlighting work and will probably apply as much as possible to any other retirement account I can.

On top of all of this, we give heavily to charity (probably about 15%).

We don't live extravagantly. But, I live in a nice neighborhood and my wife and I drive cars that are 2 to 3 years old. Neither of us have expensive hobbies.

Earlier this month, we went on a nice vacation to Florida.

I don't kill myself on hours to do all of this. I work about 150 hours per month in an ED with about 70k volume (the work is a bit intense at times) and I project making about 320k per year. It probably helps that I chose to live in the midwest where the cost of living is low.

The answer to this question is a simple, "No."

With the dude having written the above, I wonder about your post - I mean, clearly, this guy has done it. As such, I don't think the answer is "simple".

I'm just sayin'.

 

[Snelgrave]

45% tax burden seems very high - even in NY state. Total federal tax burden on $220K with no dependents is about 29%. NY state income tax tops out at 6.85% on that.

It makes Illinois' rate of 5% seem almost reasonable.

 

[fahimaz7]

It is possible. I just graduated residency last year. I paid my educational loans (and my wife's) off in about 8 months post graduation from residency (I was paying on them all through residency with moonlighting, etc). I hit them hard, but I feel better not having to ever worry about them. I still owe about 220k on my home at a 2.7% interest rate as well as 30k on my cars at 2% each (planning to pay this off in the next 3 months). I'm set to max my 401k and contributing to 529's for my 2 children. I'm starting some moonlighting work and will probably apply as much as possible to any other retirement account I can.

On top of all of this, we give heavily to charity (probably about 15%).

We don't live extravagantly. But, I live in a nice neighborhood and my wife and I drive cars that are 2 to 3 years old. Neither of us have expensive hobbies.

Earlier this month, we went on a nice vacation to Florida.

I don't kill myself on hours to do all of this. I work about 150 hours per month in an ED with about 70k volume (the work is a bit intense at times) and I project making about 320k per year. It probably helps that I chose to live in the midwest where the cost of living is low.

Sounds like you had a lot less loans than the "average" medical student, who is sitting on about 200 when then get done with school. Either way, great job on making the sound decisions that resulted in you getting out from under that mounting debt.

 

[Perrotfish]

I feel like there's a weird psychology to paying down loans. On the one hand I know that the loans are accruing interest at about 7%, way more than I could ever hope to earn in any kind of investment, so the best financial move is to create an emergency fund and then to pour every spare dime into the debt and pay them off on a 5-10 year plan. On the other hand the idea of being in my mid to late thirties without a dime to my name bothers me so much I feel like I might end up putting some of that money into savings rather than into the loans just to feel like I'm not completely poverty stricken. I feel like having 100K of savings/assets and 150K of loans in my mid 30s is, somehow, less of a psychological burden than having nothing and no loans at the same age, even though that would clearly be the better financial decision.

 

[Mighty Mouse]

my 2 cents (as a dual EM couple with same group, same salary, cummulative $500,000 debt -- with mine being aggressively attacked my first 2 years out by moonlighting like a maniac while my then fiance/now wife was still a resident in a different state). i finished residency 2 years before my wife.

there's a difference between being in debt and having no means of paying it back, and being in debt and making a nice 6 figure salary (as established, total number depends on region, type of job, etc).

first rule: pay yourself first. doesn't mean spend like an idiot on ferraris and stuff. means pay your bills, build up your savings, max out retirement funds, and have a floor in your checking out that you refuse to go below. maximize your top of the line disability insurance. get life insurance if you have dependants.

second rule: don't allow yourself to focus so much on your loan paydown that you throw so much money each month at it that you end up cash poor and living paycheck to paycheck. you didn't go through all this stuff to do that.

my philosophy: this debt was an investment in yourself and your brain. it is allowing you the earning potential you have now. enjoy life. all of us can make our minimum payments without batting an eye or having it affecting our ability to do anything in life. anything else you throw at it is bonus. and you'll definitely have plenty to throw at it. but if you have more expenses one month and throw less, will it make a huge difference? i absolutely recognize that the longer you take to pay it off, the more money you spend in the long run. but don't stress or limit your life to appease the loan companies. most of us are in our late 20s or early 30s when we finally make a real paycheck. we have a lot of delayed earning relative to most other people. don't live like a pauper. don't live like a baller. live like a normal person, save wisely, payoff what you can when you can.

its good debt. doesn't screw with the credit score if you're on time. you'll pay it off in due time. i have 30 years to pay mine off and 10 years for my wife. i have a 5 year plan. but if it took all 30 years to pay mine off and turned a 265 grand debt into 470 grand of money over time, oh well. at least i took trips, lived life, got married, was charitable with my time and money, and didn't stress. as we all know with what we see -- it could all end in an instant anyway.

 

[NEATOMD]

Sounds like you had a lot less loans than the "average" medical student, who is sitting on about 200 when then get done with school. Either way, great job on making the sound decisions that resulted in you getting out from under that mounting debt.

That is true. All in all, I've overpaid my loans by 155k over the past 4 years since I graduated medical school. If my contributions to charity were more typical, I would have easily been able to throw an additional 45k towards them. I'm not sure that I would have paid anymore towards my remaining loans though because the theoretical advantages to paying off loans which are at interest rates lower than expected inflation just doesn't make much sense to me.

Overall, my net worth is around 100k right now, just 10 months out of residency.

 

[fahimaz7]

That is true. All in all, I've overpaid my loans by 155k over the past 4 years since I graduated medical school. If my contributions to charity were more typical, I would have easily been able to throw an additional 45k towards them. I'm not sure that I would have paid anymore towards my remaining loans though because the theoretical advantages to paying off loans which are at interest rates lower than expected inflation just doesn't make much sense to me.

Overall, my net worth is around 100k right now, just 10 months out of residency.

So you averaged 50k/year during PGY2, PGY3, and your first 8 months of being an attending? How much did you moonlight? What were you getting? Married? Tax exempt?

 

[NEATOMD]

So you averaged 50k/year during PGY2, PGY3, and your first 8 months of being an attending? How much did you moonlight? What were you getting? Married? Tax exempt?

Hmm. Well, probably paid ~15k/year in PGY1-2, 40k in PGY3. I paid an additional 85k or so residency. I worked on air EMS and did something we called special events whenever possible (probably between 2 to 4 shifts per month. My wife worked as a dietician but only worked part time and added about 30k to our finances each year. I was making ~50k/yr as a resident and added about 20k in PGY1-2. In PGY3 I did real moonlighting for 24-36 hours per month (put all of the moonlighting money into the loans) which added about 25k on top of what I had been putting in each year. I netted an extra 15k when I sold my home by having put some work into it... which I immediately put into loans. I got a 25k bonus (of which a healthy part of was eaten by taxes) which I immediately put into loans. Each year, I overpaid my taxes and put all of the money I got back straight into loan repayment (I didn't miss the money at all). I think I might have gotten a small amount of money when my grandfather died (1 or 2 thousand) that I put into loans. The rest was easy after I became an attending.

Several of my residency classmates got bonuses of 100k but are just as in dept as ever... One bought a new BMW and mercedes. Another bought a bunch of land for hunting. They figured they had earned those things and I can't disagree. However, I will say that while others bought fancy homes, I bought mine from a graduating resident. It is still nicer than any home I've ever lived in before. It's about perspective and setting expectations. I've spent a lot of time in other countries where they have far less than anyone I know in the US and are still happy. I lived well within my means as a resident and while I adjusted my lifestyle as an attending, I living like I don't planning on working until I'm 60 like several of the partners at the group I work for who seem miserable. If you happen to be someone that feels like you've got to keep up with the Jones' (or like someone who's been ought 10+ years) like many doc's then you ought to realize most of them are living in the red.

I wouldn't have thought it was doable either. But, after reading some books and with encouragement from people like ActiveDuty's blog it was easy. I'm still learning how to do all of this attending thing. I'm still trying to figure out "what next" since I'm in the habit of living my current lifestyle and will still have the same cashflow. I'll probably pay off my other loans (house and cars) ahead of times just to be debt free (and more financially secure as a results) but won't be as agressive as I have been since their interest rates are so low.

 

[John Lannister]

I feel like there's a weird psychology to paying down loans. On the one hand I know that the loans are accruing interest at about 7%, way more than I could ever hope to earn in any kind of investment, so the best financial move is to create an emergency fund and then to pour every spare dime into the debt and pay them off on a 5-10 year plan. On the other hand the idea of being in my mid to late thirties without a dime to my name bothers me so much I feel like I might end up putting some of that money into savings rather than into the loans just to feel like I'm not completely poverty stricken. I feel like having 100K of savings/assets and 150K of loans in my mid 30s is, somehow, less of a psychological burden than having nothing and no loans at the same age, even though that would clearly be the better financial decision.

This will help: Create a balance sheet. Subtract all your liabilities from your assets. Then focus on that single #. You can't focus all on liabilities or all on assets.

 

[NEATOMD]

By the way, I paid about 17% US taxes and 5% state taxes lat year. This is lower partly because of my charitable giving, but I wouldn't expect to pay anything near the 45% or so someone mentioned above.

 

[John Lannister]

Hmm. Well, probably paid ~15k/year in PGY1-2, 40k in PGY3. I paid an additional 85k or so residency. I worked on air EMS and did something we called special events whenever possible (probably between 2 to 4 shifts per month. My wife worked as a dietician but only worked part time and added about 30k to our finances each year. I was making ~50k/yr as a resident and added about 20k in PGY1-2. In PGY3 I did real moonlighting for 24-36 hours per month (put all of the moonlighting money into the loans) which added about 25k on top of what I had been putting in each year. I netted an extra 15k when I sold my home by having put some work into it... which I immediately put into loans. I got a 25k bonus (of which a healthy part of was eaten by taxes) which I immediately put into loans. Each year, I overpaid my taxes and put all of the money I got back straight into loan repayment (I didn't miss the money at all). I think I might have gotten a small amount of money when my grandfather died (1 or 2 thousand) that I put into loans. The rest was easy after I became an attending.

Several of my residency classmates got bonuses of 100k but are just as in dept as ever... One bought a new BMW and mercedes. Another bought a bunch of land for hunting. They figured they had earned those things and I can't disagree. However, I will say that while others bought fancy homes, I bought mine from a graduating resident. It is still nicer than any home I've ever lived in before. It's about perspective and setting expectations. I've spent a lot of time in other countries where they have far less than anyone I know in the US and are still happy. I lived well within my means as a resident and while I adjusted my lifestyle as an attending, I living like I don't planning on working until I'm 60 like several of the partners at the group I work for who seem miserable. If you happen to be someone that feels like you've got to keep up with the Jones' (or like someone who's been ought 10+ years) like many doc's then you ought to realize most of them are living in the red.

I wouldn't have thought it was doable either. But, after reading some books and with encouragement from people like ActiveDuty's blog it was easy. I'm still learning how to do all of this attending thing. I'm still trying to figure out "what next" since I'm in the habit of living my current lifestyle and will still have the same cashflow. I'll probably pay off my other loans (house and cars) ahead of times just to be debt free (and more financially secure as a results) but won't be as agressive as I have been since their interest rates are so low.

Is this normal? To be able to pull an extra 20-40k during PGY1,2,3?

What about the guy who said he made like 150k during PGY4? Sounds insane.

 

[FSU2013]

Hmm. Well, probably paid ~15k/year in PGY1-2, 40k in PGY3. I paid an additional 85k or so residency. I worked on air EMS and did something we called special events whenever possible (probably between 2 to 4 shifts per month. My wife worked as a dietician but only worked part time and added about 30k to our finances each year. I was making ~50k/yr as a resident and added about 20k in PGY1-2. In PGY3 I did real moonlighting for 24-36 hours per month (put all of the moonlighting money into the loans) which added about 25k on top of what I had been putting in each year. I netted an extra 15k when I sold my home by having put some work into it... which I immediately put into loans. I got a 25k bonus (of which a healthy part of was eaten by taxes) which I immediately put into loans. Each year, I overpaid my taxes and put all of the money I got back straight into loan repayment (I didn't miss the money at all). I think I might have gotten a small amount of money when my grandfather died (1 or 2 thousand) that I put into loans. The rest was easy after I became an attending.

Several of my residency classmates got bonuses of 100k but are just as in dept as ever... One bought a new BMW and mercedes. Another bought a bunch of land for hunting. They figured they had earned those things and I can't disagree. However, I will say that while others bought fancy homes, I bought mine from a graduating resident. It is still nicer than any home I've ever lived in before. It's about perspective and setting expectations. I've spent a lot of time in other countries where they have far less than anyone I know in the US and are still happy. I lived well within my means as a resident and while I adjusted my lifestyle as an attending, I living like I don't planning on working until I'm 60 like several of the partners at the group I work for who seem miserable. If you happen to be someone that feels like you've got to keep up with the Jones' (or like someone who's been ought 10+ years) like many doc's then you ought to realize most of them are living in the red.

I wouldn't have thought it was doable either. But, after reading some books and with encouragement from people like ActiveDuty's blog it was easy. I'm still learning how to do all of this attending thing. I'm still trying to figure out "what next" since I'm in the habit of living my current lifestyle and will still have the same cashflow. I'll probably pay off my other loans (house and cars) ahead of times just to be debt free (and more financially secure as a results) but won't be as agressive as I have been since their interest rates are so low.

You. Are. My. Hero.

 

[NEATOMD]

Is this normal? To be able to pull an extra 20-40k during PGY1,2,3?

What about the guy who said he made like 150k during PGY4? Sounds insane.

It would be harder with the newer/stricter work hour rules. I made about 1-2k per month though getting paid $25 (air EMS) or $35/hr (handing out ice at soccer tournaments) on 12 hour shifts. All of which went straight to my loans. Might have broken some work hour rules here and there, but only got caught once (actually, it was by the air EMS who refused to fly until I slept 4 more hours). It turns out our PD only seemed to pay attention if you weren't performing well or weren't getting your conference hours. Then, I found a job that paid $150/hr moonlighting. I got my butt kicked but it was probably the most beneficial thing I did in my 3rd year of residency as far as preparing me for being an attending. I made about 100k in my last year of residency due to moonlighting.

I also wouldn't expect most people to have the skills to be able to have made the money I did on my house when I sold it (I think most of my peers lost money on their houses or just broke even). But, everyone has their own skills and can turn them into extra cash flow.

Edit: I should also add, that about 50% of the money my wife made went to paying for child care. Another large portion of that money went to taxes. I wouldn't attribute the fact that I paid my loans off so quickly to her earnings.

 

[wobit]

It's possible. I retired my debt during R2, partially due to certain advantages coming in, but I also see clear differences between my spending habits and those of some of my peers which have made a huge impact.


I started with the advantage of having attended a state medical school, as a nontrad who had already worked off all my undergrad debt. So my loans were probably only 25% of my peers. And my nonmedical husband works. Our disadvantage is that I'm nearly a decade older than most of the rest of my class and we have kids. So I have additional expenses and a lot of pressure to max retirement accts, plus disability is more expensive and my rainy day fund needs to be bigger.

All of that is hard to control. But that said, even though my household net income is three times the average that of my resident peers (we send the kids to private school but my husband is a 6-figure earner) I live in a wee space and pay a rent most similar to the residents living alone. I drive one of the oldest cars. Many others take ski trips or other fun vacations. They all seem to eat out a lot. I don't buy brand-name toys or clothes for my kids. Is it coincidence or situational irony that I am the first to retire my debt? It would have been so easy to rent or buy a big house, hire a nanny, buy a lot of new toys and clothes and eat out and just kick all the debt down the road. The spending starts to feel very normal when everyone around me is doing it. Since my debt is smaller it's ok to just carry it, right? And for some people it is. Not for me. All in all, though I do grump about buying my kids' snowsuits on craigslist and not having weekends away, I feel good for having gotten through it, and in another year I'll feel really great because now we're starting to build a positive balance.

The balance of living lean but not miserable, against the amount of debt you feel comfortable with, is something that is different for everyone. We decided that we wanted to be super frugal and just bang it out. My particulars may be difficult to reproduce, except for the repeated advice that it's ok to live just a little tighter than everyone around you. It'll serve you well no matter what.

 

[ACLPCL]

This was an excellent thread. Would be great to hear about more people's experiences...

 

[Old_Mil]

Debt retired 2.5 years after residency ended living cheap and throwing everything at the student loans.

Sent from my Z10 using Tapatalk

 

[ballinsncbirth]

paid of my loans 1.7 years after residency
had 100k
how?
well first i practice in emergency medicine promised land aka texas
made around 30 k a month average , spent 6-10, saved 10-14, and put away 10 for taxes
didnt buy a new house or car, but lived pretty well though, rented high rise apartment for 2700 a month ,ate out pretty much everyday and went on a couple vacations,

didnt get married

after several months had a nice emergency fund 60 k ,
after 1 year had 100k, put in 25 for retirement (maxed as 1st year income included residency )

continued living after 1.7 years had 180 k saved up , had been making minimum payments 1k a month
wrote a check for 95 thousand dollars one day and poof no more loans,
paid of the remaining car balance and credit cards (5k total)
and now im debt free

sorry for the grammar on shift,

 

[EctopicFetus]

I honestly this depends on the individual. If you are single it is easy to live cheaply and feel less guilty. I would say though It would be better to enjoy your life a little and pay your debt off 3 months later. You will never get that time back. Your 3 friends will never take that trip again. YOu have to have a balance.

If you are married (and I am) I think the equation is different. Your spouse suffered, your kids will never be toddlers again. They will get older. For me I would rather be around and enjoy this time than be debt free 5 years sooner. I will never get that time back. I work hard but picking up an extra shift in lieu of a T ball game or a weekend out with my family isnt worth it.

I am in my mid 30s. I have 30 years to go. In 25 years my relationship with my kids will be different. Right now they live with me and I can enjoy being a father, wrestling buddy and sports coach. I dont want someone else teaching my kids how to ride a bike, shoot a basketball etc.

Everyone has their own priorities. I am fortunate in that my job pays well, my loans while massive are at a very low interest rate (80% of my debt is under 2% interest).

I would also say that you should put money in retirement and max it out. While WCI is correct in that it is tax deferred, keep in mind it comes off your top tax bracket I will assume 33%. When you pull out that 17.5k you will pay 10% tax.

These are individual choices but to me, with a good job and family I would feel better with 250k in the bank and 250k in loans than 0 in the bank and 0 loans.

That being said I have a family and might need to access those funds.

You only live life once and working in the ED you should appreciate that things can change in an instant.

 

[FutureInternist]

I honestly this depends on the individual. If you are single it is easy to live cheaply and feel less guilty. I would say though It would be better to enjoy your life a little and pay your debt off 3 months later. You will never get that time back. Your 3 friends will never take that trip again. YOu have to have a balance.

If you are married (and I am) I think the equation is different. Your spouse suffered, your kids will never be toddlers again. They will get older. For me I would rather be around and enjoy this time than be debt free 5 years sooner. I will never get that time back. I work hard but picking up an extra shift in lieu of a T ball game or a weekend out with my family isnt worth it.

I am in my mid 30s. I have 30 years to go. In 25 years my relationship with my kids will be different. Right now they live with me and I can enjoy being a father, wrestling buddy and sports coach. I dont want someone else teaching my kids how to ride a bike, shoot a basketball etc.

Everyone has their own priorities. I am fortunate in that my job pays well, my loans while massive are at a very low interest rate (80% of my debt is under 2% interest).

I would also say that you should put money in retirement and max it out. While WCI is correct in that it is tax deferred, keep in mind it comes off your top tax bracket I will assume 33%. When you pull out that 17.5k you will pay 10% tax.

These are individual choices but to me, with a good job and family I would feel better with 250k in the bank and 250k in loans than 0 in the bank and 0 loans.

That being said I have a family and might need to access those funds.

You only live life once and working in the ED you should appreciate that things can change in an instant.

Does the debt not transfer to the spouse if something were to happen to you??

 

[emergentmd]

A lot of good advice here. I would recommend finding a financial advisor and discussing your financial goals and getting some assistance in developing the best strategy. I'm graduating this year but most of my loans are in the 6.9% range also. My loans are so large that the interest alone is staggering, and I think that residents graduating these days are forced to adopt a more aggressive payback strategy compared to pre 2005 when the interest rates were much lower. It will also depend on whether you are W2 or 1099. I'm 1099 and my CPA and lawyer are incorporating me for a variety of reasons that should allow me at least a few advantages. My financial advisor and CPA brought it up and I really didn't know that much about it at the time and am still learning.

Everybody has different goals. For myself, I'm in debt out the wazoo, went through a divorce during residency which cost me a nice chunk that I'll be continuing to pay off, and am graduating several years ahead of my peers and in need of accelerating investment retiring. It's incredibly tempting to just say... Fine, I'll work 20 shifts a month and live in a 500 square foot apt eating ramen noodles and have this all taken care of in 3 years. Don't give in to that. You're going to come out of residency having endured an awful lot of education and arduous training. Improve your standard of living, but not enough to grow accustomed to "high roller" living or else you'll never curb your spending and be able to reign in your debt. I'm leasing a house that's a bit on the big side for me, but whatever. Bought a new car, but it's no benz, and under $25K. I plan on aggressively investing and paying down my loans, but balancing work also and enjoying some vacations and spending time with friends and family. Enjoy your life and try not to let this debt load ruin your happiness. You'll get it paid off in time. I'm hoping to have mine paid off in under 10 years with a moderately aggressive investment strategy while enjoying a standard of living that is comfortable, makes me happy, but isn't excessive.

Also, as others have said, you can write off all types of stuff with 1099. If you can moonlight, I'd recommend moonlighting during residency, even if you end up being a hospital employee simply because you can write off so many expenses on your 1099 taxable income. I wrote of thousands this past year... It makes a big difference. Good luck. Either way though, you can't go wrong in finding a good financial advisor and getting their input. You have nothing to lose. Good luck.

I echo alot of this. I finished residency with about 100k in debt. I paid it off in a year. Kids and divorce kills savings to a large extent. I had neither.

100k sounds like alot but I made enough to not worry about it. I took in about 18k/month after tax and had my SEP fully funded separate from this.

I bought a new 50k BMW before graduating. I sacrificed 7 yrs of my life and I was not going to kill another 1 day driving a beat up car around.

My initial expense was 1500/mo car, 1500/mo rent, about 500/mo utilities and phone, 1k misc/food. So My living expense was like 4500/mo.

That left me alittle over 13k/mo or about 150k per year left over. Saved alittle, many trips.

I did live somewhat large, but I deserved it after 7 yrs watching every penny.

Fast forward 10 yrs an 3 kids later, savings is more difficult.

mortgage/prop tax = 6k/month
car -1k/mo
private school -2k/mo
529 - 1250/mo
utilities - 1k/mo
Misc - 3k

So making the same $$$, I have about 4k left every month.

Key point is to have a balance.

Enjoy yourself b/c you don't want to look back when your 50 with alot of money and no memories.
Save before you have kids and then a big house. I did with over a million in retirement before 40
Dont divorce

I work in Texas where taxes are low, mal practice is cheap, pay is high. God, I love this state.

I have a friend who worked in Cali, couldnt save a lick. Came to texas and now own a house over 500k and another rental prob work 700k after 5 yrs.

Where you live definitely matter.

 

[exsanguination]

.

 

[circulus vitios]

I think 45% tax rate is too high. Run some numbers on www.paycheckcity.com and it seems that 35-38% is closer to what you'll pay between Federal, SS, and Medicare taxes (Florida has no state tax.) I don't know why people mention 25% or 30% tax rates. Money not in one's pocket -- charitable donations or pre-tax contributions with withdrawal penalties -- isn't useful to someone trying to pay down loans ASAP.