How are you guys handling your loans

[Kodybanks]

I'm expecting to matriculate this coming Fall semester into dental school but I want to be smart about how I decide the school I attend, mainly on the basis of the tuition and cost of living. I'm looking at UTennesse and Detroit Mercy right now, and Tennessee is the cheaper school by close to 100k

I've been speaking to others about loan perspectives and I was told about Pay as you Go plans from Government loans as a possibility, which forgive the loan after 20 years, basically making it not matter how much of a loan burden I take.

But basically I'd like to hear your opinions about what the most responsible way to deal with the loan would be

---

Members don't see this ad.

 

[Blackca3]

I'm expecting to matriculate this coming Fall semester into dental school but I want to be smart about how I decide the school I attend, mainly on the basis of the tuition and cost of living. I'm looking at UTennesse and Detroit Mercy right now, and Tennessee is the cheaper school by close to 100k

I've been speaking to others about loan perspectives and I was told about Pay as you Go plans from Government loans as a possibility, which forgive the loan after 20 years, basically making it not matter how much of a loan burden I take.

But basically I'd like to hear your opinions about what the most responsible way to deal with the loan would be

Food for thought. The political climate will likely be massively different in 20 years. It's becoming very apparent how bad unlimited back government loans are. All degrees are not equal.

Only 26 people approved for student loan forgiveness out of almost 34,000 who applied

 

[averageasian]

basically making it not matter how much of a loan burden I take.

The forgiven amount of your loans counts as taxable income. it DOES matter how much you take in loans

Mike Meru Racked Up $1 Million in Student Loans to Go to Dental School

He owes around 800,000 in taxes after loan forgiveness

 

[Big Time Hoosier]

But basically I'd like to hear your opinions about what the most responsible way to deal with the loan would be

HPSP.

Big Hoss

 

[charlestweed]

Since you ask what is the most responsible way to back the student loan, my answer would be to pay the debt off ASAP and get the government off your back….don’t let the government control your life. When you have to make higher monthly payments, you force yourself to spend less, live within your means, and to work harder. Different people have different ways of paying back their loans. This is how I paid off mine:

1. Earned as much money as I could. Right after graduation, I worked 6 days/week for 3 different corp offices (and travelled to 6 different offices). I was only 29 yo, just got married, and had no kid so there’s no reason for me to stay home and be lazy. To me, working fewer days and not making enough money to pay back loans were more stressful than working hard and dealing with PITA patients. I actually learned a lot from my job. Four years later, I started my first office while working F/T for the corp offices….and I worked almost 7 days/week.

2. Married a girl, who also had good paying job. My wife is also a dental specialist. Like me, she worked 5-6 days/week and travelled to as many as 9 different offices. Double income is always better than single income.

3. Paid off smaller loans first. My wife and I had 10-15 different student loans that ranged from $15k-100+k…and we owed a total of $450k in student loan + $50k in credit card. We paid off smaller loans first because it was easier for us to come up with $15-20k in a couple of months. After we paid off a 15-20K loan, we suddenly had extra $400-500 to spend (or to save) every month.

4. Real estate investments. Many of our dentist friends took out home equity line of credit to pay off their student loans because they could tax write off on their home loan…but not on student loans. I did a similar thing. I upgraded to a bigger house by selling my first house. I used the profit from selling the first house to pay off a large portion of the student loan. I then upgraded to an even bigger house and sold my second house. The profit I made from selling the second house helped me pay off the entire student loan amount.

After I paid off the student loans (in just 5 years after graduation), I didn’t stop working hard and started to slow down because I still had a home loan, business loan, investment properties' loans to pay back. As my kids get older, they need more financial supports (ie private school tuitions, piano lessons, tennis lessons, taking vacations with them etc) from us. Until now, I still travel to 6 different offices but the work load and the stress level are much less now. My wife can now spend more time to take care of the kids....now she only works 2-3 days/week, 1-3 hours a day. The harder you work now, the more rewards you'll earn later in life.

 

[Blackca3]

Since you ask what is the most responsible way to back the student loan, my answer would be to pay the debt off ASAP and get the government off your back….don’t let the government control your life. When you have to make higher monthly payments, you force yourself to spend less, live within your means, and to work harder. Different people have different ways of paying back their loans. This is how I paid off mine:

1. Earned as much money as I could. Right after graduation, I worked 6 days/week for 3 different corp offices (and travelled to 6 different offices). I was only 29 yo, just got married, and had no kid so there’s no reason for me to stay home and be lazy. To me, working fewer days and not making enough money to pay back loans were more stressful than working hard and dealing with PITA patients. I actually learned a lot from my job. Four years later, I started my first office while working F/T for the corp offices….and I worked almost 7 days/week.

2. Married a girl, who also had good paying job. My wife is also a dental specialist. Like me, she worked 5-6 days/week and travelled to as many as 9 different offices. Double income is always better than single income.

3. Paid off smaller loans first. My wife and I had 10-15 different student loans that ranged from $15k-100+k…and we owed a total of $450k in student loan + $50k in credit card. We paid off smaller loans first because it was easier for us to come up with $15-20k in a couple of months. After we paid off a 15-20K loan, we suddenly had extra $400-500 to spend (or to save) every month.

4. Real estate investments. Many of our dentist friends took out home equity line of credit to pay off their student loans because of they could tax write off on their home loan…but not on student loans. I did a similar thing. I upgraded to a bigger house by selling my first house. I used the profit from selling the first house to pay off a large portion of the student loan. I then upgraded to an even bigger house and sold my second house. The profit I made from selling the second house helped me pay off the entire student loan amount.

After I paid off the student loans (in just 5 years after graduation), I didn’t stop working hard and started to slow down because I still had a home loan, business loan, investment properties' loans to pay back. As my kids get older, they need more financial supports (ie private school tuitions, piano lessons, tennis lessons, taking vacations with them etc) from us. Until now, I still travel to 6 different offices but the work load and the stress level are much less now. My wife can now spend more time to take care of the kids....now she only works 2-3 days/week, 1-3 hours a day. The harder you work now, the more rewards you'll earn later in life.

As of December 2017 you can no longer deduct the interest from a home equity loan unless the money was spent on renovating/repairing the property you took it out on.

 

[Kodybanks]

Food for thought. The political climate will likely be massively different in 20 years. It's becoming very apparent how bad unlimited back government loans are. All degrees are not equal.

Only 26 people approved for student loan forgiveness out of almost 34,000 who applied

This was absolutely a concern of mine. I find it difficult to believe that the same rules will still applo4 years from now, especially with an administration gunning in the opposite direction

 

[Kodybanks]

Since you ask what is the most responsible way to back the student loan, my answer would be to pay the debt off ASAP and get the government off your back….don’t let the government control your life. When you have to make higher monthly payments, you force yourself to spend less, live within your means, and to work harder. Different people have different ways of paying back their loans. This is how I paid off mine:

1. Earned as much money as I could. Right after graduation, I worked 6 days/week for 3 different corp offices (and travelled to 6 different offices). I was only 29 yo, just got married, and had no kid so there’s no reason for me to stay home and be lazy. To me, working fewer days and not making enough money to pay back loans were more stressful than working hard and dealing with PITA patients. I actually learned a lot from my job. Four years later, I started my first office while working F/T for the corp offices….and I worked almost 7 days/week.

2. Married a girl, who also had good paying job. My wife is also a dental specialist. Like me, she worked 5-6 days/week and travelled to as many as 9 different offices. Double income is always better than single income.

3. Paid off smaller loans first. My wife and I had 10-15 different student loans that ranged from $15k-100+k…and we owed a total of $450k in student loan + $50k in credit card. We paid off smaller loans first because it was easier for us to come up with $15-20k in a couple of months. After we paid off a 15-20K loan, we suddenly had extra $400-500 to spend (or to save) every month.

4. Real estate investments. Many of our dentist friends took out home equity line of credit to pay off their student loans because of they could tax write off on their home loan…but not on student loans. I did a similar thing. I upgraded to a bigger house by selling my first house. I used the profit from selling the first house to pay off a large portion of the student loan. I then upgraded to an even bigger house and sold my second house. The profit I made from selling the second house helped me pay off the entire student loan amount.

After I paid off the student loans (in just 5 years after graduation), I didn’t stop working hard and started to slow down because I still had a home loan, business loan, investment properties' loans to pay back. As my kids get older, they need more financial supports (ie private school tuitions, piano lessons, tennis lessons, taking vacations with them etc) from us. Until now, I still travel to 6 different offices but the work load and the stress level are much less now. My wife can now spend more time to take care of the kids....now she only works 2-3 days/week, 1-3 hours a day. The harder you work now, the more rewards you'll earn later in life.

So no cleverness can really help me too much. It's all about just working hard and keeping my loan as Iow as possible?

 

[charlestweed]

As of December 2017 you can no longer deduct the interest from a home equity loan unless the money was spent on renovating/repairing the property you took it out on.

But at least with the home equity loan, you can erase it by selling your house, renting it out, or filing bankruptcy. You can’t do this with student loan.

 

[charlestweed]

So no cleverness can really help me too much. It's all about just working hard and keeping my loan as Iow as possible?

That’s right. This does not only apply to student loan but to home loan, car loan, business loan etc as well. The more loans you borrow, the harder you will have to work to pay them back. Student loan is the worst kind because you can’t erase it by filing bankruptcy…by using IBR, PAYE, or whatever the new repayment program the government will come up with in the future. The day you sign the student loan docs is the day the government puts the shackles on you. It’s like living in prison with no way to escape it. You sooner you pay it off, the sooner you will be freed from the student loan prison. You pay a little amount every month now, you will face a big tax bomb later in your life.

If I were you, I would pick the dental school that charges $100k less. You can further reduce the loan amount by finding roommate(s) to share an apartment with….and save $700-1000/month. I know it’s hard to downgrade. Before, you lived with your parents and had a room all by yourself…and now, you have to deal with all the inconveniences from having to share a room with stranger(s). I am sure it’ll be hard for my kids too when they enter college and have to live in a dorm. For me, it wasn’t a big deal to live with 4 other guys because I got used to living with roommates ever since I came to America. Until now, I still have to share a dental office with another dentist to reduce the overhead. The more sacrifices you make now, the more rewards you’ll earn later.

 

[Blackca3]

But at least with the home equity loan, you can erase it by selling your house, renting it out, or filing bankruptcy. You can’t do this with student loan.

Very true plus lowering monthly payments would ease your cashflow.

 

[Kodybanks]

So a question of mine then is The difference between taking private or government loans. Which of the two would you recommend?

 

[Blackca3]

So a question of mine then is The difference between taking private or government loans. Which of the two would you recommend?

I still recommend government loans but I am most definitely not an expert in this area so do your research. The rates are high but still lower than private student loans. Currently their are options to help ease your loan payments but no guarantee on how long that will be around. Also, I think you may have to worry about capitalization with student loans while in school. Plus you will most likely need a cosigner You could always look into refinancing your government backed loans once you graduate. Private loans do have the potential of being discharged in bankruptcy but as long as you aren't on the extreme end of the spectrum for loans the likelihood of you defaulting is probably low.

 

[bilbany12]

Just bouncing off some ideas on this.

I'm highly leaning towards the PAYE plan. Now say I'm looking at a $700,000 tax bomb in 25 years time like the other guy. In theory, if you put $50,000 into an index fund every year x 10 years, its very possible you could have that money saved by then (without killing yourself working 60 hrs/wk)(also assuming the annual rate ~8%).

 

[Big Time Hoosier]

Just bouncing off some ideas on this.

I'm highly leaning towards the PAYE plan. Now say I'm looking at a $700,000 tax bomb in 25 years time like the other guy. In theory, if you put $50,000 into an index fund every year x 10 years, its very possible you could have that money saved by then (without killing yourself working 60 hrs/wk)(also assuming the annual rate ~8%).

Assuming the Feds don’t cap loan forgiveness. Even President Obama wanted to cap forgiveness to around $65,000. Then what? You’d be hosed.

Big Hoss

 

[doktorinprogres]

Assuming the Feds don’t cap loan forgiveness. Even President Obama wanted to cap forgiveness to around $65,000. Then what? You’d be hosed.

Big Hoss

Definitely a risk but the prevailing thought is that the cap/scrapping of the program would not be retroactive particularly given that the MPN refers to PSLF and other repayment options.

 

[NITRAS]

You should plan on paying back your student loans. The faster the better.

If the loans you take out don’t justify the income you will make (or are willing to work for), you shouldn’t take out the loans. It is that simple. These PAYE, REPAYE, and IBR only make sense for short periods, or If you depend on the tax payer to bail you out. Oh, and no one knows what the political winds will look like in 10-25 years. I think it’s a stupid idea.

People don’t realize how a big student loan hurts them.

 

[bilbany12]

Maybe someone can explain this gap:

If you enter in Mike Meru's information into the IBR calculator at studentloanhero.com, I'm still not understanding where the article's numbers are coming from. Not saying they're wrong, I'm just guessing theres a discrepancy with the calculator?

Inputs:
Salary: $140,000 (his IBR monthly payments are only $1,500, so this is the salary that kinda worked for it. Yes I know he makes $225k)
Annual income growth: 0.01% (I think 3% is a crazy number to use. Lets just assume worst case scenario here)
Interest rate: 7%

After 25 years, the calculator only estimates $1.2 mil loans to be forgiven. But the real-life scenario is that its at $1 mil only after 7-8 years of being out of school (the orthodontist is 37). What am I missing here??

 

[Big Time Hoosier]

Definitely a risk but the prevailing thought is that the cap/scrapping of the program would not be retroactive particularly given that the MPN refers to PSLF and other repayment options.

And to work around the MPN, all the government needs to do is change the tax laws to make any forgiven student loan balance above a certain dollar amount taxed at 100%. Your loans were technically forgiven and the government got its money back. The MPN mentions nothing about your tax rate. These programs are going to cost the government 100s of billions more than originally projected. These IBR plans weren’t intended to benefit doctors, dentists, and lawyers; they were intended to benefit your kid’s 3rd grade teacher who has $30k in loans. Graduate and professional students are disproportionately enrolled in these plans. Trust me, the masses will not care if the government gets its money back from the “vile” 1%. Just think about it like this, why should some guy who makes $40K now bear the burden of forgiving your loans, because it’s going to be added to our national debt, all the while you are making $200K? Does that seem morally ok to you?

Big Hoss

 

[charlestweed]

Just bouncing off some ideas on this.

I'm highly leaning towards the PAYE plan. Now say I'm looking at a $700,000 tax bomb in 25 years time like the other guy. In theory, if you put $50,000 into an index fund every year x 10 years, its very possible you could have that money saved by then (without killing yourself working 60 hrs/wk)(also assuming the annual rate ~8%).

This probably will work if you can discipline yourself to set aside $50k and put it into the index fund every year. The problem is it’s not easy to come up with this $50k amount, if you only make $150-200k a year. In order to save $50k, you will probably have to live like a student for the next 10+ years. If you don’t like to live like a student and want your kids to have a better lifestyle than yours when you were their age, then you’ll have to kill yourself working 6-7 days/week.

 

[coldicecream]

Since you ask what is the most responsible way to back the student loan, my answer would be to pay the debt off ASAP and get the government off your back….don’t let the government control your life. When you have to make higher monthly payments, you force yourself to spend less, live within your means, and to work harder. Different people have different ways of paying back their loans. This is how I paid off mine:

1. Earned as much money as I could. Right after graduation, I worked 6 days/week for 3 different corp offices (and travelled to 6 different offices). I was only 29 yo, just got married, and had no kid so there’s no reason for me to stay home and be lazy. To me, working fewer days and not making enough money to pay back loans were more stressful than working hard and dealing with PITA patients. I actually learned a lot from my job. Four years later, I started my first office while working F/T for the corp offices….and I worked almost 7 days/week.

2. Married a girl, who also had good paying job. My wife is also a dental specialist. Like me, she worked 5-6 days/week and travelled to as many as 9 different offices. Double income is always better than single income.

3. Paid off smaller loans first. My wife and I had 10-15 different student loans that ranged from $15k-100+k…and we owed a total of $450k in student loan + $50k in credit card. We paid off smaller loans first because it was easier for us to come up with $15-20k in a couple of months. After we paid off a 15-20K loan, we suddenly had extra $400-500 to spend (or to save) every month.

4. Real estate investments. Many of our dentist friends took out home equity line of credit to pay off their student loans because they could tax write off on their home loan…but not on student loans. I did a similar thing. I upgraded to a bigger house by selling my first house. I used the profit from selling the first house to pay off a large portion of the student loan. I then upgraded to an even bigger house and sold my second house. The profit I made from selling the second house helped me pay off the entire student loan amount.

After I paid off the student loans (in just 5 years after graduation), I didn’t stop working hard and started to slow down because I still had a home loan, business loan, investment properties' loans to pay back. As my kids get older, they need more financial supports (ie private school tuitions, piano lessons, tennis lessons, taking vacations with them etc) from us. Until now, I still travel to 6 different offices but the work load and the stress level are much less now. My wife can now spend more time to take care of the kids....now she only works 2-3 days/week, 1-3 hours a day. The harder you work now, the more rewards you'll earn later in life.

would you have been able to open your practice earlier if you saved money during the first two years of working and paid min loan pymts? Use that cash to get a bank loan, open your office, then increase your salary quicker. (assuming you have patients)

 

[Blackca3]

Paying off your loans asap is not the financially smart move. Make the minimum payment and invest the remainder. You will get a higher rate of return for your money elsewhere. Debt is a very useful and powerful tool if your handle it correctly.

I also agree that setting aside 50k a year is much easier said than done because life happens and when you see that money the temptation to enjoy some of it will be there.

 

[charlestweed]

would you have been able to open your practice earlier if you saved money during the first two years of working and paid min loan pymts? Use that cash to get a bank loan, open your office, then increase your salary quicker. (assuming you have patients)

Yes, I regret for not open my own office sooner. Like most new grads, I was clueless and thought it would be very difficult to start an office from scratch. I didn’t like the fact that I had to go door to door to beg the GPs for referrals. I bought a first house 6 month after graduation and I was afraid to lose that house if my new business failed. And the last reason was I had a very good lifestyle during those first 4 years….a nice house in an upscale neighborhood, Ethan Allen furniture, 2 leased German cars etc…and I didn’t want to downgrade. I actually planned to work for the corp offices for the rest of my life because I thought ortho was a recession proof profession.

And then one day, I met this one general dentist, whose older sister was my daughter’s pediatrician. She told me I should start my own office and she would refer a lot of patients to me. So I listened to her. I borrowed $75k from the bank (+ $55k from my personal saving) to start my first office. The GP kept her promised and has referred a lot of patients to me. She liked my low fees because before that, she had to refer most of her patients to a nearby corp office for low cost ortho tx. Until now, she is still my #1 referring GP.

Now looking back, I wish I could have started my own office a lot sooner. With the low overhead, it wasn’t too difficult. I didn’t experience any drop in income and because I continued to work F/T for the corp. I worked at my own offices 2 Saturdays a month. On some weekdays….after I finished working at the corp from 9-6, I drove straight to my own office to see patients from 6:30pm-9pm. My wife brought our 2 yo daughter to the office and helped work at the front desk. After that, we had dinner together at a Chinese restaurant that opened late.

Ortho is no longer recession proof profession....there are also more orthos now due to openings of new ortho programs. I am glad that I didn't stop working hard. Now, I don't have to worry about any of these changes.

 

[coldicecream]

@charlestweed
Thanks for replying!
Just curious, how much is your overhead as an orthodontist? Do you know what its like for a GP?
i found this article with practices being sold and they listed the overheads, but can't seem to find it in my history.

edit: found the article. some practices have up 70+% of overhead. just wow. I wonder what the lowest is.

 

[coldicecream]

Paying off your loans asap is not the financially smart move. Make the minimum payment and invest the remainder. You will get a higher rate of return for your money elsewhere. Debt is a very useful and powerful tool if your handle it correctly.

I also agree that setting aside 50k a year is much easier said than done because life happens and when you see that money the temptation to enjoy some of it will be there.

could you elaborate on when having debt is useful. I know a couple dentists that could easily pay off their loans, but choose to still keep it. I didn't want to sound rude and ask why

 

[bilbany12]

I totally get that temptation will be there. But assuming you have kids at 45 or so, isn't it safe to assume your spouse is also bringing in an income that could help with the $50k/year?

Thats also assuming you're not divorced either

 

[doktorinprogres]

And to work around the MPN, all the government needs to do is change the tax laws to make any forgiven student loan balance above a certain dollar amount taxed at 100%. Your loans were technically forgiven and the government got its money back. The MPN mentions nothing about your tax rate. These programs are going to cost the government 100s of billions more than originally projected. These IBR plans weren’t intended to benefit doctors, dentists, and lawyers; they were intended to benefit your kid’s 3rd grade teacher who has $30k in loans. Graduate and professional students are disproportionately enrolled in these plans. Trust me, the masses will not care if the government gets its money back from the “vile” 1%. Just think about it like this, why should some guy who makes $40K now bear the burden of forgiving your loans, because it’s going to be added to our national debt, all the while you are making $200K? Does that seem morally ok to you?

Big Hoss

Hey Big Hoss,

In general, I completely agree with your assessment of the scenario. The moral side of it is in a black and white world wrong. These loan repayment programs though are all part of the game. Does anyone think that charging 3x your avg income in tuition and fees is morally right? We all recognize that students are pawns in a money transfer from dept of education to higher ed schools. I'd have no qualms if they capped the loan forgiveness moving forwards as long as they also capped how much schools could charge or indirectly by capping how much they'll loan. It'd fix a lot of the student loan mess.

 

[Big Time Hoosier]

Does anyone think that charging 3x your avg income in tuition and fees is morally right?

No one is forcing you to take these loans. You are choosing to do so. You want to teach dental schools a lesson? Don’t go. When enough people make that same decision because it no longer makes financial sense, the bubble bursts. Here’s an interesting read on the topic:

NEJM - Error

Big Hoss

 

[doktorinprogres]

No one is forcing you to take these loans. You are choosing to do so. You want to teach dental schools a lesson? Don’t go. When enough people make that same decision because it no longer makes financial sense, the bubble bursts. Here’s an interesting read on the topic:

NEJM - Error

Big Hoss

They've been saying that for a while and COA keeps going up and demand has stayed the same. We just moved from a moral argument to a capitalism one. There are schools doing 5% increases each year. In 15 years we'll be seeing 750k price tags (private/OOS) for 4 yrs. It'll be interesting to see at what point ppl do decide to stop going.

 

[Big Time Hoosier]

We just moved from a moral argument to a capitalism one.

Coincidence? Capitalism is moral. Don’t believe me? Read “The Naked Communist” by Cleon Skousen.

Big Hoss

 

[charlestweed]

@charlestweed
Thanks for replying!
Just curious, how much is your overhead as an orthodontist? Do you know what its like for a GP?
i found this article with practices being sold and they listed the overheads, but can't seem to find it in my history.

edit: found the article. some practices have up 70+% of overhead. just wow. I wonder what the lowest is.

My monthly overhead was around $8-9k/month for my first office. Now with 4 offices, my monthly overhead has gone up to $20-22k/month:

-Rent: $2000. Now $6461 for all 4 offices.
-Staff salaries: $2000...I only hired 1 front desk and paid her $11/hr. Now I have 9 employees (only 3 are F/T) and pay $10,000 a month.
-Worker comp: $100. Now $350.
-Property insurance: $150. Now $250 for 2 offices. I share the other 2 offices with GPs so I don't have to buy insurance.
-Electricity + 3 phone lines: $500. Now $800-1000....again only for 2 offices. I don't pay electric bills for the 2 offices I share with GP.
-Business license and taxes: $70. Now $150.
-Supplies: $2,000. Now only $1500. I spend much less on the supplies now. When I first started, I paid $3 for an ortho bracket and $6 for a molar band. Now I found a place that charges 50 cents per bracket, $1 per molar band.
-Lab fee: $2000. Now only $300 because we make most of the ortho appliances in-house.
-Advertisement: $653.33. Now also $653.33. I've used the same ad on the same magazine for 12+ years.
- There are a few other misc fees that I forgot to include here.

My sister, who is a GP, told me her overhead is around 50%. She has 1 front desk and 1 chairside assistant. She has no rent since she owns (and already paid off) the building. Her office has in-house ortho (and that’s me). The production from ortho alone should cover most of her overhead. So whatever she produces is her take home income.

 

[charlestweed]

Paying off your loans asap is not the financially smart move. Make the minimum payment and invest the remainder. You will get a higher rate of return for your money elsewhere. Debt is a very useful and powerful tool if your handle it correctly.

I also agree that setting aside 50k a year is much easier said than done because life happens and when you see that money the temptation to enjoy some of it will be there.

I agree. If you know how to invest and grow your hard earned money, paying off student loans ASAP is not a smart move. I paid mine off ASAP because I didn’t know what to invest my money on…and I didn't have the confindence to start my own office right after graduation. So that’s a mistake I made. Well, at least I started my career at a fairly young age (29 yo) and making such mistake didn’t hurt me at all in the long run.

This is why I always tell many young kids (nieces, newphews, son, daughter etc) to study hard, don’t waste any year and try finish schools on time: 3-4 years undergrad, 4 year professional school, 2-3 residency, and then go to work. If you make mistakes at a young age, you still have time to fix those mistakes. You wouldn’t want to work until you are 65 yo and still cannot save anything for retirement.

 

[TanMan]

I agree. If you know how to invest and grow your hard earned money, paying off student loans ASAP is not a smart move. I paid mine off ASAP because I didn’t know what to invest my money on…and I didn't have the confindence to start my own office right after graduation. So that’s a mistake I made. Well, at least I started my career at a fairly young age (29 yo) and making such mistake didn’t hurt me at all in the long run.

This is why I always tell many young kids (nieces, newphews, son, daughter etc) to study hard, don’t waste any year and try finish schools on time: 3-4 years undergrad, 4 year professional school, 2-3 residency, and then go to work. If you make mistakes at a young age, you still have time to fix those mistakes. You wouldn’t want to work until you are 65 yo and still cannot save anything for retirement.

EXACTLY. One of the biggest mistakes I made was accelerating my student loan payments right out of school when I should've been saving up for the practice. Cost me at least a few months of my practice - I could have opened earlier and not sacrifice so much opportunity cost.

 

[Blackca3]

could you elaborate on when having debt is useful. I know a couple dentists that could easily pay off their loans, but choose to still keep it. I didn't want to sound rude and ask why

Sure. So I buy rental properties. My first property I bought for $125k and could rent for $3000. Financing it at 100% my monthly mortgage came out to be $561. I could have put money down to reduce the loan amount but even with putting down $20k my loan payment would have only decreased to $471. 4 months later I found another rental property that I wanted for $155k and could rent for $3000. This time the bank only allowed me to finance 75% so I needed to have $39k to put down. If I had put down $20k in the first house I would not have been able to buy it. So let's look at a couple scenarios. One where I put money down on the first house and one where I didn't.

So putting 20k on $125k brings the payment to $471/month. I now don't have money for house 2. So rent coming in each month is $3000 minus house payment of $471 so $2429 income at $100k debt.

What I actually did. Bought first house for $125k, house payment of $561, and $125k debt. Bought 2nd house at $155k, $39k down, house payment $522, debt $116k. Total rent coming in $6K - $1083 house payments leaves $4983 for me. Total debt is now at $241k. So by not just trying to pay down my debt and leveraging it correctly I'm making $2400 more a month than the first scenario. Hope that makes sense.

 

[coldicecream]

Sure. So I buy rental properties. My first property I bought for $125k and could rent for $3000. Financing it at 100% my monthly mortgage came out to be $561. I could have put money down to reduce the loan amount but even with putting down $20k my loan payment would have only decreased to $471. 4 months later I found another rental property that I wanted for $155k and could rent for $3000. This time the bank only allowed me to finance 75% so I needed to have $39k to put down. If I had put down $20k in the first house I would not have been able to buy it. So let's look at a couple scenarios. One where I put money down on the first house and one where I didn't.

So putting 20k on $125k brings the payment to $471/month. I now don't have money for house 2. So rent coming in each month is $3000 minus house payment of $471 so $2429 income at $100k debt.

What I actually did. Bought first house for $125k, house payment of $561, and $125k debt. Bought 2nd house at $155k, $39k down, house payment $522, debt $116k. Total rent coming in $6K - $1083 house payments leaves $4983 for me. Total debt is now at $241k. So by not just trying to pay down my debt and leveraging it correctly I'm making $2400 more a month than the first scenario. Hope that makes sense.

it does, thank you!!

 

[coldicecream]

My monthly overhead was around $8-9k/month for my first office. Now with 4 offices, my monthly overhead has gone up to $20-22k/month:

.....

thanks for the breakdown! glad to hear 50% overhead is possible as a solo GP.

 

[DrTooth19]

Sure. So I buy rental properties. My first property I bought for $125k and could rent for $3000. Financing it at 100% my monthly mortgage came out to be $561. I could have put money down to reduce the loan amount but even with putting down $20k my loan payment would have only decreased to $471. 4 months later I found another rental property that I wanted for $155k and could rent for $3000. This time the bank only allowed me to finance 75% so I needed to have $39k to put down. If I had put down $20k in the first house I would not have been able to buy it. So let's look at a couple scenarios. One where I put money down on the first house and one where I didn't.

So putting 20k on $125k brings the payment to $471/month. I now don't have money for house 2. So rent coming in each month is $3000 minus house payment of $471 so $2429 income at $100k debt.

What I actually did. Bought first house for $125k, house payment of $561, and $125k debt. Bought 2nd house at $155k, $39k down, house payment $522, debt $116k. Total rent coming in $6K - $1083 house payments leaves $4983 for me. Total debt is now at $241k. So by not just trying to pay down my debt and leveraging it correctly I'm making $2400 more a month than the first scenario. Hope that makes sense.

Thanks for explaining! I am a little confused still. You have $241k in debt and you are making around $60k a year. Do you use that income to pay off all the debt from the properties? And then in about 7-8 years when it is fully paid off, you will be making an income of $60k a year just from these properties?

And you're saying that because you didnt spend the money for the downpayment on the first house, you had an extra $20k to buy a seocnd property to make a downpayment on that? Just want to make sure I am understanding this. Thank you!!

 

[AppalachianDentalBoy]

thanks for the breakdown! glad to hear 50% overhead is possible as a solo GP.

From a rural area and the dentists I shadow have overhead that low too.

 

[Blackca3]

Thanks for explaining! I am a little confused still. You have $241k in debt and you are making around $60k a year. Do you use that income to pay off all the debt from the properties? And then in about 7-8 years when it is fully paid off, you will be making an income of $60k a year just from these properties?

And you're saying that because you didnt spend the money for the downpayment on the first house, you had an extra $20k to buy a seocnd property to make a downpayment on that? Just want to make sure I am understanding this. Thank you!!

No, paying down the debt faster than I have to is not a smart move financially. That was the entire point that I was making. I make the minimum payment and keep my cash flow as high as possible because earlier this year I bought another property that I can now rent for an additional $3000/month.

I didn't know after buying the first house that I would find that other house later. I didn't make the $20k downpayment because it wasn't a smart financial move. And because I was financially smart I was prepared when the other property presented itself 4 months later. The bank would not lend me more than 75% of the cost of the house. I had to come up with other 25% and I only had it because I didn't pay down the debt faster than I had to.

Even now, I could pay for my tuition out of pocket but I don't I take out student loans because I'd rather keep my money and invest it into more passive income opportunities.

 

[NITRAS]

Yall can do what yall want, but there are tons of people who went broke using "other people's money" and being highly leveraged. Debt only works. . . when it works. If it doesn't work, it can set you up for a bankruptcy. Financial downturns happen every few years, and it exposes the fallacy of the idea that debt is a benefit.

 

[Blackca3]

Yall can do what yall want, but there are tons of people who went broke using "other people's money" and being highly leveraged. Debt only works. . . when it works. If it doesn't work, it can set you up for a bankruptcy. Financial downturns happen every few years, and it exposes the fallacy of the idea that debt is a benefit.

"Vacines only work when they work"
OP this is a good example of someone you shouldn't take any advice from. Armchair economist with little to no business experience. The market does not go into a down turn every few years. Leveraging money is how almost all businesses work. That's exactly what a bank is and does everyday. That's exactly what the stock market does and why any company goes public to raise capital. You're much more likely to go broke using your own money. You stay cash heavy so you have the ability to weather any bad situations. All you do by paying down debt fast is make sure everyone else can weather bad situation at your own expense. The US has enormous debt and yet the GDP continues to grow.

 

[DDS9994]

EXACTLY. One of the biggest mistakes I made was accelerating my student loan payments right out of school when I should've been saving up for the practice. Cost me at least a few months of my practice - I could have opened earlier and not sacrifice so much opportunity cost.

Not sure how it was a mistake considering a few months of practice is nothing in the longterm, compared to eliminating the only form of debt that you can never walk away from.

 

[DDS9994]

Paying off your loans asap is not the financially smart move. Make the minimum payment and invest the remainder. You will get a higher rate of return for your money elsewhere. Debt is a very useful and powerful tool if your handle it correctly.

I also agree that setting aside 50k a year is much easier said than done because life happens and when you see that money the temptation to enjoy some of it will be there.

I disagree paying off debt is definitely a good move, if I am not mistaken the going rate on SL is 5% or higher, I hear 6%, its difficult to say the least that you can invest in the markets or other things and consistently beat 6% a year, too many variables.

 

[DDS9994]

Sure. So I buy rental properties. My first property I bought for $125k and could rent for $3000. Financing it at 100% my monthly mortgage came out to be $561. I could have put money down to reduce the loan amount but even with putting down $20k my loan payment would have only decreased to $471. 4 months later I found another rental property that I wanted for $155k and could rent for $3000. This time the bank only allowed me to finance 75% so I needed to have $39k to put down. If I had put down $20k in the first house I would not have been able to buy it. So let's look at a couple scenarios. One where I put money down on the first house and one where I didn't.

So putting 20k on $125k brings the payment to $471/month. I now don't have money for house 2. So rent coming in each month is $3000 minus house payment of $471 so $2429 income at $100k debt.

What I actually did. Bought first house for $125k, house payment of $561, and $125k debt. Bought 2nd house at $155k, $39k down, house payment $522, debt $116k. Total rent coming in $6K - $1083 house payments leaves $4983 for me. Total debt is now at $241k. So by not just trying to pay down my debt and leveraging it correctly I'm making $2400 more a month than the first scenario. Hope that makes sense.

Where exactly are these properties that you buy for 125K and rent for 3K month? That is very atypical.

 

[DDS9994]

"Vacines only work when they work"
OP this is a good example of someone you shouldn't take any advice from. Armchair economist with little to no business experience. The market does not go into a down turn every few years. Leveraging money is how almost all businesses work. That's exactly what a bank is and does everyday. That's exactly what the stock market does and why any company goes public to raise capital. You're much more likely to go broke using your own money. You stay cash heavy so you have the ability to weather any bad situations. All you do by paying down debt fast is make sure everyone else can weather bad situation at your own expense. The US has enormous debt and yet the GDP continues to grow.

While I understand you don't agree with him, I will tell you his advice should not be dismissed by anyone, what I will tell you is I notice many of you guys who graduated after 2009 all you have known is a bull run in this economy, rising stock markets and rising real estate prices, which has led to a bit of hubris when it comes to borrowing money. Lots of folks lost her shirts in 2008 listening to gurus in seminars about using OPM " other peoples money" or "leverage". Debt is a necessity, I borrowed to start my practice and student loans, but they are all gone now and I can tell you I don regret it one bit, from a personal standpoint as well as financial standpoint.

 

[Blackca3]

I disagree paying off debt is definitely a good move, if I am not mistaken the going rate on SL is 5% or higher, I hear 6%, its difficult to say the least that you can invest in the markets or other things and consistently beat 6% a year, too many variables.

There are index funds out there that can give you a higher rate of return than that. I believe SL are somewhere from 6.5 - 7.5 right now. They are high. Honestly at the end of the day it comes down to how risk averse you are and how utility you derive from the rate of return on your debt. If your goal is not to have debt then sure pay it down. If you goal is to maximize your rate of rerurn then debt is a very useful tool.

I found myself a niche market that I know really well. My rate of return on these residential rentals is not typical.

 

[Blackca3]

While I understand you don't agree with him, I will tell you his advice should not be dismissed by anyone, what I will tell you is I notice many of you guys who graduated after 2009 all you have known is a bull run in this economy, rising stock markets and rising real estate prices, which has led to a bit of hubris when it comes to borrowing money. Lots of folks lost her shirts in 2008 listening to gurus in seminars about using OPM " other peoples money" or "leverage". Debt is a necessity, I borrowed to start my practice and student loans, but they are all gone now and I can tell you I don regret it one bit, from a personal standpoint as well as financial standpoint.

I agree with you. People should be fully aware of the risk they are taking when borrowing money and be prepared for worst case scenario. At the end of the day it all comes down to what your goals are and what level of risk you are comfortable with. Thankfully dentistry has such high margins that many can afford to just pay their debt as quickly as possible. But in many other industries this is not the case and so debt is the tool so reach financial goals.

 

[DDS9994]

There are index funds out there that can give you a higher rate of return than that. I believe SL are somewhere from 6.5 - 7.5 right now. They are high. Honestly at the end of the day it comes down to how risk averse you are and how utility you derive from the rate of return on your debt. If your goal is not to have debt then sure pay it down. If you goal is to maximize your rate of rerurn then debt is a very useful tool.

I found myself a niche market that I know really well. My rate of return on these residential rentals is not typical.

As an avid indexer myself and have been for over 15+ years I will tell you over 7% is wildly optimistic for index funds as they track the market, and longterm the market has returned overall 7%. It sounds like you have a well laid out foundation for real estate and to me thats what counts, I just caution people who don't have the acumen for RE or what have you and simply think " I will buy some properties and make money." Best of luck.

 

[predent2151]

EXACTLY. One of the biggest mistakes I made was accelerating my student loan payments right out of school when I should've been saving up for the practice. Cost me at least a few months of my practice - I could have opened earlier and not sacrifice so much opportunity cost.

Paying off student loans early feels like a really risk adverse decision. I’m a very risk adverse person. I’ll be coming out of school with around 150k ball park of debt. Do you think with that low of a debt load it’d be a bad decision to service this as quickly as possible? Or should I still put it on 10 yr repayment and get into ownership as quickly as possible (what I want to do after an AEGD).

 

[charlestweed]

I totally get that temptation will be there. But assuming you have kids at 45 or so, isn't it safe to assume your spouse is also bringing in an income that could help with the $50k/year?

Thats also assuming you're not divorced either

Do you think you will still have the energy at the age of 60 to continue to work hard to support your 15 yo son/daugher? ....and have to drive them around for braces appointments, school, doctor's appointments etc?