should i bother paying off credit card debt as resident?

[doctadre]

so my wife and i have some serious credit card debt. most of it was from undergrad and med school. we no longer use credit cards and we've cut our spending. we're making minimum payments and we're still scraping by each month. i'm finishing residency this year and tackling this debt will be my first order of business.

at this point in my training, however, do you think i should bother aggressively paying off the cards? should i restrict our spending further (it'll be tough) or tap into my savings to try to make more substantial payments? or should we just get through the year and handle it once i'm making some real money?

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[cach]

Make minimum payments on your credit cards if you can, after you have paid for essentials like food, utilities, basic transportation and rent. If you can moonlight for extra cash then do that to increase your income and try to get your wife to earn more money. Do not pay anything other than the minimums on your credit cards until you have built up enough saving to get you thorough 6 months of expenses because, you might be unlucky and graduate to no job or somehow your hospital credentials or medical license takes a few months after residency to get started at your new job. Plus applying for a job and medical licenses cost money.


You need to get a copy of Dave Ramsey's book, Total Money Makeover and read it ASAP.

http://www.daveramsey.com/

 

[Coastie]

so my wife and i have some serious credit card debt. most of it was from undergrad and med school. we no longer use credit cards and we've cut our spending. we're making minimum payments and we're still scraping by each month. i'm finishing residency this year and tackling this debt will be my first order of business.

at this point in my training, however, do you think i should bother aggressively paying off the cards? should i restrict our spending further (it'll be tough) or tap into my savings to try to make more substantial payments? or should we just get through the year and handle it once i'm making some real money?

It depends on your situation.

Think of credit cards as an investment, like any other. Except, unlike the mutual fund which gets 10% a year, the credit card gets 20-25%..in the negative territory.

When you look at your monthly budget, the FIRST thing you must do is pay off that debt.

Given that you also need cash flow to live, it's important to balance the two in such a way to optimize your living while also paying down the CC. As a resident and soon to be attending, it's probably best, although it pains me to say this, to make the minimum payments on time (so no late fees/credit hit), and save up as much cash as possible. Change the lifestyle/habits which brought you to this point, but also have a plan to get out of CC debt.

 

[aneftp]

Just to add to the other 2 previous poster's advice.

1. Build up an emergency savings first. I suggest you get at least 6 months cash reserves.

You know you are going to finish residency soon...the the big money will be there first but take care of essentials first. Who knows if hospital credentialing/medical license gets delayed or you simple can't find a job that you want for a few months after residency.

So pay the minimal or if you have anything extra (after paying for essentials, adding to your 6 months savings, than pay a little extra in the credit card bills.

2. Once you start earning attending money, pay off the credit card debit asap.

3. Don't cancel your credit cards yet after paying it off. If you have had these credit cards for a long time, it may be best to pay it all off and just use it 1-2 times every couple of months and immediately pay it off.

Know how to play the FICO games with your credit.

 

[IlDestriero]

In your situation, it's more important to have some $ set aside for the unexpected. Just don't miss payments, etc. You can pay off the debt when the $$ starts flowing, but it takes years to fix your credit and an extra 1% on a mortgage can easily be >$100k in interest down the line. That lost 100k+ could be years of vacations, a couple cars, etc. Having stellar credit is critical.

 

[rsgillmd]

Others have already said what I was thinking.

I would just stress to remind yourself that credit cards are nothing but high interest loans. I don't know what financial habits/real life situations led you to get into debt, but it doesn't matter. You are in it.

In the future, if you can't pay for something with the money in the bank, then you should be seriously asking yourself do you really need to buy this thing. I would also avoid relying on paying off the bill when the next paycheck arrives. You don't know what else is going to happen. You may need that money for something more important.

There are many things in life that people want and come to depend on, but do not really need. Reassess what your true needs are.

Ex: bringing lunch from home can probably save a couple of hundred dollars over the course of a year, especially if you live in a city. That couple of hundred dollars adds up over the years.

Good luck.

 

[Narcotized]

Yes.

To be blunt, credit card debt is sucker debt. Outside of a few boloney sandwiches and hotdogs for you and your wife to eat and some sort of roof or cardboard box over your head, credit card debt gets paid FIRST. Before savings, before investments, before vacations, before toys, before gifts to mom, PAY OFF THE CREDIT CARDS.

 

[IlDestriero]

Yes.

To be blunt, credit card debt is sucker debt. Outside of a few boloney sandwiches and hotdogs for you and your wife to eat and some sort of roof or cardboard box over your head, credit card debt gets paid FIRST. Before savings, before investments, before vacations, before toys, before gifts to mom, PAY OFF THE CREDIT CARDS.

I disagree. Perhaps that's true for the other folk, not true for a 3rd yr resident 10 months from multiplying his take home tenfold. You need to save for the move, license, boards, interviews, an emergency fund, etc. Once you have enough for all that, than you can consider debt management. Otherwise your going to just have to live off the credit cards again. You could go tuna and ramen and steal hospital milk and cereal, but 12 months from now your situation will be completely different, and you can likely kill the debt in a couple months, unless you really went overboard!

 

[Coastie]

I disagree. Perhaps that's true for the other folk, not true for a 3rd yr resident 10 months from multiplying his take home tenfold. You need to save for the move, license, boards, interviews, an emergency fund, etc. Once you have enough for all that, than you can consider debt management. Otherwise your going to just have to live off the credit cards again. You could go tuna and ramen and steal hospital milk and cereal, but 12 months from now your situation will be completely different, and you can likely kill the debt in a couple months, unless you really went overboard!

IlD: Agree.

Narc, I'd agree with you 99.9999% of the time. Not with this guy, though.

 

[Arch Guillotti]

I disagree. Perhaps that's true for the other folk, not true for a 3rd yr resident 10 months from multiplying his take home tenfold. You need to save for the move, license, boards, interviews, an emergency fund, etc. Once you have enough for all that, than you can consider debt management. Otherwise your going to just have to live off the credit cards again. You could go tuna and ramen and steal hospital milk and cereal, but 12 months from now your situation will be completely different, and you can likely kill the debt in a couple months, unless you really went overboard!

Credit card debt is a killer. I say you should at least pay some of it off while saving some funds as well. Consider paying it off then opening another credit card with a 0% interest rate for an introductory period or rolling over your debt to another card that you can pay off a little later.

 

[Narcotized]

Otherwise your going to just have to live off the credit cards again.

Which happens to be exactly why I say pay off credit card debt before accumulating savings. I know people getting 2-3% savings interest while paying 15+% credit card interest, and they always say, "I need emergency money." To which I tell them exactly what you just said, "If that happens you can always run up the credit card later without wasting the interest in the mean time."

For the life of me I can't understand having low interest savings sitting there while the meter keeps running on high interest credit cards. I mean, who doesn't accept credit cards these days? Get caught in a pinch without savings and short on rent? Car payments? Food? Just run the tab back up if you have to.

 

[Narcotized]

You need to save for the move, license, boards, interviews, an emergency fund, etc

Don't get me wrong; you obviously need a little cash on hand, but most every item you named accepts Visa and Mastercard (boards, not sure). I think it's a waste of money to keep a 6 month emergency fund of cash at the expense of that amount in credit card debt.

 

[IlDestriero]

Which happens to be EXACTLY why I say pay off credit card debt before accumulating savings. I know people getting 2-3% savings interest while paying 15+% credit card interest, and they always say, "I need emergency money." To which I tell them exactly what you just said, "If that happens you can always run up the credit card later without wasting the interest in the mean time."

For the life of me I can't understand having low interest savings sitting there while the meter keeps running on high interest credit cards. I mean, who doesn't accept credit cards these days? Get caught in a pinch without savings and short on rent? Car payments? Food? Just run the tab back up if you have to.

The problem with this guy is that he has "serious" debt, read as can't pay it off anyway, lots of fees and expenses that HAVE to be paid this year, low income, and possibly limited access to more credit. What modern bank is going to give this guy with maybe $200k student loans, 2 maxed out visas, and a $40k salary another $5000 of credit to pay for boards, interviews, license, etc. He's got to be careful, he could pay some of it off and they could cut his available credit in half. Banks are unpredictable these days. However trying to get a zero or lower interest card transfer for a year is smart. It's worth a try. I wouldn't do it if I were in his situation, and if that peace of mind cost an extra $1000, so be it.

 

[IlDestriero]

BTW "serious" CC debt to a resident who probably has huge education loans could be really scarey. I hope he learns a lesson from all this. Giant salary can easily equal giant spending and more living paycheck to paycheck. Worrying about money when you're pulling >$300 large means you're doing something very wrong.

 

[Narcotized]

What modern bank is going to give this guy with maybe $200k student loans, 2 maxed out visas, and a $40k salary another $5000 of credit to pay for boards, interviews, license, etc?

China makes bad loans like that to the US everyday.

 

[Narcotized]

Giant salary can easily equal giant spending and more living paycheck to paycheck. Worrying about money when you're pulling >$300 large means you're doing something very wrong.

Don't forget, money isn't flying off the shelves in competitive cities and the future doesn't appear better. Someone on here mentioned a job offer of $160,000 in a competitive city. Bury yourself in debt on a salary like that and you may be under water for a very long time.

 

[IlDestriero]

I didn't mean he doesn't have to worry, just that he has to control future expenses as well. I remember that offer. It was just more than 1/2 my lowest offer a few years ago when I relocated, and home boy's not looking at any cow town either. We just paid out our our highest bonus ever and raised the base salary. Good jobs in good cities are there if you've got something to offer and are willing to work. It's not all doom and gloom. At least not yet. I bet the hospital 20 miles out of Chi-town pays twice that to start. It may have been a hideous partner track or unboarded university instructor salary. There were no details. If call was paid separately, that could be another 50k easy.
Chicago's not nice enough to penalize that much.

 

[Apollyon]

Worrying about money when you're pulling >$300 large means you're doing something very wrong.

That's The Millionaire Next Door right there. Way back in 1991-92, I was volunteering in the local (tiny) ED, and there was a moonlighter that was a UVA urology resident (yep - uro - I'm tellin' ya, the ED was TINY). Remember, this was 91-92. He said that he could make $500K/year (post-residency) busting his ass, but, if he just showed up, he would make $200K, and he said, "if you can't make it on $200K/year, you have serious problems".

 

[cach]

Which happens to be exactly why I say pay off credit card debt before accumulating savings. I know people getting 2-3% savings interest while paying 15+% credit card interest, and they always say, "I need emergency money." To which I tell them exactly what you just said, "If that happens you can always run up the credit card later without wasting the interest in the mean time."

For the life of me I can't understand having low interest savings sitting there while the meter keeps running on high interest credit cards. I mean, who doesn't accept credit cards these days? Get caught in a pinch without savings and short on rent? Car payments? Food? Just run the tab back up if you have to.

The IP is going to loose his job in 10 month, and he may be without a pay check for a couple of months and on top of that he will probably have to pay to move to another city for a new job.

The problem with relying on credit instead of saving to get through emergencies is that credit can be taken from you when you need it most. If you have a card with a 10000 dollars limit at 10% that card can instantly turn into 300 dollars limit or the rest of the balanced owed at 29.9%. The 0% interest rate for an introductory period offers only exist if you have perfect credit. The whole point of the FICO score is to look for signs that you have more dept that you can handle and to warn lenders of the increased risk of lending to someone with too much dept. If you unknowing exhibit any of those signs the lenders will jack up you rates and turn off your credit supply. Then you will only be able to get money from the payday loan sharks, the car title loan sharks and the pawn shops,
All of whom make 29.9% credit APR look like a bargain.

 

[lord_jeebus]

I don't understand how you can give the OP meaningful advice without knowing

-how much CC debt
-at what interest rate
-current savings
-wife's income

 

[Jeff05]

pay your debt. you don't need emergency money - because if you pay your credit cards you can use them for emergencies.

 

[IlDestriero]

pay your debt. you don't need emergency money - because if you pay your credit cards you can use them for emergencies.

That's not sound advice for this person's situation, even if his interest rate is 29.9%. He's got bills this year that absolutely must be paid to secure a job.
Make sure that you hold back enough money in your savings for a license, interviews, board exam, etc. They don't take IOUs if your bank cuts your credit when they decide you're a poor credit risk or accidently miss a payment. Banking on more credit when you look very bad on paper is taking an unnecessary gamble. Bank of America doesn't care that you're going to make $300k next year, they look at your current income and debt when making decisions on credit, and I bet you look like a bad risk.

 

[BDanes]

I had a lot of CC debt as a resident, so I understand. I also was without a job for about 6 months after residency due to snafus with licensing and the painfully unacceptably long process of credentialing from out of state.

Anyway, my advice is sort of like the Dave Ramsey (sp?) approach. Keep $1000 in a savings account for emergency. If you're in serious CC debt like I was, $1000 won't make much of a dent anyway. In the meantime pay what else you can to the CC. I always had good credit and high limits, so I often got offers for limited 0% or 1.99%. I even got one that's 2.99% for the life of that balance.

Through some timely shifting of balances I saved a bunch, but have still paid way to much. My lesson was learned. I have since paid off almost all of the CC debt I have, and what's left is sitting on 0% and 2.99%.

You will be able to chop them down pretty rapidly when you get out IF you do like I did and keep your expenses roughly equal to what they are now (in residency).

Just keep your head up and learn the lesson.

 

[cach]

Why the OP needs to make minimum payments on the CC and save up a 6+ month emergency fund.

Here's my situation: I'm waiting for my NY state license which was supposed to be ready by Sept. 1, but apparently is backed up for another 1-2 months. I just graduated in June from residency so I haven't had any income for over 2 months and I have lots of bills to pay! I am licensed in MO and CA, I just need some sort of locums gig for the next 2 months and am not having any luck with all the locums companies.

I am willing to accept lower than average pay if necessary for locums work ASAP! My landlord is being nice but I need to pay rent! Thanks in advance