5 Ways to Balance Med School Debt and Increased Earnings
By Chad Chase, JD, CTFA
Becoming a doctor is a difficult journey that requires years of intense schooling and training. And while the rewards of a prestigious medical career can be significant, effectively planning your finances is essential.
Many med students who graduate with student loan debt face the challenge of creating an equilibrium between their debt and their new increased salary.
In this article, I share strategies for balancing student loan debt with increased earnings. My goal is to help you navigate the complexities of managing your new income while aggressively tackling your debt.
1. Pay Off Debt First
After years of tight budgeting, it might be tempting to treat yourself to a luxurious lifestyle, but paying off debt should come first. Make sure you set aside a sizeable amount of your money for loan payments in your comprehensive budget. To effectively manage your debt, think about aggressive payback techniques like the avalanche or snowball method.
If you have federal student loans and your situation qualifies, you can also look into income-driven repayment programs, but keep in mind that these can result in taxable income from loan balances that are forgiven at the end of the repayment term depending on certain factors, including what state you are located in.
2. Create an Emergency Fund
Building an emergency fund while simultaneously paying off debt is a challenge. But both are essential elements of financial stability. An emergency fund acts as a safety net, shielding you from unforeseen costs such as auto repairs, medical expenditures, and job loss. Without this safety net, you might have to rely on loans or credit cards to pay for these expenses, which could slow down or completely block your ability to pay off debt.
Even though it might be tempting to steer all of your recently boosted income toward debt, having an emergency fund keeps you from taking a giant step backward financially. While it’s ideal to strike a balance between debt repayment and savings, having even a modest emergency fund can give you confidence and safeguard your hard-earned salary.
3. Make Smart Investments
When it comes to maintaining your financial stability, long-term financial growth is just as important as aggressive debt repayment. Once your short-term emergency fund is built, you can turn your focus towards your long-term investments. By helping you gradually increase your wealth, wise investing can support your attempts to pay off debt. You can leverage compound interest by setting aside a percentage of your salary for investments, which can have a big impact on your future finances.
However, striking a balance between investing and debt repayment is also essential. Pay down debts with the largest interest rate first and contribute to other investment vehicles or retirement funds at the same time. By taking a dual strategy, you may take care of your short-term debts as well as your long-term objectives, laying the groundwork for your future.
4. Set Realistic Lifestyle Goals
It might be tempting to freely spend your newfound income on the latest shiny toy, but when starting the process of repaying debt, it’s critical to set reasonable lifestyle goals. Having an unrealistic outlook can cause you to become frustrated and even hinder your growth. By establishing feasible goals, you can evade impetuous purchases and maintain a positive financial attitude.
One of the most common decisions we see occur once a medical student has completed residency and starts their first job as a doctor with significantly increased income is a home purchase. One rule of thumb is to purchase a home that’s valued at 3x your salary. This can result in a significant amount of cash flow going toward a mortgage payment if you’re not careful. Instead of purchasing a house based on your total income, consider your debt repayment and savings goals first, then select a home based on the remaining annual income.
Don’t get me wrong. Living within your means and putting debt repayment first doesn’t mean you have to give up happiness. Rather, you can discover joy in the little things in life and lay a solid basis for future financial stability by establishing realistic lifestyle objectives.
Keep in mind that each step you take to eliminate your debt can help bring you one step closer to financial independence and the freedom to live your life as you see fit.
5. Seek Professional Advice
Navigating complex financial matters like balancing increased income and debt repayment can be overwhelming. It’s a good idea to consult with a financial advisor who specializes in working with medical professionals.
Our team at CGN Advisors has extensive experience working with medical school graduates, including those from the University of Kansas, and we are well-equipped to provide personalized guidance tailored to your specific circumstances, regardless of your alma mater.
To schedule a meeting, call our Manhattan, KS, office at (785) 340-3434 or our Rogers, AR, office at (479) 335-1034.
About Chad
Chad Chase, JD, CTFA is a Managing Principal - Senior Financial Advisor at CGN Advisors, a Fee-Only, financial advisory firm based in Manhattan, Kansas. CGN’s team of financial advisors is made up of native Midwesterners who are passionate about helping clients plan for the future. While prioritizing personal relationships with clients, Chad has a passion for financial education, helping them better understand their situation and why certain recommendations are made. He enjoys getting to know clients and their families and seeing how their partnership helps them realize their goals. To some extent, he’s also a nerd who really enjoys numbers and problem-solving.
Chad obtained an associate’s degree from Butler Community College, a finance degree from Kansas State University, and a Juris Doctor from University of Nebraska College of Law. He is also a graduate of the American Bankers Association Graduate Trust School and has obtained the Certified Trust & Financial Advisor certification from the Institute of Certified Bankers. Prior to entering the wealth management industry, Chad worked in commercial banking for four years in Kansas City and Derby, Kansas, and practiced law in Manhattan. Before co-founding CGN Advisors with his business partners, he served as Vice President & Trust Officer at The Trust Company of Manhattan, Kansas, providing his clients with financial advice, investment management, and trust administration services.
Chad grew up on a 100-year old ranch in Butler County, KS, which he still helps manage and operate. His wife, Segen, is a Manhattan native, a fellow KSU graduate, and a local physician practicing in internal medicine. They have two children, Solveig and Gantt. Both Chad and Segen are accomplished musicians and very active in the local music and art scene. In addition to music, he enjoys golf, basketball, KSU athletics, and traveling. To learn more about Chad, connect with him on LinkedIn.
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