Conquering The Post-residency Debt Mountain

“How should I pay off my school debt?” This is a question that I am asked day in and day out. My response is universally the same: Why? If you can understand why you want to pay off your debt, then coming up with a payback plan is an easy thing to do.


Two plus two is always four, but we all feel differently about debt. Some people were brought up to think that they should pay cash for everything, and others are comfortable carrying credit card debt.

The method for determining the right combination of monthly savings, debt payoff and spending is different for everyone. It depends on each person’s life experiences and the goals that they have.

Most people who I come into contact with want to know what their payment amount should be. I am asked, “Should it be the minimum payment or $100 more a month?” Or, “Should I take all surplus income and apply it towards my principal until the balance is zero?” Ask yourself this question— is your long-term goal to be debt free?

Maybe not. For most people, the more important goal is to become financially independent. Simply put, this refers to the ability to come and go as you please financially. While it may feel good to be debt free, in reality you should not endeavor to accomplish short-term goals at the detriment of long-term goals. When determining the correct debt-exit strategy for you, it is paramount to keep this point in mind. When considering student debt that is paid back over a long period of time, inflation should be taken into account. For example, if inflation (the annual increasing cost of goods and services) has historically averaged a rate of 3%, and your student loan debt is fixed at a repayment rate of 5%, then the actual “cost” of this money is 2% (5% less inflation of 3% equals 2%). If you think that investing in your home, your 401(k), or any other investment will yield a better result than an inflation-adjusted 2% over a long period of time, then why would you pay extra principal on your student loans? Mathematically, paying debt down early may not make sense, and it may put you in a worse financial position in the long term.

It is important to understand that I am not advocating for paying back your loans early, nor am I advocating for NOT paying back your loans early. There is always going to be an emotional component to this decision, regardless of the math. Nonetheless, one of the biggest mistakes I see young physicians make is not thinking logically about this vital decision. You must take into account your comfort level with carrying debt as well as the lost opportunity cost of investing the money elsewhere in order to find a happy medium.

As opposed to sending all of your surplus income to pay off loans, come up with a monthly principal payment that will allow you to pay the debt off in 3 years or 5 years, or whatever works best for you. What matters is that you approach this debt-exit strategy strategically and not just emotionally. This will allow you to pay back your debt early while still allocating some of the surplus income you take home to long-term goals such as financial independence, retirement, or saving money for your children’s education.