Medical Student Debt Repayment in Early Practice

Hopefully, you minimized debt during medical school and controlled it as a resident. Despite that, most physicians will still have a significant debt load when they start practice. When you become an attending, the future has arrived. You have felt the growing burden of your debt and now it is time to the turn the tables and crush it. That requires you to pay attention and make a medical student debt repayment plan.

How much money you have to smash your debt depends on your income, lifestyle spending, and investing. Everyone’s balance of those variables will be different. The underlying message of this post is that it will be okay as long as you control those variables and address your debt. A few new attendings openly talk about it, but I will also give my perspective from mid-career and illustrate with some numbers.

Defuse the Impending Debt Explosions

There are three ticking time bombs that may need to be dealt with first before you start balancing your other priorities.

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Toss the beast a snack

One is to feed the delayed gratification beast. So, eat a marshmallow. If you do not, then you may have a late night craving and eat the whole bowl when your discipline is weakest. The main thing is to be reasonable and deliberate. In particular, think carefully about ongoing maintenance costs (like BMW or house repairs, for example).

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Eliminate or Consolidate High-Interest Debt

The other impending emergency is if you either have high-interest debt (like a credit card) or are at high risk of incurring it. Credit card interest rates are crushing and can quickly explode due to compounding. Credit cards are meant for convenience, and maybe some benefits. Not for carrying debt.

So, either consolidate them to your line of credit or pay them off asap. You must then also make sure that you have enough cashflow or line of credit space to deal the unexpected. A credit card should not be your “emergency fund” plan.

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Predictable Unexpected Costs

There will predictably be unanticipated costs when starting your post-training life and practice. Equipment, licensing costs, income tax installments, and perhaps kids are the big ones. How quickly you can defuse these expense-bombs depends on your structural costs (basic living plus the required maintenance of your stuff) counterbalanced by your income. The good news is that the latter is about to get much better.

Canadian Attending Physician Income

The first variable in the debt elimination equation is your income. You will likely get a progressively solidified idea of your income as you approach, enter, and build your practice. However, I also think that it is important to have some basic notions right from the medical student stage. It is important to choose your specialty with as much information as possible, including income expectations. Plus, it is important to crunch some numbers to see how the debt that you are incurring to train is going to be dealt with later by earning.

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The Income Ramp-Up.

It will likely take some time to build up to your longer-term full attending income. You can mitigate some of that by making sure to apply for you billing number as soon as possible. Lining up work in advance helps too, if you are able. That may come easily for some specialties or it may take time for others. However, you maximize your odds by starting early.

You will also improve your clinical efficiency as you gain experience. In addition to how efficiently you manage your clinical load, how well you bill for the work that you do has an impact. Discuss billing and practice management with your attendings in your final year of residency. Your colleagues a few years ahead of you are another great resource.

Life may also throw you curve-balls, like a personal or family illness, or kids. You can insure against some of those hazards, like with disability or critical illness insurance. Kids are tougher to plan for. Despite how this brew mixes in your early post-resident days, you will eventually hit your stride. My suggestion is to work as much as you can when you get the opportunity to help buffer the hiccups that inevitably happen along the way.

It may not be a straight line or smooth ramp-up, but you will get there. What could that look like?

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Ball-Park Attending Physician Income

I am going to mash together some data from CIHI National Physician Database, older overhead data, and the numerous peeks that I have had into different physician’s financial drawers. There is also a tonne of variability between physicians based on where, how, and how much they practice. Even within specialties. There may also be other sources of money, like billing for uninsured services and stipends that are not well captured.

Many subspecialties missing from the list below. The Canadian data is a bit more limited and I just wanted to give some examples without overwhelming. The US physician income data can also be useful for a relative comparison between fields and is more comprehensive.

Precision is actually not very important for this post because there is a large margin of “It will be okay”.

Medical Student Debt Repayment Timeline

The good news is that you make much more per unit of time than you did as a resident. Despite the common hiccups along the way. You could work half-time and still make double or quadruple what you did as a resident. Plus, if you continue to live like a resident, then you have plenty of wiggle room.

I am going to just lump all debt together for the simulation. However, you may repay some Government student debt more slowly due to forgiveness, return of service agreements, and tax credits. Those nuances require a separate post, but only make the math better. Pummeling your line of credit should be a priority regardless.

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Basic Costs of Living

The minimal cost of living varies by location and the size of your family, but it is usually under $3-5K/month. Here is a cost of living calculator that let’s you adjust family size and major cities. That is a pretty bare bones estimate. However, don’t forget that a couple would likely mean either a second income or saving on daycare costs. Of course, the sky is the limit if you want more discretionary luxuries. However, most Canadian households do live within this range.

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Two to three years until debt-free can be within your grasp.

If you can manage average-Canadian living for a couple of years, you can have your debt eliminated. Plus, have a big chunk saved in your Registered Retirement Savings Plan (RRSP) to boot. Here are examples of how well it could go when you hit your stride. This is starting with $215K of student debt at 5%/yr interest. You paid the interest on that during residency to prevent it compounding out of control. Monthly spending is a mid-range $4K/month for the example. You will note that I also factored in RRSP contributions. More on that in a moment.

High-Income = Time to Use Your RRSP

Whether to pay debt vs invest is one of the major dilemmas that people face when starting out. Debt interest undergoes compound growth, but early investing allows your investments to compound longer too. Your tax-sheltered accounts offer enough benefits that you should consider using them early, as part of your plan.

While you are in a lower tax bracket, the Tax-Free Savings Account (TFSA) is a great place to start investing. That is because you must contribute with after-tax dollars that are more lightly taxed at lower incomes. Once you are either in the top tax bracket or near what will be your top bracket – an RRSP becomes a great option.

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An RRSP boosts your ability to pay medical student debt & invest simultaneously

An RRSP is like the inverse of a TFSA because it is analogous to investing with pre-tax money. Both have tax-sheltered growth, but you get a dollar for dollar reduction on your taxable income when you contribute to an RRSP. For example, when you are in the 54% tax bracket, that means a 54% tax refund. So, not only are you starting your investing, you can do that with less impact on your personal cashflow. You can use that extra cashflow to further pay down debt or build up your TFSA.

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The RRSP & debt repayment compromise could boost a house down payment.

As you can see in the above example, forgoing an RRSP while at a high income does result in paying debt a few months faster. However, the amount of RRSP you could build up simultaneously with only a slight delay in debt elimination is outsized.

You do have to pay tax to get money out of an RRSP. However, if you are a first time home buyer, you do not (as long as you pay it back into the RRSP over 15 years). A TFSA is tax-free and you do not lose the space when you take money out. So, the RRSP +/- TFSA could be a way to pay debt and save for a house more efficiently.

When the First Home Savings Account (FHSA) becomes reality, it may be an even better option. It has the pre-tax RRSP benefit and tax-free withdrawals and is in addition to a TFSA. Crazy, but a big bonus for people with the financial power to use it.

Of course, if you blew your wad buying your first house in medical school or residency, then you may not be able to access that RRSP or FHSA perks. Even as an attending, delaying a house purchase often makes financial sense. Not only to pay debt and build a down payment, but also to be more certain that you are going to stay at that address for a while. The break even point of buying vs renting is usually >5 years and it is common to have major changes when starting out. Like a poor job fit, new job opportunity, or a family change.

Do Not Rush To Incorporate

The main benefit of incorporating as a physician, besides the fact it sounds cool, is if you can leave money in it to grow for a long time. Tax integration ensures that you do not save money just by flowing it through a corporation. Contrary to common belief, there are no special expenses that you can claim as a corporation that you cannot personally. An RRSP, TFSA, and the soon to be Franken-Housing-Savings-Account are all tax-sheltered. A corporate investing account is exposed to taxes.

So, it does not usually make sense to use a corporation until you have paid off your student debt, maxed out your RRSP/TFSA/TFHSA, and fed the delayed gratification beast. That could take less than a couple of years if you are both fortunate and focused. However, for many, it takes longer. I incorporated right away because it was cool and I could income split with dividends back then. In retrospect, I would have incorporated about five years too early by today’s rules.

No One Gets This Perfect. That is okay. You’ll be okay.

This post has given you some data and anchors. I hope that you also get a sense that it will be okay, but that the exact path will vary. Things will happen that you cannot control, but as a physician you will have more resources than most people to take them on. It takes discipline, brains, resilience, and a strong work ethic to become a doctor. You have them. You may not have had the money required (hence the debt), but you will make it. I hope that this post has also given you actionable advice on how to use that too.

Try to get the big decisions right. However, know that you can get some wrong and still recover. Physician on FIRE had his first job blow up, had a big house hangover, and still retired early. Yatin Chadha of Beyond MD also moved jobs and houses in early practice . Even when established, I bought too much house on a grand scale. I guess, the main lingering side effect is that you end up doing blogs or podcasts to try and warn others.

It will be okay, but try the debt repayment calculator below with your own numbers to see that. Or end up a blogger.

Medical Student Debt Repayment Calculator