| New physician, high income but high debt ... seeking advice |
|
|
|
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
| New physician, high income but high debt ... seeking advice |
 |
|
Not sure where to start...
I am 31 with a wife and 3 kids.
I graduated last summer from residency and landed my first job as a physician. As part of my salary I take home about 20k per month after taxes. I can also earn up to 50-100k in bonuses per year depending on productivity.
During residency I racked up quite a bit of debt. My wife stays at home so no income from her. We lived in an expensive city so cc debt and some loans were taken out to live on, my salary was ~50k.
My current debts are:
-500k house
-250k student loans
-50k 2 car loans
-40k personal loan
-20k cc debt
Assets are:
401k
minimal savings
So far I have been paying down the cc debt. After paying for everything in the budget I have about 5-6k per month to pay off debt. I figure I can knock that down soon, I should be getting a 10k bonus in January or February.
After the cc debt is gone what should I do next? I would like to start a retirement account besides the 401k, education funds for the kids, and get rid of that debt!
I would be happy to provide any other information you guys need. Thanks for the help!!
|
Sat Dec 31, 2011 4:24 am |
|
|
littleroc02us
Moderator
Cash: $ 205.35
Posts: 1015
Joined: 09 Feb 2009
|
So your networth is anywhere from -250k to 500k. Not a good place to be, unless your income is 20k a month. Why is it that you only have 5-6k month to pay bills? Where is all the money going? So your blowing through 15k a month? Wow! If I were you I would sell your cars and buy cheap ones for a while. Take your income that you have left and pay off your 20k in cc debt in 3 months. Then move on to the personal loan which would take 8 months, so after 1 year you should have your cc and personal loan debt paid off in that time. Now in order to pay off your student loan debt you will need to open up 10 each month so that it will only take you 25 months to pay off that debt. So really in about 3 years you should be debt free except your mortgage. Then take 15 percent of your income at age 34 and invest for retirement. You should have millions by the time your 65. Good luck!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
|
|
Sat Dec 31, 2011 7:13 am |
|
|
coaster
Senior Advisor
Cash: $ 1357.80
Posts: 6686
Joined: 11 Oct 2005
Location: Wisconsin
|
quote:
Originally posted by littleroc02us
You should have millions by the time your 65. Good luck!
And he will be the only one able to afford health care.
But I think the OP has much to say about why this country's world health care rank is down there just above Slovenia (#37) while the ONLY category in which it's in first place is COST. (Well, OK, actually it's #2, but #1 is the Marshall Islands, which has some, shall we say, difficulties, in providing access)
I better stay out of this topic. Or I'll still be typing after the sun comes up. And it'll all be off-topic.
But this comment I have to make because it's my overwhelming reaction:
The concept of a physician making a bonus on "productivity" is a concept I find absolutely loathesome and appalling, and quite frankly, I believe it to be a violation of the Hippocratic oath.
~Tim~
Eye Candy : Why Whimsy
|
|
Sat Dec 31, 2011 8:13 am |
|
|
oldguy
Senior Member
Cash: $ 309.30
Posts: 1481
Joined: 21 May 2006
Location: arizona
|
Doc, Let the power if compound interest work for you. Keep the 'long, low' loans for the full term - and prepay the short term, high interest, variable rate loans.
Eg - a $100k loan, 4.5% fixed rate, 30 yrs , costs $507/m, ie, $182,000 total. Place the borrowed $100k lump sum at in an index fund at 11%/yr and it will be $2,300,000 in 30 yrs.
List your loans by rate, term, and fixed/var.
If your mortgage is a 4.5% 30 yr fixed rate, it is a 'keeper'. Or, if it is an ARM that can increase over the next decade refi it to a fixed rtate 30 yr.
Your SLs may be mixed - some 7% private loans, some 3% govt loans - so you may want to consolodate some and prepay some.
But in general, you'll probably want to keep the home loan, the SLs, and the car loans - prepay the cc & personal loan - and direct your resources at to funding investments - your ultimate wealth will likely be in 11%/yr index funds, both in 401k and in taxable accounts. (No Roths for you, you are way north of the salary limit).
|
|
Sat Dec 31, 2011 3:58 pm |
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
|
|
|
quote:
Originally posted by littleroc02us
So your networth is anywhere from -250k to 500k. Not a good place to be, unless your income is 20k a month. Why is it that you only have 5-6k month to pay bills? Where is all the money going? So your blowing through 15k a month? Wow! If I were you I would sell your cars and buy cheap ones for a while. Take your income that you have left and pay off your 20k in cc debt in 3 months. Then move on to the personal loan which would take 8 months, so after 1 year you should have your cc and personal loan debt paid off in that time. Now in order to pay off your student loan debt you will need to open up 10 each month so that it will only take you 25 months to pay off that debt. So really in about 3 years you should be debt free except your mortgage. Then take 15 percent of your income at age 34 and invest for retirement. You should have millions by the time your 65. Good luck!
Thank you for your input. Yes after I pay all the bills and everything for the month I am left over from 5-6k. We splurge on going out to eat and groceries, where I am sure we can save more money too. I am bad at budgeting... they didn't teach that in MD school :/. I've started to use Mint, and trying to get this on track. So should not worry about other retirement, education funds, emergency savings until I pay down the student loans?
|
|
Sat Dec 31, 2011 4:33 pm |
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
|
|
|
quote:
Originally posted by coaster
quote:
Originally posted by littleroc02us
You should have millions by the time your 65. Good luck!
And he will be the only one able to afford health care.
But I think the OP has much to say about why this country's world health care rank is down there just above Slovenia (#37) while the ONLY category in which it's in first place is COST. (Well, OK, actually it's #2, but #1 is the Marshall Islands, which has some, shall we say, difficulties, in providing access)
I better stay out of this topic. Or I'll still be typing after the sun comes up. And it'll all be off-topic.
But this comment I have to make because it's my overwhelming reaction:
The concept of a physician making a bonus on "productivity" is a concept I find absolutely loathesome and appalling, and quite frankly, I believe it to be a violation of the Hippocratic oath.
I've been lurking this site reading post for awhile and was looking forward to your input actually. You seem to give good advice.
Regarding the bonuses, medicine is and has been moving to a few large corporations, buying up hospitals and practices and running them like any other business. They put physicians on salary. Back in the day if you busted your butt, then the sky was the limit in regards to your salary in a private practice. Now if bust your butt you get your base salary and then a productivity bonus. It is a business to the people in charge, who aren't doctors. Yes I agree that there is a lot wrong in US medicine.
|
|
Sat Dec 31, 2011 4:44 pm |
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
|
|
|
quote:
Originally posted by oldguy
Doc, Let the power if compound interest work for you. Keep the 'long, low' loans for the full term - and prepay the short term, high interest, variable rate loans.
Eg - a $100k loan, 4.5% fixed rate, 30 yrs , costs $507/m, ie, $182,000 total. Place the borrowed $100k lump sum at in an index fund at 11%/yr and it will be $2,300,000 in 30 yrs.
List your loans by rate, term, and fixed/var.
If your mortgage is a 4.5% 30 yr fixed rate, it is a 'keeper'. Or, if it is an ARM that can increase over the next decade refi it to a fixed rtate 30 yr.
Your SLs may be mixed - some 7% private loans, some 3% govt loans - so you may want to consolodate some and prepay some.
But in general, you'll probably want to keep the home loan, the SLs, and the car loans - prepay the cc & personal loan - and direct your resources at to funding investments - your ultimate wealth will likely be in 11%/yr index funds, both in 401k and in taxable accounts. (No Roths for you, you are way north of the salary limit).
Thank you , the difference between yours and littleroc02us advice is keeping some low interest debt around and starting the investments early? What rate is a good rate to use as a cut off to keep or pay a loan? 5%
|
|
Sat Dec 31, 2011 4:50 pm |
|
|
oldguy
Senior Member
Cash: $ 309.30
Posts: 1481
Joined: 21 May 2006
Location: arizona
|
quote:
Thank you , the difference between yours and littleroc02us advice is keeping some low interest debt around and starting the investments early? What rate is a good rate to use as a cut off to keep or pay a loan? 5%
These days I stay below 6% for investment capital, that leaves a 5% margin. But you adjust it to the era - eg, in the 1980s some of my houses had 8% or 8 1/2% loans, but the SP500 Index had an 18%/yr return for many years.
And you are right about the conceptual difference - you build wealth much faster by putting your resources into 11%/yr investments early than by putting your resources into prepaying low cost debt. The caveat is that you must manage debt well, and keep a reliable income stream so that you can service the debt without interruption.
As you probably know, docs are a target for investment scammers - people will try to sell you shares a Prize Texas Bull LLC to give you a tax write off - avoid those kinds of traps and stick with an index.
|
|
Sat Dec 31, 2011 5:58 pm |
|
|
mrbrad
New Member
Cash: $ 0.80
Posts: 4
Joined: 29 Dec 2011
Location: New Orleans
|
I would place a laser-like focus on paying off all the debt with the exception of the mortgage. I would start with the lowest debt - credit cards, then personal loan, etc.
I would not worry about interest rates as much because you can build great momentum by paying off the smallest quickly and building up the larger debts. I believe this to be the most effective method to paying off debt.
Make sense?
Brad Moore
Life & Financial Coach
helping people to live the life they want
|
|
Sun Jan 01, 2012 2:31 pm |
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
quote:
Originally posted by mrbrad
I would place a laser-like focus on paying off all the debt with the exception of the mortgage. I would start with the lowest debt - credit cards, then personal loan, etc.
I would not worry about interest rates as much because you can build great momentum by paying off the smallest quickly and building up the larger debts. I believe this to be the most effective method to paying off debt.
Make sense?
Yes this is what I have been doing so far, paying off smallest debt first then going up the ladder. I just wasn't sure what to do after the cc debt was paid off. Getting lots of great advice, I thank you all.
|
|
Sun Jan 01, 2012 6:50 pm |
|
|
oldguy
Senior Member
Cash: $ 309.30
Posts: 1481
Joined: 21 May 2006
Location: arizona
|
quote:
I believe this to be the most effective method to paying off debt.
Yes, that's true. But perhaps that goal is wrong - paying off debt is not a goal, building net worth is a goal. And when prepaying debt stands in the way of building wealth, you must select what your goal is.
|
|
Sun Jan 01, 2012 7:37 pm |
|
|
littleroc02us
Moderator
Cash: $ 205.35
Posts: 1015
Joined: 09 Feb 2009
|
quote:
Thank you , the difference between yours and littleroc02us advice is keeping some low interest debt around and starting the investments early? What rate is a good rate to use as a cut off to keep or pay a loan? 5%
Actually there are many other differences, I don't like the high risk approach of borrowing or leveraging to invest. I'm more of a debt free type of investor with low risk.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
|
|
Mon Jan 02, 2012 5:37 am |
|
|
coaster
Senior Advisor
Cash: $ 1357.80
Posts: 6686
Joined: 11 Oct 2005
Location: Wisconsin
|
quote:
Originally posted by DocHolliday
Yes I agree that there is a lot wrong in US medicine.
Thank you for your considered and considerate reply to my inflammatory remarks (which for me on this topic were actually rather mild), and especially thank you for understanding they weren't personal. Perhaps if you feel led to, your remarks on what YOU think might be done (in a separate topic of course) would be remarks I for one would be interested in reading.
~Tim~
Eye Candy : Why Whimsy
|
|
Mon Jan 02, 2012 7:29 am |
|
|
KatherineLee88
Preferred Member
Cash: $ 22.65
Posts: 112
Joined: 10 Jan 2011
Location: Iowa
|
| Re: New physician, high income but high debt ... seeking adv |
|
|
quote:
Originally posted by DocHolliday
Not sure where to start...
I am 31 with a wife and 3 kids.
My current debts are:
-500k house
-250k student loans
-50k 2 car loans
-40k personal loan
-20k cc debt
How old are your children? I think that after tackling the cc debt and personal loan you should really consider opening educational savings accounts for these children for college.
What rate are the student loans at? If they have a higher interest rate (above 8-9%) that could affect if you want to carry out these loans for the entire duration of the repayment period or try to pay them down faster. However, if they are on the lower end (2-5%) then it would be better to no pre-pay these to finish them out quicker. Also, what is your house financed at?
But you're right in tackling the cc and personal loan debt first since they should be the loans with the highest interest rates on them.
|
|
Mon Jan 02, 2012 5:41 pm |
|
|
DocHolliday
New Member
Cash: $ 1.65
Posts: 8
Joined: 31 Dec 2011
Location: US
|
| Re: New physician, high income but high debt ... seeking adv |
|
|
quote:
Originally posted by KatherineLee88
quote:
Originally posted by DocHolliday
Not sure where to start...
I am 31 with a wife and 3 kids.
My current debts are:
-500k house
-250k student loans
-50k 2 car loans
-40k personal loan
-20k cc debt
How old are your children? I think that after tackling the cc debt and personal loan you should really consider opening educational savings accounts for these children for college.
What rate are the student loans at? If they have a higher interest rate (above 8-9%) that could affect if you want to carry out these loans for the entire duration of the repayment period or try to pay them down faster. However, if they are on the lower end (2-5%) then it would be better to no pre-pay these to finish them out quicker. Also, what is your house financed at?
But you're right in tackling the cc and personal loan debt first since they should be the loans with the highest interest rates on them.
The kids are 7, 3, 1.
The student loans are split between 3 loans, at 4, 6, and 7%
The house is at 5%. We are in the process of finding out if we can refinance it.
|
|
Mon Jan 02, 2012 9:25 pm |
|
|
|
