There are some mile stones that need to be appropriately celebrated. For the 80% of physicians who graduated with student loan debt, paying those loans off certainly qualifies as such a moment. Everyone has a different way of tackling their student loans. Today, I want to outline how we paid off $200,000 in student loans in 19 months, and then discuss what our plans are to rid ourselves of the rest of our debt.
How I Paid Off My Student Loans
For those who are just learning about our story, it is worthwhile to recount how we got into our student loan debt. I had a full-tuition scholarship in medical school, but because I didn’t follow the advice that I give in my own book (I hadn’t figured this stuff out yet), we ended up with debt.
Each year, we took out $25,000 to pay for inflated living expenses. This ended up turning into a little more than $100,000 that would compound over the next five years while I forbeared in training. [Don’t forbear or defer your debt… almost never a good idea].
Through forbearance, our debt burden turned into $150,000. Add to that my wife’s student loans and the result was around $190,000.
Given that our Debt to Income Ratio was < 1 (my annual salary is more than our student loan burden), we decided to pay back the loans as quickly as possible.
We refinanced our student loans with Common Bond from 6.8% interest during fellowship into a 7 year variable rate around 3.5-4%. During repayment we still gained interest. So, our total student loan debt repayment ended up totaling $200,000.
The original goal was to have this debt paid off in two years – or 24 months – after I finished fellowship.
Two Methods to Debt Pay Down
For student loan repayment, there are two ways to attack the debt. The snowball method (attacking the smallest loan first) helps provide forward momentum and motivation. It’s a pretty good tactic for most people.
The snowball method is for motivation to keep you going. However, that’s not what we did.
The avalanche method of crushing the highest interest rate debt is for the death and destruction of debt.
After going through bankruptcy as a kid, when I had my financial enlightenment, it ignited a hatred for debt within my soul. So, I used this hatred to send any extra money we had each month towards our dreaded student loans.
We had a scheduled monthly payment of $5,500 towards our student loans. You might notice, though, that we paid off our $200,000 in loans in 19 months. This brings the average debt paid to $10,000 per month.
Where did the rest of the money come from?
Clinical and non-clinical bonuses.
I worked way more than what was required in my first year. According to our not-so-secret recipe for financial success (The 10% Rule), we put 90% of any bonus I received towards our student loans.
And, then, voila! Our student loans were gone. It took just 19 months.
Future Debt Repayment Plan
Now that our student loans are gone, we are faced with the same dilemma. Do we invest additional money that we receive, or do we pay down our two remaining car loans?
[You might notice that one of the options there was not to inflate our lifestyle with the extra money…]
I think our plan is to have a balanced approach and to do a bit of both. We will invest the additional money that we will cash-flow each month.
In total, we have ~$57,000 in car loans to crush. Over the next 12 months, the scheduled car payments will pay off about $13,000 of that. Our quarterly and annual bonus money will likely go towards the car loans.
So, in order to pay off our car loans we will need an additional $43,800 over the next 12 months to have them paid off. That will be a tough goal to meet, but if we live within our means and use additional bonus money it is possible.
The reason for this post is two-fold.
First, I want our progress to serve as motivation for your goals. Hopefully, you can see that paying student loans off is possible. I don’t pretend to always get it right. But it can be done despite not being perfect.
Second, it helps hold my family and me accountable to our goals. If I’ve stated it on here, then it is something my wife and I will be held to. If a change is necessary, it will only happen through intentional conversations and goal setting discussions.
I’d love to hear about your debt pay-off goals! How much do you have left, and how long do you anticipate it taking to pay them off? Are there areas where you can make adjustments to get to your goals faster? Leave some comments below.
Jimmy / TPP
It is wild what forbearance does to your debt stack. I foolishly did that throughout my residency when I could have at least sent in money to cover interest so it did not get compounded (I didn’t so I was later paying interest on interest). I also did not aggressively pay down this debt and it hung over my head for 17 years from time I graduated (and this was only accomplished “this quickly” because at the very end I decided to pay it aggressively down (if I had stuck with the payment plan it would have continued I believe for another 10 more years).
The student loans were like another mortgage. Congrats on paying it down so quickly and freeing up a lot of momey that can be used to attack your remaining debt. Your method is definitely the preferred way to go. I used the Avalanche Method as well because I couldn’t get past the math and I didn’t need the emotional reasons to do it that the snowball method helps address.
Yeah, the avalanche method is the way to go if you have the motivation. Either way will work, but the math is clear.
I wish someone had told me better, but it just wasnt something people talked about back then.
Appreciate your candor and the relatable human mistakes along the way as well as your drive to make up for those errors without excuses!
Thanks, CD. Hopefully my mistakes will prevent others from making the same!
That’s an awesome strategy, TPP! Shuffling regular additional money towards investing and 90% of money from bonuses toward car loan debt.
I like how you think. In essence, you’re putting a system in place as a plan for investing and debt pay down. It’s a great system that allows you to know exactly where each dollar is going without even thinking about it. Having a system like this reduces decision fatigue. It’s automatic!
In many ways, having systems like this in place helps keep life simpler. We make so many decisions in our day to day lives. And many of our decisions are life or death in our profession. Any effort to reduce decision fatigue helps to reduce burnout in career and in life.
Making it automatic is the secret sauce to financial success. We had rules and we followed them because we understood the big picture first. The system works if you can stick with it. And you can stick with it if you understand your “why”