Tips to keep your debt from spiraling out of control
From the January 2000 ACP-ASIM Observer, copyright © 1999 by the American College of Physicians-American Society of Internal Medicine.
By Christine Kuehn Kelly
Talk to residents about debt, and most say they don't spend a lot of time thinking about how to pay off their loans. Residency chews up most of their time and they're earning enough to pay the bills, so they plan to deal with debt when it comes time to pay off medical school loans.
That approach, however, has some serious flaws. First, if you're like most residents and carrying medical school loans that approach six figures, you may not be taking advantage of the help available to minimize your debt. From consolidating loans to extending payment plans, some simple strategies can make medical school debt much easier to live with.
The other major problem with postponing a discussion about debt is that what you owe can quickly spiral out of control. Most residents earn a stipend somewhere in the mid-$30,000 range, but there are signs that many are spending more than they make. Nearly a third of residents last year had noneducational debt of $5,000 to $25,000 and up, according to figures from the Association of American Medical Colleges (AAMC).
Instead of putting off the inevitable, financial experts say that now is the time to start thinking about debt. Here are some tips to help you manage medical school debt, and to make sure that your current spending habits don't add too much to what you owe.
Medical school loans
The first step in successful debt management is analyzing your loan portfolio and considering the routes open to you. Here are some pointers:
- Look for help in your own backyard. A number of medical schools offer debt management services to housestaff working in their residency programs. You can also contact your medical school financial office, even after graduation. Because your loan records are all on file at your medical school, this can be a huge source of help.
- Visit the AAMC's Web site. One of the best sources for help with debt management is the AAMC, which provides strategies for managing loans on its Web site. A useful feature of the AAMC's site is the "Moneymatters" section, which answers residents' questions about financial issues and provides news about changes in student loan interest rates, deferment and forbearance options and other loan issues. The site also offers video versions of debt management workshops.
- Consolidate your loans. By consolidating your debts, you can reduce the number of checks you write every month and extend your loan payments, lowering your monthly payments. (More information is available on the AAMC's Web site.) If you're considering consolidating your loans, it's helpful to use a loan calculator, which can give you an idea of exactly how much you'll have to pay monthly on different loan amounts. (For a loan calculator geared to housestaff, go to the Duke School of Medicine's Web page.)
- Know your rights. It's important to familiarize yourself with debt management concepts such as grace periods, deferment and forbearance. Knowing your rights can help make sure that you are getting the most favorable payment terms available.
Benjamin Crocker, ACP-ASIM Associate, a third-year resident at Boston University Medical Center, received some interesting information when he attended an AAMC seminar on student loans at his teaching hospital. "I learned I was eligible to consolidate through the government's direct loan program," said Dr. Cocker, who plans to add a fourth year to his residency, "and that I could extend my deferment until the end of my residency with no accrued interest on my subsidized Stafford loans."
And when his twin brother, Jonathan Crocker, ACP-ASIM Associate, also a third-year resident at Boston University Medical Center, was told to begin paying his loans back after only two years as a resident, he knew that he was entitled to the standard six-month grace period.
- Consider loan forgiveness programs. If a resident agrees to work in a medically underserved area, federal and state loans may be forgiven through the National Health Service Corps Loan Repayment Programs. Underserved areas include major cities, so you won't necessarily have to move to rural locations. The AAMC's Web site has a section devoted to loan forgiveness programs.
- Document everything. Just as you document your conversations with patients, remember to write down every interaction with your lenders.
Keeping good records paid off for Geoffrey Sheinfeld, MD, when one of his lenders tried to lengthen the payments of his 10-year loan. "I told them I had the promissory note right in front of me that proved it was for 10 years," said the Salt Lake City internist. "I document every letter or phone conversation and payment, and I insist on lenders providing me with a receipt for each payment."
Once you've got a handle on your loan portfolio, start looking at your spending habits. Combining medical school debt with personal credit-card debt can be a recipe for financial disaster, so it's vital to get a grip on day-to-day spending.
- Make a budget—and stick to it. Once you've figured out where your money is going, whether it's cable fees or dining out, you can set up a budget. Gerry Wixted of the Consumer Credit Council Service in Philadelphia suggested that you establish how much you will spend monthly on recreation, for example. Once you have spent that amount, don't go beyond it.
- Live within your means. "We live in a society that tolerates debt," said Richard H. Esham, FACP, who directs the division of general internal medicine and geriatrics at the University of South Alabama College of Medicine in Mobile, Ala. Today's residents have higher expectations for a comfortable lifestyle, he said, and they want it sooner. Often that lifestyle is purchased with the help of credit cards, and though the "teaser" interest rates are low, they quickly escalate. Some residents have incurred as much credit card debt as medical school debt, said Dr. Esham. "Those are the most malignant of loans that threaten young doctors."
- Be realistic about your earning potential. Are you overshooting your current means with an eye to future earnings? If you are incurring additional debt now, make sure that it is covered by your future earnings potential. While you'll earn more once you finish residency, the big question is how much more. "You may become a star physician, with a very high income, or you may be an average physician with average earnings," said Mr. Wixted.
Christine Kuehn Kelly is a Philadelphia-based freelance writer specializing in health care.
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