Becoming a doctor is a huge investment in your future. Due to the cost and duration of medical school, doctors tend to start their careers later in life, and typically graduate with a significant amount of debt. Since both of these factors can impact your financial situation later in life, many medical school residents find themselves wondering the best way to plan for life after graduation. Should you save money for your retirement, or focus on paying down your medical school debt? Before you decide on a plan, here are some things to keep in mind:
Take a Look At Your Financial Situation
Whether or not you stick to a budget during medical school, once you’re finished it’s a good idea to sit down and look at what you owe, what you own, and what you expect to spend and earn. Creating a balance sheet that reflects your assets, liabilities, earnings, and expenses can be helpful in giving you a bird’s eye view of how much of your monthly income will be leftover to put towards your savings or additional debt payments. Keeping track of:
- Assets like vehicles, savings, or property
- Liabilities, such as your credit card debt or the money you owe on your student loans
- Income coming in (both before and after taxes)
- Expenses like rent, utilities, food, and leisure activities
Once you have a better understanding of how much you earn and owe, you’ll have a better idea of how to refocus your priorities - and this can give you some idea of how much you’ll have open to save or repay.
Set Personal Goals
Are you planning to travel? Retire early? Start a family? No matter what your goals are, planning ahead can help you to get there. It can also give you a better idea of where your financial priorities are. For example, if you want to buy a home in a pricey area, it might be worthwhile to save more of your money for the down payment, and defer some of your student loan payments for later.
When you prioritize your goals, you can make sure your savings plan lines up with them. Keep in mind that plans can sometimes change, so make sure to revisit your goals periodically to make sure they still line up with the things you value. And no matter which option you choose, it’s a good idea to have an emergency fund in case you wind up facing the unexpected.
Look at Your Debt
Deciding whether to pay down debt or keep money in savings can often come down to the type of debt you have. Different kinds of debt can have different impacts on your finances and change your priorities in terms of what you want to pay down first. Some things you should keep in mind include:
- Whether your loan is public or private: student loans with the government can sometimes have special repayment terms or loan forgiveness options not available on loans you’ve taken out with a private lender.
- How much you owe: whether you have a large or small debt load can make a big impact on when you decide to start saving.
- Interest rates: looking at the interest rate on each source of debt can help you to prioritize loans to pay off first.
- The repayment terms: longer terms mean more interest, and can sometimes be adjusted to pay down loans more quickly.
- Minimum monthly payments: keep track of any payments you’re making on each of your loans, and how much of each one is interest.
How quickly you pay off your loans will depend on your comfort with your level of debt. If you’re happy paying down your debt later in your career, it might make sense to make the minimum payments and save more. If you’re nervous about your debt load, it’s a good idea to pay it off sooner rather than later.
No matter what your goals are, planning ahead can help you to get there.
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| Repayment Plan* | Repayment Period | Monthly Payment (Initial to Final) | Projected Loan Foregiveness | Total Interest Paid | Total Amount Paid |
|---|---|---|---|---|---|
| Standard | 120 months | $282–$282 | $0 | $6,878 | $33,824 |
| Graduated | 120 months | $159–$477 | $0 | $8,632 | $35,578 |
| Income-Based Repayment (IBR) | 120 months | $159–$477 | $0 | $8,632 | $35,578 |
| IBR for New Borrowers | 120 months | $159–$477 | $0 | $8,632 | $35,578 |
| Pay As You Earn | 120 months | $159–$477 | $0 | $8,632 | $35,578 |
| Income-Contingent Repayment (ICR) | 120 months | $159–$477 | $0 | $8,632 | $35,578 |
Table footnote example 2: https://www.ed.gov/content/4-must-dos-repaying-your-student-loans
Look at the Pros and Cons
Once you have a good understanding of your financial situation, taking a look at the pros and cons of each strategy can help you make a more informed decision. For example, if you’re focusing on paying down your loans/debt over saving:
Pros:
- Saving money on interest
- Increasing the money you have available to spend once your loans are paid off
- Limiting your stress over your level of debt
Cons:
- It might take longer to save money, which can mean delaying things like home ownership
- Making financial sacrifices (like vacations and other leisure spending) to put more of your money towards debt
Conversely, focusing on saving your money can mean:
Pros:
- Saving early can earn you annual returns and help your money grow over time
- Money you save can go towards life goals like buying a car, a house, or an emergency fund
Cons:
- Paying off your debt can take longer
- Paying additional interest on your debt over time can increase the amount you pay on the loan overall
No matter which option you decide, leaving medical school is a big step towards your financial future. Whether you’re choosing to save more money, pay down your debts, or keep things flexible, planning ahead is never a bad idea. By making a roadmap of your financial future, you can make sure you have enough to meet all of your goals - and have enough to have some fun along the way!
