How This Millennial Doctor Paid Off $100,000 in Student Loans in 2 years

Every January, I go through my spending over the previous year to see where my money went using Mint.  It just hit me today – since refinancing my student loans in Dec 2015, I have paid off $100,000!  It has felt like such a slow and painful process, but finally I’m at a tangible mark – $100,000 certainly feels like a HUGE accomplishment.

How did I do it?

At this point, you’re probably expecting a nifty list to quickly work your way through.  Something about paying off my highest interest loan first, then using the Ramsey snowball effect to roll into the next debt.  Or some other scheme perhaps – moving back with our parents to save money, renting out our house on Airbnb, picking up shifts at a local clinic/hospital.

If you’re reading this, you’ve probably already read tons of articles on the nitty gritty details of how someone else paid off gargantuan loans.  I’m certainly no financial expert, but I believe doctors or anyone who comes into a sudden enormous salary hike are focusing on the wrong thing when paying off large amounts of debt.  We’re all looking for easy action items when really we should pivot our focus to NOT doing things to get out of debt faster.

4 things you shouldn’t do if you’re trying to get out of debt:

1.  Don’t buy that new car

You know that guy – the newly minted doctor/guy suddenly making a lot of money who goes straight to the car dealership with his first paycheck and buys that BMW/Lexus/Audi/luxury vehicle.  I’m friends with that guy.  He knows I judge him.

Both J’s and my cars are paid off, and I like not having a car loan bill due every month.  Cars are admittedly not my thing.  For me, it’s a mode of transportation that I really don’t take very good care of.  Case in point:

 

 

My dogs kept pawing at the window and pulled down the upholstering.  The easiest “temporary” solution was painter’s tape which has been a little more permanent than I’d like to admit.  As you can see, a new luxury car would be wasted on someone like me.

In addition, there’s no way I would throw my muddy puppies in the back of a fancy car after a nice Pacific Northwest hike.  They are literally why I can’t have nice things, and I’m grateful they’re helping me achieve my financial goals.

Average 5 yr car loan payment for $30,000 luxury vehicle = $500/month or $6,000/yr (and that’s not including the higher car insurance costs!)

 

Meet muddy buddy Oliver

2.  Don’t buy more house than you can afford

After residency, I saw a rash of my colleagues buying huge houses.  It felt like we could finally become adults with our larger paychecks, and adults have houses.  Doctor adults have BIG houses.  Ergo, we deserved to also acquire said BIG house.

When J and I moved out to the West coast, we were appalled by how much mortgage lenders were prepared to loan us.  “Oh, you’re a doctor?  Here’s your loan for $750,000.  We’ll just ignore your student loans, don’t worry about it.”  Coming from Michigan where we bought our first house for $112,000 in 2011, that was an absurd amount.  The thought of owing that much money on a home made us too uncomfortable.  Instead, we bought a foreclosure for less than $250,000 (a great deal on the West Coast).

While the house renovations have not been the smoothest, I’m pretty comfortable with our mortgage at 10.5% of our income.  The industry standard is for your monthly housing payment to take up no more than about 30% of your income before taxes.  30% of a doctor’s income is insane to spend on housing costs; yes, even a primary care doctor’s income.

Your mortgage is typically the single largest recurring cost to eat up the money you earn.  Would you rather have a nice big house that you probably can’t afford to furnish or would you rather be debt free?  The answer was easy for me.

$500,000 – $750,000 doctor house in the greater Portland, OR area (assuming 10% down and 4% interest rate) = $2,500 – 4,000/month or $30,000 – 48,000/yr

3.  Don’t buy stuff

Consumption is a major problem in this country.  Daily emails about last minute deals, one-time only sales and last chances to “save” flood my inbox all the time.  TV commercials create demand for unnecessary products in order to feed the buying frenzy.  It’s hard not to feel like you’re missing out on something.

I have a patient that owns over 100 pairs of running shoes.  There’s another that has a Fitbit on one wrist and an Apple watch on the other.  It’s so redundant!  Doctors are no different – in fact, they just purchase more expensive stuff.

I define “stuff” as items that are not necessary.  One pair of running shoes, necessary.  99 additional pairs?  Stuff.  The newest iPhone that does all the same things my current phone does but now you can send custom unicorn face emojis?  Stuff.  My dream of having a baby grand piano to replace the electronic weighted keyboard I have now that’s only played once a month?  Stuff.

Truth be told, I’ve always had a hard time with buying things.  When I was in residency and given essentially free money in my educational fund to buy a technology item, I dragged my husband in and out of the Apple store probably 3 times before I could commit to buying an iPad.  With free money.  It boggled his mind.  Now whenever I’m about to make a purchase, all J has to say is, “Are you sure?” and almost reflexively I put the item down and walk away.  If he’s not there, I usually talk myself out of purchases by asking myself, “How am I going to use this?  How is this going to make my life better?”  Usually the answer is, “It’s not.”  Because if you live in this country, you likely have everything you need already.  (Unless you live in Puerto Rico, in which case they need everything after Hurricane Maria.  Please donate at one of these listed charities HERE).

If you need something and are actually going to use it, then by all means, buy it!  But let’s be honest, that new item you’ve been watching on Amazon is probably just a duplicate of something you already have in your closet/storage.  It’s kind of like textbooks in college – they change a picture here, alter a paragraph there, slap on a New Edition 2.0 label and charge you an arm and a leg to have it.  We all knew the old edition was just fine.  If it made you mad back then, it should make you mad now!!

Stuff = $0 – infinity (and beyond!)

4.  Don’t have kids (optional)

This is a bold optional suggestion, but bear with me here.  I love kids.  As a board certified pediatrician, it would be anathema if I didn’t.  I love the sound of a newborn’s cry, the run on sentences of a 5 year old excitedly telling me a story about nothing and even the petulance of a teenager who knows they’re too cool to talk to me.  But, the cost of having a child is not something I ever see discussed despite its significant impact on your finances.

Even before having children, women need to think about if they have paid maternity leave.  At my practice, I do not, so I would have to purchase a short term disability policy from Aflac which would be between $200-250/month to cover 60% of my salary unless I’d want to use all my paid vacation time to cover me.  The trick is, you need to have this policy at least 10 months before having the baby, so some forethought it necessary.

Short term disability policy = $2,400 – 3,000/yr

During the recent insurance open enrollment at the end of 2017, I looked at insurance premiums for my practice.  They would cover my insurance premium of $400 if I enrolled in the high deductible HSA plan, so as a child-free person now, I’d pay $0.  If I chose to have a child, I would pay $350/month.  If I had instead enrolled in the regular HMO insurance plan, my insurance costs per month would go up to nearly $600, and that doesn’t even include my spouse!

Insurance premium for high deductible HSA plan = $4,200/yr; for HMO plan $7,200/yr

If I stuck with the high deductible HSA plan and had a baby, assuming everything went according to my 20 page long birth plan without any pregnancy or delivery complications, that would set me back $7,000.  I pretty much assume everything would go wrong due to all the things I’ve seen, so I’m prepared for a 72 hour labour with failure to progress in a natural birth, needing to undergo a c-section and discovering my baby has aspirated meconium (that black tarry baby poop).  Baby would then be transported to the baby ICU to require intensive medical care for a week.  In that case, I would hit my family out of pocket deductible of $12,000.  Let’s just be optimistic and say things would go just fine.  

Normal delivery = $7,000

Total up front cost of having a baby = $13,600 – 17,200.   That’s not including diapers, a crib, carseat, stroller, clothes, so on and so forth.  That’s not including the amount of lost wages for the time I would be on maternity leave – 40% of my salary over 2-3 months and after I return to work, that doesn’t include childcare costs.

Even though children bring insurmountable joy, we need to talk about how much they cost because they cost A LOT, and if you’re not prepared financially, that can be disastrous.  My husband and I have additional reasons for not having children right now, and in the meantime we’re reaping the financial benefits.

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The nitty gritty details of how we paid off $100,000 in 2 years will be forthcoming in a future post, but the main takeaway here is this:

Don’t buy into the “I deserve it” mentality.

Doctors fall into this trap all the time – the delayed entry into the workforce after 12+ years of training makes us want to buy all the things all at once, even though most of us aren’t in the financial place to do so.  Certainly other people fall into this trap as well, so I hope the breakdown above has been helpful even if you aren’t a doctor.

Being habitually intentional about NOT buying into consumption is not glamorous.  It’s not glitzy.  It doesn’t result in click bait headlines.  It even sucks sometimes when I feel like I’m depriving myself of things I deserve.  But it’s given me results.

What J and I saved in not doing the above items, we’ve funneled into paying off our (really my) student loans.  I had initially planned on paying off my loans in 10 years, but when I realized I could actually do it in 5 by being diligent and not buying into that doctor lifestyle creep, I’ve been all in ever since.  J and I still go on awesome vacations, eat and drink at the foodie places in Portland, OR – we just do it in a way that aligns with our financial sensibilities.

Is there anything I missed?  What’s on your DO NOT DO list?

 

***Main photo taken during the Seven waterfalls hike in Silver Falls State Park, OR.