There are some milestones 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. It’s 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 to 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, 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.
James Turner, also known as “The Physician Philosopher,” is an anesthesiologist who blogs at his self-titled site, The Physician Philosopher. He is the author of The Physician Philosopher’s Guide to Personal Finance: The 20% of Personal Finance Doctors Need to Know to Get 80% of the Results.
Image credit: Shutterstock.com