Debt Management Tips for Doctors

March 5th, 2018

For medical professionals, managing debt is essential. At different stages of your career, income and expenses can fluctuate quite a bit, so it’s important to consider how a doctor’s career can differ from the average. Whether you’re just starting out and have educational debts, or are starting or expanding your own practice, and want to structure your budget accordingly, this guide is tailor made to help you better manage your debt.

Create a budget

A budget should include all the costs of living reasonably accounted for in your life. Budgets need to be realistic. When it comes to weekly expenses like food and drink, you need to account for eating out, not just the bare minimum groceries it takes to get by. Similarly, electrical bills can be higher than anticipated depending on the weather, and it’s always good to budget in clothing, grooming and other needs as well.

The purpose of a budget isn’t to take the fun out of life, but to give you some perspective on how you use your money as well as what’s left over for paying back debts. If you own your own business the same philosophy can be applied as if you’re a student looking to pay back loans. Regardless of your financial situation, a budget is a smart play.

Planning is everything

Regardless of the industry, when you talk financials, it’s all about the plan. A plan is more than just an idea in your head. It’s written down, and in the case of a financial plan should include spreadsheets for budgeting and expenses. Tip #1, if you haven’t written it down, it’s not a plan.

Make a list of your debts

Mortgage, rents, car loans, equipment financing and bank loans. What do you owe, how long are the repayments, and what time frame do you have to pay them back. Be sure to consult the terms and conditions of any loans or other debts and make a note of benefits or penalties that may apply.

Medical industry specifics

As a health professional, there are a number of considerations that come into play when creating your budget that you won’t find with some other professions.

You may wish to pursue accreditation courses, and there’s also income protection and insurance to consider. Furthermore, depending on your career, your income may fluctuate depending on how you draw and income. Are you:

• Employed in a salary position
• Temporary or contract employee
• Business owner

Each draws income in a different manner and has more or less likelihood of fluctuating circumstances. In your budget, you may want to account for fluctuating monthly earnings by averaging out income over a tax year. Use previous tax years as guidance for estimations.

Prioritise debt

Now that you’ve tallied up your debts and your costs of living, you have a better idea of how much you can actually pay back on a weekly, fortnightly or monthly basis. Your next step should be to prioritise your debts, based on which are a bigger priority to pay back. In assessing this, you should look at:

• How much you have to pay back
• Which debts can be paid off fastest
• Which debts have the least favourable conditions
• Any penalties or bonuses within your debt structure

Prioritising can be tricky. There might be a short term incentive for paying off one loan quicker, but that needs to be balanced with other obligations. Also, remember that paying back only the interest on a loan might seem like a low cost option, but it’s essentially throwing money away, as the principle remains the same.

Consolidate debt

Debt consolidation basically means taking out a loan with better conditions that pays off all your outstanding debt, and instead lets you pay back just one loan under more favourable conditions. If you’re unsure about whether debt consolidation is right for you, talk to your financial advisors.

Watch out for lifestyle inflation

As a doctor or other medical professional, you are at risk of ‘lifestyle inflation’. Medical professional earnings can go up quite quickly, particularly in the years after residency or years after building up a large client base for your business. Lifestyle inflation happens when you start spending more because you’re earning more.

If you do start making more money, avoid lifestyle inflation by keeping your spending at a similar percentage as your current budget. That way, you’ll have more cash flow to put into debt management. Similarly, if you’re making more money and are debt free, that money can be invested or used to grow your business, rather than spent frivolously.

Get help from industry experts

You wouldn’t expect your patients to diagnose their own medical problems without a consultation, would you? Managing debt is the same. If you need help planning and budgeting to better manage your debt, talk to MEDIQ. Our team of experts can provide you with expert financial advice tailor made for medical professionals. Talk to us today to find out more.