You finally made it. Years of medical school, nights pumping caffeine into your bloodstream to make it through a 24-hour shift…all with the end goal in mind. And with a nice pay bump, it feels like your financial worries are finally over.
Until it’s time to pay back the hundreds of thousands of dollars you owe in student loans. Student debt may feel extremely overwhelming…but by developing a solid plan and living within your means, you can get back to focusing on your career. Here are five easy steps you can take to financial security as a young medical professional.
Perhaps the best option for lowering high interest rates on loans from various sources, refinancing with a private lender allows you to combine federal and private loans into one new loan. You can choose a fixed rate, which will stay the same even if the Fed raises interest rates. A variable rate may save you money in the short-term, but keep in mind: that rate could sky-rocket at any time. It all depends on how much risk you’re willing to take.
You can also choose the length of time you take to repay your student loans. Most private lenders offer repayment terms of 10, 20 or 25 years, with some even offering terms as low as 5 years. Be sure to read the fine print when you shop around, because often, the lowest rates are only available to customers who choose a repayment term of 5 years.
The average physician signing bonus in 2017 was $29,994, according to The Medicus Firm Placement Summary 2018. Putting a large amount of that cash toward your student loans would save thousands in interest over the life of your loan.
Keep in mind, a signing bonus often requires a commitment to stay with your employer for a certain amount of time. Carefully read your contract and make sure you’re comfortable with all terms. You could knock out a quarter of the average medical school debt in one payment – getting you that much closer to your other financial goals.
Understanding exactly how much money you have coming in and going out each month is critical to achieving your financial goals. You may consider tracking your spending with a website like Mint or in an excel sheet for a few months, to identify areas where you can cut down spending (things like morning lattes, entertainment and bar tabs). Some people even choose to live below their income to save more in a shorter amount of time. Think about your various financial goals – from owning a home to taking that long-awaited vacation – before splurging on a new sports car.
Once you earmark this date, you might start thinking about additional steps you can take to move the date up. The National Student Loan Data System allows you to view all of your federal loans, and you can make a list of private loan lenders with AnnualCreditReport.com. Again, one of the perks of refinancing your various private and public loans into a new loan is having one easy, convenient payment each month.
To lower the total interest you’ll pay over the life of your loan, paying as much as you are comfortable paying toward student loans is a smart option. Make Lemonade’s student loan prepayment calculator can show you how much money you can save by making these extra payments, or, simply paying more than the minimum in your once-a-month payment. The “snowball method” is a popular one touted by financial experts – with this approach, you attack the loan with the highest interest rate, pay it down, then move to the next highest. For example, let's assume you have $100,000 of student loan debt at a 7% interest rate with a standard 10-year repayment term. By paying only $100 extra per month, you can save $4,696 in interest costs and pay off your student loans 1.08 years earlier.
Thinking about your long-term financial goals can help you identify areas to cut cost in the short-term. Smart financial strategies like living within your means, paying off student loans as soon as possible and refinancing them at a lower rate can alleviate a lot of stress. Contact us if you want to learn more about your student loan repayment options.