Debt Free Docs: A Series
Hello Frugal Folk!
This week, I’d like to bring you another episode of the Debt Free Docs Series. This physician has graciously allowed us an insight into her financial life and all the decisions that led her to be debt-free. Because of the detail in this post, she has asked to be anonymous. With that, let’s dive in.
Debt Free Docs Interview
Dear Doctor, please tell us a little about yourself.
I’m a 51 year old physician in a subspecialty of internal medicine. I’m employed at an academic medical center in the Northeast. I worked full time for several years and then cut back to part time (0.85 FTE) when my child (who is now 14) was born. My husband is a performing artist.
Alright! Another northeast doc. What are your hobbies or passions outside of medicine?
I enjoy taking walks in the woods, reading speculative fiction, cooking, binge-watching TV shows, and meditating. Pre-pandemic, I loved going to the theater and spending time with family and friends.
Ah yes, pre-pandemic days. Hopefully, we can get back to them sometime this year. Let’s dive into your financial background… did you take out student loans?
I was extremely fortunate that my parents were able to pay for both my undergraduate education and my living expenses during medical school. I took out approximately $80,000 in subsidized and unsubsidized federal loans which covered tuition at a private medical school. (This was back in the mid-90s. The same education now costs $250,000!) By the time I started repaying my loans at the end of fellowship, the balance was approximately $100,000. (I wish I had paid the interest that was accruing on my unsubsidized loans during my residency/fellowship deferment. As a result of not doing so, my loan increased by nearly 25% during my training. Learn from my mistake!)
Fortunately, my husband didn’t have student loans. It would have been very difficult for him to pay back loans, given that he had a “starving artist” income for the first 15 years of his career!
Yes, that is fortunate. My husband also did not have any student loans, thank god!
Did you have any other significant consumer debt (excluding house)?
We opened a home equity line of credit (HELOC) to assist us with a major home renovation four years ago. We paid off the HELOC balance within a few months.
Journey to Debt Free
Can you tell me why you decided to pay off your mortgage early in 15 years, instead of 30?
Fifteen years ago, we bought our 1600 square foot house for $410,000. We financed 85% of the home with a 30-year fixed-rate loan at 5.6%. Within 8 years of the house purchase, we refinanced twice, ending up with a 15-year loan at 2.6%. We chose to accelerate the mortgage payments rather than invest the extra money. From a psychological perspective, being debt-free was worth a lot to me.
I had been making extra principal payments on our mortgage periodically. Earlier this year, I looked at the balance and was shocked to see how much lower it had gotten. Paying off the remainder seemed within reach, especially because the pandemic decreased some of our expenses this year.
That’s awesome. I bet that was a very pleasant surprise! It’s amazing how this pandemic has really shown us where all that money went.
What was your debt repayment strategy?
We consolidated my student loans and refinanced our mortgage twice. The student loans and mortgage subsequently had similar interest rates. We chose to pay off the student loans next, followed by the mortgage.
I would agree with that order. Student loans are very much like a mortgage… without the house that’s building equity.
How long did it take you to pay your student loans off?
It took me 15 years to pay off my student loans. The interest rates were low, so I didn’t prioritize paying them off until a few years ago. I would say my lifestyle as a young attending wasn’t much different from residency and fellowship.
Did you frugal down or try to earn more to pay off debt or both?
Fortunately, my husband and I have similar values. Neither of us has much interest in acquiring “stuff”. Also, neither of us wanted to live in a large house, so we didn’t end up being “house poor”. We have enough income to pay for the necessities, save for retirement, donate to charity, pay down loans, and still enjoy experiences like family trips and sleepaway camps. We feel incredibly lucky.
On Investing While Paying Off Debt
That’s amazing. It’s so important to be on the same page as our spouses when it comes to spending.
Did you save for retirement while paying off loans?
Saving for retirement has been a high priority for us! I maximize my 403b and 457 accounts and my husband maximizes his 403b. With the over-50 catch up, we are saving approximately 20% of our gross income (which is around $370,000). Our retirement accounts are worth $2.4M. While I don’t anticipate retiring any time soon, I would love to have the financial resources to cut back in about 10 years.
Sounds like you’re well on your way to a successful retirement!
Now that you’re debt-free, how are you investing?
The allocation of funds in our retirement accounts (403b, 401k, 401a, 457, traditional IRA, annuity, husband’s Roth IRA) is approximately 70% equity index funds (50% domestic and 20% international) and 30% bond index funds. I pulled out of target-date funds because of their higher expense ratios. I plan to assess my asset allocation on an annual basis and make changes as needed. I haven’t yet invested in real estate. However, I hope to invest in a real estate syndication in the next year.
Sounds like a solid plan! Let’s talk about investing for children, how did you invest for them?
We have a 529 for our daughter through Utah Educational Savings Plan. We started contributing when she was a baby. It’s currently worth $237,000. I’m using Utah’s “age-based aggressive global” investment strategy, which has very low expenses.
Yes, it’s amazing how the target date equivalents for some of these 529’s are so low cost!
Do you use credit cards?
We use credit cards for nearly every purchase. Our cards offer cash back or rewards. We auto-pay the statement balance every month, avoiding interest charges.
Awesome. Do you donate to charity?
Charitable donations are a big priority for us. Most of our donations go to charities that fight poverty or promote social justice. We also contribute to our synagogue and to performing arts organizations.
I love that. Thank you for sharing your journey and insight with us. Clearly, a lot of us younger physicians can benefit from your example. Any other thoughts or advice for us?
I would highly recommend that young physicians educate themselves about finances during their training! There are a lot of good books and websites out there. Waiting until you have accumulated money is a mistake.
Agreed wholeheartedly! Thank you again for sharing here on The Frugal Physician and congratulations on being DEBT FREE!
Till next week!
Stay frugal, y’all!
Standard Disclaimer: Not meant to be individualized medical or financial advice. This post contains no affiliate links.
Check out other interviews in this series!