Tackling Our $670,000 Debt Fast

As I sit here and write to you today (technically April 22nd, 2021), this is a post that will be much more therapeutic for me than it will for you, even if you find it intriguing and helpful.  Whether you are reading this for pleasure or to analyze how others approach their finances, this is how I pay off my medical student debt fast. 

A brief history

To begin, I must first describe the financial situation that my wife and I began with. 

My wife and I met in medical school in 2014.  She is an emergency medicine physician and is 1.5 years older than I, but approximately two years ahead in terms of graduate level training. 

When I begin my internal medicine residency in 2016, she was starting her third and final year of emergency medicine residency.  When I was starting my second year of residency, she was fortunate enough to score a seat in fellowship at the same institution I was currently employed.  This worked out well being that I had two years left in my residency training, and she was undertaking a two-year fellowship. 

We both graduated in 2019, I matched back home in the Southeastern U.S. (our wish), and she was looking for attending positions.  As fate would have it (not excluding the hard work and perseverance on both our parts) she was able to take a position as junior faculty at the academic institution where I was starting pulmonary/critical care fellowship. 

As I write this, we are currently two years into our current positions.  She has continued to climb the academic ladder, slightly increasing her salary, and drastically increasing her academic buy-down time.  I, on the other hand, am approaching my final year of fellowship and currently looking for employment in the area following completion of fellowship training. 

A few things to clarify

A few more things to clarify before we start talking initial debt. 

First, I was unable to moonlight in residency as it was not allowed.  My wife would frequently moonlight to supplement our income while she was in fellowship.  Secondly, as discussed in prior posts, I have enjoyed two moonlighting opportunities while in fellowship, one as acting attending hospitalist/nocturnist, the second being COVID ICU moonlighting coverage, more-so out of institutional need than want, but the reimbursement and educational opportunity are not bad. 

$670,000 of combined medical student debt

OK, now let’s talk starting numbers… 

To begin, when I graduated medical school, I personally had $374,000 worth of federal debt.  This debt was accumulated from one year of post-baccalaureate education and subsequently four years of medical school; none of it subsidized.  I had no college or consumer debt at all. 

My wife had approximately $296,000 worth of debt.  Her debt was largely medical student debt, with a very small portion subsidized. The majority of her debt was unsubsidized.  Secondly, she had a single private loan of approximately $25,000 from Discover.  Lastly, she had a few thousand dollars’ worth of consumer credit card debt. 

To total, we started our post graduate careers with a grand total of approximately $670,000 of debt.  The vast majority of this all being medical student debt.

High federal interest rates

Initially all of our medical student loans were federal, and all ranged between 6-8% interest rates.  For the sake of easy math, we will average our interest rates and say we had approximately 7% interest accumulation annually.  This would mean our $670,000 cumulative debt accrued approximately $46,900 annually. 

For the sake of emphasis, if we made minimum payments to our debt, or utilized the REPAYE repayment plan, in five years following medical school graduation (excluding the six month grace period) our debt would total approximately $904,000!

Our first steps

The first decision we made as a team (and I truly view this as a team-minded effort) was to never go into deferment or forbearance. 

Much like many physician financial bloggers will encourage, we set up regular “financial” dinner dates.  During these (usually home cooked) meals, we would openly discuss our short-term (annual) and long-term (lifetime) monetary goals. 

Staring at this mountain of educational debt, we made a promise to each other.  We promised to keep an open line of communication daily regarding our finances.  We expected full transparency bilaterally, an open dialogue when it comes to the emotional response triggered when discussing loan repayment, annual financial goals, and the human need to consume. 

Our income during training

At that time, I myself was a measly intern in an internal medicine program in Virginia.  My wife was starting her final year as an emergency medicine resident.  She had been making the required monthly payments to her student debt, and I was on the REPAYE program for mine, making approximately $100 payments monthly. 

My wife had an after-tax monthly income of approximately $3,000, while mine was closer to $2,500.  Initially she was living in an apartment, while I was living in an separate apartment states away.  Honestly, I do believe that one of the more important factors contributing to the success of our relationship during that year apart, separated by such a distance, was our evolving financial self-education, as well as our unity when it came to creating a financial plan for our debt.

Building a budget

During that year, I had taken the time to build a rudimentary shared budgeting tool.  I used Google Sheets. 

I chose this platform as it allowed ease of shared access, private use, and was easily linked to our Gmail accounts and Google Drive accounts.  It was incredibly helpful to have a visual tool that allowed us to directly see our monthly combined income, where every dollar spent was going, and how much we had left over at the end of the month. 

We budgeted our fixed expenses (rent, insurance, utilities, etc.).  We “ball-parked” our variable expenses (groceries, entertainment, restaurants, travel, etc.).  Lastly, we tallied our student debt payments, as well as monthly savings. 

All of our retirement savings were withdrawn from our monthly reimbursement before being deposited in our account, so this was not a factor in our initial budgeting algorithm.  We quickly were able to discover the breakdown of our spending, and this budgeting spreadsheet was able to provide feedback that would allow us to re-address our spending. 

Again, almost on a monthly basis (sometimes more) we would have our financial dinner-dates, review our spending, and adjust accordingly.  Adjustments were meant to support fixed expenses, minimize variable expenses, but still allow us to have an enjoyable quality of life.  As the months went on, we were able to find comfort in our budget and began to siphon money towards paying more than our minimum monthly loan payments. 

Creating our Financial Plan

It was a few months after we had gotten into a routine with utilization of our shared budget that we developed our financial plan. 

Like so many others before us, we were hit by the realization of our financial education gap.  We worked regular financial literature into our daily lives.  After reading The White Coat Investor (WCI), we signed up for the WCI email chain.  We scoured the internet for similarly directed “physician-targeted” financial education. 

Using Google Documents we built a financial plan for shared purposes.  We added multiple new sheets to our shared budget that continuously calculated our net worth, our student loan interest accumulation, and our monthly payments. 

Lastly, I added a sheet that allowed us to create annual financial goals, allowing us to regularly reflect on our progress.  This was an influential motivating factor for sure. 

Starting our Emergency Fund

That year, following fine tuning our budget and maximizing our retirement, we started using our remaining monthly income to put our financial plan into action.  We opened a shared savings account that would act as our emergency fund.  We started by placing approximately $10,000 in this account.  Not quite 3 months living expenses for the both of us, but given our income, an appropriate foundation. 

Tackling our credit card debt

We then tackled my wife’s credit card debt.  Credit card debt is notorious for laughably high interest rates, therefore this was the top of our priority list.  Shortly after paying this off we redirected those efforts towards her solitary Discovery loan. 

This was technically not the next smallest loan (i.e. there were some smaller federal subsidized loans she had) but given that it was a private loan with a higher interest rate, we felt this an appropriate next step.  If you cannot already tell, we were entering the early phases of what would be described as the “snowball” method of loan repayment. 

PSLF v. Refinancing

It was around this time that I was entering the latter half of my internal medicine residency training, my wife now into her first year of fellowship training.  This was, we felt, an opportune time emotionally and financially, to move in together. 

We rented a very small home from a local emergency medicine attending that was well below our means.   We lived frugally, and it is here that we really started to “hit our stride” when it comes to tackling our debt. 

My wife was moonlighting regularly during fellowship, and further their division had worked out supplemental reimbursements quarterly as they were often acting in an attending role while in the Emergency Department. 

We were using all supplemental income (moonlighting pay, overage pay) to pay down our debt.  At this point we had paid her private student loans completely and were tackling my student loans as they were the higher amount, further affecting our accumulated interest.  We did continue to make payments to her student loans simultaneously. 

It was during this time that we realized the weight of our exponentially high federal interest rates. 

Rates between 6-8% were literally drowning us.  We found our financial dinner dates focusing more on the risk-benefit of pursuing Public Service Loan Forgiveness (PSLF) v. refinancing for a lower rate.  My wife was in fellowship, I was a resident with his sights set on a three-year fellowship. 

It was possible that we would end up at a certified PSLF program, but the more we researched the program, the more “what-ifs” we encountered.  This was disconcerting and difficult to navigate.  There was so much ambiguous information on the loan forgiveness program, who was a candidate, and what qualified as a “certified payment.” 

Ultimately, we felt that refinancing our student loans to slow our interest accumulation was the right decision for us.  This was based on our total interest amount, as well as a larger moral obligation to repay the educational debt we accumulated.  The latter being very much a personal choice.

Our first refinancing

We refinanced initially with Laurel Road, my wife receiving an interest rate near 3.2%, and myself receiving an interest rate of 4.4%. 

Using weight averages, our shared interest rate for our total student debt was now approximately ~3.8%. 

Again, crunching the numbers, with a debt now closer to $645,000 (subtracting out the credit card and private loan debt) with an average interest rate of 3.8%, we were only accumulating $24,510 of interest annually, down from $46,900.  A difference of $22,390, nearly 50%! 

Here is the kicker, for better or for worse timing-wise, it was here that my wife (at the time my fiancé) and I had decided to get married. 

We fanaticized about grandiose décor and an endless supply of top shelf spirits for all, but fortunately were grounded in our promise to work towards financial freedom.  We lived frugally, tightened our budget, moonlighted more, and compromised on non-essential wedding expenses.  We employed a wedding planner who shared our financial goals while still working to make our dream wedding a reality. All the while, we continued to grow our emergency fund and pay down our debt. 

I have to acknowledge a small amount of financial help from our parents, but the overwhelming majority of our wedding was paid for out of our own pocket, in cash.  We accumulated no debt form this process. 

Ultimately our wedding was approximately $60,000, paid in full, while still achieving our financial goals.  Is it more than we wished to spend, yes, would I change it for the world, not a chance!

Our 2021 situation

Let us fast forward to where we are at the time of writing this post. 

I am now approaching my final year in fellowship.  My wife is two years into her attending career at the same academic institution. 

She makes approximately $13,000 a month after taxes (academic attending salary), while I bring in approximately $3,300 (fellow salary).  She gets reimbursed quarterly for hours worked over her base salary.  This usually brings in an extra $8,000 quarterly.  Further, I can usually double my monthly salary by moonlighting. 

All-in-all, after taxes, we make roughly $280,000 annually, averaging $23,300 monthly. 

As the years have gone on, we have continued to optimize our budgeting spreadsheet to fully encompass all of our expenses down to the dollar.  I will retroactively return to the budget at the end of the month and highlight categories where we excelled and were under budget, as well as emphasizing categories where we exceeded our budget.  We update our net worth monthly as well as our annual financial goals.  Our emergency fund houses over $30,000 in a savings account that is easily accessible in a moment’s notice, hence the name.

Our monthly income allocation

Today, we utilize our monthly paycheck as follows: 

First, as a reminder, our retirement is already removed prior to our (after tax) paycheck is received.  We make sure to provide enough to meet our employer match (where applicable) and meet a 20% savings goal across the board for our retirement accounts. 

Once the money hits our checking accounts at the beginning of the month we “pay ourselves first.” 

For my paycheck, I start by moving $2000 directly towards my student loans.  I chose this amount as it is an easy number, factors in my minimum resident/fellow required payment of $100 dollars until completion of training, and doubles the amount of interest accrued by my debt in a month’s time. 

I then place $250 into an after-tax Vanguard Total Stock Market Index Fund (Admiral Shares).  My wife and I use this as a short to medium term investing account for some of our short/medium financial goals. 

I place $250 into a “Holiday Fund” which we used to house money we plan on spending during the holidays so that our budget is not affected during the month of December/January.  We stop placing money in this fund when it reaches $2000. 

Any moonlighting money I receive, 100% of that after tax income goes towards my student loans. 

My wife uses a similar approach.  She “pays herself first” and puts the exact same amount as me into Vanguard and our shared Holiday Fund.  She places approximately $600 towards my loans, and puts another $2,300 towards her student loans to meet her refinanced minimum payment.  Similarly, any money received from moonlighting or quarterly overage pay almost always goes towards student loans, or unexpected expenses. 

We make an annual minimum goal of $100,000 paid towards our loans annually, but we often work to exceed this. 

Lastly, incase anyone was curious, we do use a shared credit card that offers 2% cash back on all purchases to make 100% of our purchases.  We always pay off the card when payment is posted on it immediately, never leaving any money owed on the card at the end of each month.  We find the 2% cash back is “free money” if the card never carrying a balance. 

Current trajectory

Here is where we stand at this current moment (as of April 2022).  We currently are expecting our first child and are in the process of buying our first home using a physician loan. 

We are under contract with a property that is well below our means, can be afforded on a single physician salary, and where the monthly mortgage is on par with our current rent expenses, therefore having no significant effect on our allocated budget.  Not having to pay any upfront costs, or providing any down payment allowed us to continue to meet our financial goals in regards to debt elimination. 

Currently, we have now driven our debt to below $500,000.  We continue to achieve our goals of $100,000 towards our debt annually, without compromising our lifestyle and still meeting all other financial goals. 

Our motto, only pay for large budget items in cash to avoid accruing any further debt (other than mortgage debt).  We live our life as if we are sustained on a single physician salary, so supplemental income (and a portion of my regular fellow income) can all go towards eliminating our debt.  At this rate, we are on track to be free of our student debt within four years, optimistically sooner!

Our second refinancing: COVID’s silver lining

It is worth mentioning that when the COVID pandemic occurred, we did capitalize on lower interest rates and I refinanced my student loans again with SoFi, further chipping my interest rate down to 3.6% from 4.4%. 

I am finding that as our financial routine becomes more streamlined, things like well-timed refinancing and maximizing our income are providing continued inertia. 

I could not be prouder of the approach my wife and I have established.  It is a renewable energy.  Our determination to optimize our finances and achieve our goals drives us to further self-educate, read, and ask questions.  By doing this, we find more novel ways to improve our finances and tackle our debt, which further incentivizes us to further our education. 

Rinse and repeat. 

Take home points

I leave you with this.  The above process has offered more than just financial security. 

My ever-present financial anxiety, which often feels like an all-to-real weight on my shoulders, felt lighter.  It was comforting to have a well written financial plan, and like so many algorithms in medicine, I found it simple to follow. 

Open communication in finances spread into other aspects of my marriage, further improving our communication and thus our mutual respect and love for one another.  

For so many physicians out there experiencing similar mountains to climb, I hope this testimony offers some reassurance that your anxiety is shared, that your journey understood, and that you are not alone.  As cliché as it sounds, from the bottom of my heart, if we can do it, anyone can. 

Now get to work!

Stay motivated!

The Motivated M.D.

I hope you enjoyed the above story of how we are paying off our medical student debt. If your enjoyed this, make sure to check us out on Twitter, and Instagram.

If you can relate to our situation, or have used a similar approach in your life, I would love to hear from you! Further, if you gained anything from this article, or have other thoughts, please leave a comment down below.

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