According to the American Student Dental Association, the average debt for a person receiving their DDS degree is about $300,000. That’s on par with debt levels from other professional degree programs like doctors and lawyers ― programs where graduates also tend to carry a ton of debt. That sort of liability can severely hamper any graduate’s immediate career path and personal life as well as long-term goals.
Of course, some debt (such as credit card debt) is often classified as being worse than others (such as student loan debt), but debt reduction of any kind, whether it be for non-secured credit or a mortgage, is always a good idea. However, cutting out debt while maintaining a standard of living you've worked hard to achieve can be tough. Paying off dental school may seem overwhelming. Here are five strategies to help accomplish your financial goals:
Step 1: Take Your Time When It Comes to Big Purchases
Once you graduate and start making a good income, it can be tempting to consider big purchases immediately. Whether you are evaluating buying a dental practice, buying a home, or making another big investment outside of your career, the best strategy might be to wait. When you’re just a year or two post-graduation, it may not be the best time to make such big purchases as it could leave you taking on too much, too soon.
Step 2: Avoid "Lifestyle Creep"
Lifestyle creep is the gradual increase in your spending as your income grows. Dentists who have been in school and living on student wages for many years might feel less like it is lifestyle creep and more like it’s a lifestyle explosion.
If you can stand forgoing the expensive car or new house on the Old Mission Peninsula for a few years, you could pay down a substantial amount of debt with the money you might otherwise spend on those items. Reducing lifestyle creep is about making trade-offs to save more and, in this case, pay down more debt.
Of course, it is possible to arrive at a happy medium regarding paying off debt and still living the life you want. But, waiting to make any big purchases and trying to live close to the standard you were living during school could end up helping you sock away more money.
Step 3: Make a Plan
Once you’ve considered what kind of lifestyle you want to lead and the type of practice you hope to have, you should develop a solid plan to pay down what you owe.
Due to the many federal and private loan programs available, students entering dental school have plenty of financing options, so a good place to start is to evaluate your specific loan repayment requirements. In coming up with your repayment plan, you may consider income-driven repayment plans, refinancing your interest to a lower rate, or working in a state that offers dentists a state loan repayment program. With this last option, you typically agree to work in a high-need area with a shortage of dentists for a set period in exchange for loan repayment assistance.
Step 4: Consider Refinancing
Making the appropriate lifestyle changes will be important to pay off debt and stick to your plan. However, you can often accelerate the process by refinancing your loans. Refinancing student loans into a new loan product with a lower interest rate and better terms can help you save money on interest over the long haul. This is especially true with private student loans since rates tend to be competitive and can change over time. On the flip side, if you have federal student loans and refinance with a private lender, you might run into issues where you then miss out on certain federal perks and protections, including income-driven repayment, deferment, or forbearance.
Step 5: Automate Payments
Many lenders offer a reduction in your loan's interest rate if you sign up for automatic payments. This is reason enough to enroll since a lower interest rate means less of your payment goes toward interest over time, thereby saving you money.
However, signing up for automatically debited payments can have another great benefit: it can take some of the stress out of repaying your student loans. By setting up automatic bank drafts, you can rest assured your loan payment is taken care of, and you won’t face late fees or penalties.
Erickson Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management. He is a Certified Financial Planner®️ professional and a Chartered Retirement Planning Counselor®️. Eric brings over 20 years of experience working with high net-worth individuals and families, helping them achieve their goals of protecting and growing their wealth for retirement and for generations to come. Because Eric is a CFP®️ professional, he adheres to high ethical standards and engages in at least 30 hours of approved continuing education in the financial industry each year.
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