Alright, we are still in the not-so-exciting part of the woods – no fleeing Belle, traipsing Red Riding Hood or Rapunzel’s yet. “First is mindful spending and now is debt management? Come on, Dr. FIREfly! Let’s get to the good stuff!”

Or is there good stuff here?

Part of what makes debt management aversive is if the amount of debt is unknown. I have a friend who told me once that her accounts are set to automatically make the minimum payment on her debts from month to month and she did not know the amount of debt she truly had. I might have freaked out a bit. (She quite appropriately responded, “It’s my debt, not yours. Stop freaking out so much.”)

Here’s a little secret of mine. I love paying down debt. There is a strange satisfaction in seeing those numbers go down. But the first step is knowing what that number is.

“It’s too scary, Dr. FIREfly. I don’t want to know how much debt I have. I totally get your friend.”

Fair enough. Consider this, however – the scariest thing in the world is not knowing. Time and again, patients I have met express relief once they know what is going on – even if it is bad news. A phrase keeps turning up, “At least I know what it is now.”

That is what debt is like. Amorphous, it is a beast waiting in the shadows, so you avoid looking at the dark opening. The solution is to turn on the light.

STEP ONE: TURN ON THE SPOTLIGHT

Find out how much debt you have. All of it.

• Credit card debt
• Mortgage
• Vehicle
• Line of credit
• Student Loans
• Other debts

STEP TWO: INTEREST

Take a look and see how much you are paying in interest on each of these debts.

If there are debts that are not accruing interest, clump them together. This can include 0% financing, certain provincial loans, etc. Note what the timeline is – usually the interest-free period has a set end date. You want to know exactly when the interest-free period ends, as this will help triage the urgency of turning attention toward this debt.

(0% financing is not a free ride, by the by. Even if it is not accruing interest, getting something with 0% financing may be tying up a significant portion of your cash flow for a long time, and you may be tempted by the “reasonable numbers” into buying something you don’t need and/or can’t afford.)

STEP THREE: PUT IT ALL IN ONE PLACE (a.k.a. “consolidate” the debt)

For medical students and residents, get a professional student line of credit (henceforth referred to as an LoC) if you have not gotten one already. Unless you’re quite lucky, the LoC interest rate is usually better than the interest rates for other things. For all debts where the interest rate is higher than the LoC interest rate, use your LoC to pay down all of those debts (if possible).

Example: You have an outstanding balance of $7000 of credit card debt, with an interest rate of 19.99%, and your line of credit interest rate is prime minus 0.25% (at current time of writing this post, this means 3.70%). It would therefore make sense to pay 3.70% interest on this $7000 rather than 19.99%. For further illustration, if you left the principal of $7000 alone on this debt for the next five years, this is the difference in amount of interest you would pay with an interest of 3.70% vs. 19.99%

Year	3.70% (compounded monthly)	19.99% (compounded monthly)
1	$7,263.44	$8,534.90
2	$7,536.79	$10,406.35
3	$7,820.43	$12,688.17
4	$8,114.74	$15,470.32
5	$8,420.13	$18,862.51

              This difference is HUGE! More than $10,000 huge!

For staff physicians, it seems that some still have access to their professional student lines of credit as staff, while for others, it gets converted to a loan. You could consider asking your bank if they would consider keeping it as a line of credit. Never hurts to ask, and your business is important. The principle is the same – whichever debt vehicle has the lowest interest rate, my suggestion would be to consolidate all of your debt there if possible. Do NOT consolidate lower interest rate debt into a higher interest rate debt vehicle, even if it greatly simplifies your life (e.g. if your mortgage interest rate is lower than the LoC interest rate, do not consolidate the mortgage to your LoC)

STEP FOUR: TRIAGE THE DEBTS

After consolidating your debts as much as is sensible, it is time to triage the urgency. You are running your own Emergency Room of debt (and yes, debt is an emergency).

I would suggest tackling the debt with the highest interest rate first. Once that one is paid down, move onto the next debt. My situation was relatively simple, but as it may be helpful, I will be walking through the numbers later on in the post.

STEP FIVE: CHOOSE YOUR STRATEGY

There are different debt payment strategies out there. Here are two general approaches:

• Pay with the leftover money: After the month’s expenses are done, use the remainder on debt
• Pay yourself first: On pay day, put money towards debts from the get go, rather than waiting till month end.

I use the second strategy. On pay day, these were my steps:

1. Pay off my credit card balance in its entirety (even if it is mid-cycle and the statement has not come out yet – makes it less of a shock financially to pay biweekly)
2. Pay a set amount toward my other debt (initially focused on line of credit, currently focused on provincial student loans. These loans are not accruing interest presently but they will once residency is done).
3. Do some math so that I always have between $200 to $500 in the chequing account for emergency cash needs. After subtracting my credit card balance, loan payment, and emergency cash fund from the paycheque, I would invest the remainder (more on investing later), to implement dollar cost averaging (link) as best as I can.

Of note, I am not suggesting that my way is the “correct” way. That is highly dependent on individual values and risk tolerance. For example, something to weigh in this equation is also investment urgency.

Let’s return to our theoretical $7,000.00. Let’s say you have $7,000.00 in debt but also $7,000.00
in cash – where should you put your cash? For our broad-based investment column, I’m using the commonly quoted figure of 7.0% for long term returns.

Year	3.70% (compounded monthly)	19.99% (compounded monthly)	7.0% (compounded quarterly)
1	$7,263.44	$8,534.90	$7,503.01
2	$7,536.79	$10,406.35	$8,042.17
3	$7,820.43	$12,688.17	$8,620.08
4	$8,114.74	$15,470.32	$9,239.51
5	$8,420.13	$18,862.51	$9,903.45

Looking at these numbers, it’s clear that the money lost from the debt with 19.99% interest compounded monthly is more urgent to pay off with the $7000 rather than investing it into the stock market.

But if one only had the student LoC debt – where should the money go?

For myself, I felt that the investment returns were more of a potential long-term gain, whereas the debt leeching money out of my accounts was an immediate certainty. I tried to find a balance that worked for me by tackling both simultaneously. The repay-debt-vs-invest question is very nuanced and highly individual. This is a decision that ought to be made with much deliberation. The bright side is, given the pay structure of most residency programs, it’s not as though we are getting a yearly lump sum to divvy up, but rather a biweekly to monthly pay schedule. So as long as one is contributing to either debt or investment, there’s some form of constructive money use happening. The question is what would be optimal in your particular circumstance.

If you do decide to invest, do so with money you do not need now or in short term, and will not miss in the cash flow (link to post). There is always a chance that this money will be lost temporarily (if you invest broadly) or forever (if you do not invest broadly and picked the stocks that do poorly). More on investing in the next post.

GENERAL STRATEGY

Manage your debt like there’s a fire under your butt. Personally, I wouldn’t want this dragging on over a lifetime, bleeding out my hard-earned dollars. So here are some general strategies:

1. In pre-earning times (e.g. medical school), accumulate as little debt as possible. Balance this with spending the needed amount for your learning and to create memories you’ll cherish for years to come. Pretend you’re still an undergraduate student with no access to an enormous (sometimes unnecessarily so) line of credit.
2. In residency, spend like you’re still an undergraduate student and start shovelling the leftover money (after living expenses) into paying down debt. You may be able to start chipping away at or even completely pay down the debt, leaving you with the freedom to start amassing a positive net worth.
3. Staff physicians – at the time of writing this post, I’m not yet a staff physician. That state is the shiny light at the end of the tunnel (that I’m hoping is not an incoming train, lol). If I were an early career – or even mid- to late career physician – I would focus on paying down any outstanding debts completely. Particularly relevant for early career physicians is to “live like a resident” for a few years to stamp out the debt and start amassing wealth so that later in the career, the financial solidity will give that sense of freedom at work. It’s harder – though possible – to scale back on lifestyle than it is to maintain a current lifestyle and then scale up later. Don’t be the grumpy surgeon or anesthesiologist who is discussing the impossibilities of retirement at age 70! (The operating room was one of the earliest places where I heard about staff physicians’ personal lives as a medical student, so these memories really stand out). So, live like a resident for a few years and feel your wealth and freedom grow! Ignore your spendy peers as best as you can. Really, we have no idea what anyone’s financial situation is truly like. That colleague driving the shiniest new car and bringing the latest gadgets could be making interest payments only on all that debt from paycheque to paycheque, a brittle house of cards that can come tumbling down at any moment.

Here’s what I did:

• Debt coming into medical school: $0.00 (I had some good scholarships as well as the benefit of a RESP that my parents had set up for me. Had a credit card but did not spend outside of my means – which I credit to solid parenting from earlier years. They really drilled that aversion to debt in me from day one.)
• Debt coming into residency:
  • Line of Credit: $42,529.65 (National Student Loans rolled into this)
  • Student Loans: $ $59,145.00 (Provincial only)
  • Credit Card Debt: $0.00
  • TOTAL DEBT: $101,674.65
• Current debt in residency
  • Line of Credit: $0.00
  • Student Loans: $38,000.00
  • Credit Card Debt: $0.00
  • TOTAL DEBT: $38,000.00
• Predicted trajectory in residency
  • Projected to pay of remainder of student loan debt before I graduate in PGY5

And this is with building up approximately $42,000.00 in Questrade (I use approximate numbers here due to the fluctuation in the stock market).

So, there it is. I honestly feel that good debt management is a treasure trove – the side of amassing wealth that is less “shiny” than investment strategies yet arguably as important. Hopefully this post has helped make debt less scary and maybe even got you feeling a bit excited to tackle it!