5-step advice for MDs saddled with medical school debt

A 33-year old internist with $220,000 left to pay in student loans who is trying to build his savings gets advice from a financial planner in The Wall Street Journal.

The financials of Michael Hackman, MD, may sound familiar to other young physicians. He built up $240,000 in debt from medical school, residency and a year in research. His loans were in forbearance during this time, but most carry a 7 percent interest rate. He now pays about $2,000 a month toward his loans, in addition to $2,000 in rent, $1,500 in health insurance and $800 in car payments monthly, according to the report. He put the maximum — $18,000 — into his 401(k) last year and plans to do the same this year.

Here are five key pieces of advice from financial planner Mark Cortazzo of Parsippany, N.J.-based Macro Consulting Group, as presented by The Wall Street Journal.

1. Buy disability and life insurance. As a physician, Dr. Hackman has a stable job with a solid income, but it is dependent on his ability to work.

2. Refinance debt. According to the report, Mr. Cortazzo recommended the physician improve the financing on his loans by taking out a personal loan at a lower rate.

3. Wait to buy a home. Mr. Cortazzo suggested waiting to buy a home until after Dr. Hackman's baby is born to see how finances change, though when ready, he recommended buying one for little or no money down. The mortgage will likely be tax deductible, according to the report.

4. Keep savings in cash. Short-term savings, for use within two years, should be readily available, he said.

5. Invest the 401(k) in equities. Look for diversified, low-cost, actively managed equity funds and not individual stocks, Mr. Cortazzo advised.

 

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