May 2019 Volume LIV Number 3


Treloar & Heisel

July 2018 Volume LIII Number 4

Getting a Handle on Debt: What every new (or about to graduate) dental practitioner should know about student loans, mortgages and business debt

By Joshua C. Miller
Wealth Advisor, Treloar & Heisel Wealth Management

If you’re just starting out, or even if you’ve been practicing as a dentist or dental specialist for some time, chances are high there’s a substantial amount of debt in your financial picture. According to the American Dental Association, the average debt for all dental school graduates who owed money was $247,227. Over 30 percent of dental school graduates with student loans reported debt in excess of $300,000.

We can confirm these statistics. We com- monly see student loans hovering around $400,000 in our financial planning practice– and yet, there is no need for despair. If ap- proached with a sound strategy, this debt can be managed. After all, for so many people, student loans are the necessary path to access the highly specialized training and a lucrative career in the dental specialties.

OK, you have substantial debt – what will you do about it?

Most dental specialists experience a sudden and dramatic increase in income upon completion of their training. One of the questions we are most frequently asked  is: Should I pay this off, and how fast? While every situation is different, generally it’s not advisable to pay off your student loans at the expense of current living expenses, or saving for the future. What if all you did was pay  off your loans, and didn’t set anything aside for other financial goals? Fast-forward ten years from now and you may be proud to be debt-free, but you will have few assets to your name.

It’s important to look at your debt within the context of your larger financial picture. It makes sense to come up with an overall financial plan, within which debt can be ad- dressed. Your cash flow will have a lot to do with how you proceed.

It’s advisable to pay off your loans within a ten to fifteen year period if your interest rate is 6% or less. Typically, we do not recom- mend accelerating payment because that will take away cash flow that you could use for longer-term savings programs.
If your student loan interest rates are higher than 6% you have two approaches. First, we suggest potentially refinancing the loans. There are banks that offer highly com- petitive student loan refinancing specifically for dental specialists.

If you’re not a candidate for refinancing, you can use a debt ‘laddering’ approach, whereby you rank your loans from highest interest rate down to the most affordable.
See if you have cash flow to allocate a little bit more to debt repayment than you would under ‘ordinary circumstances.’ Start paying off the most expensive loans, and work your way down until you get to the 6% category. Stay on course and see if you can pay off your remaining debt within a 10-15 year timeframe.

Debt repayment should be balanced with adequate means to live comfortably today, while setting aside what is possible to provide for future goals, such as retirement, a down payment for a home, or saving for your chil- dren’s education.

You’re done with apartment living, and ready for a real house.

Congratulations! Student life is fun, but no one wants to live like a student forever. Another popular question we get from recent entrants into the professional realm is: Can I go buy my dream house now?

Not so fast… You may be able to buy your dream home, you may even have banks that are willing to lend you money to get the castle of your dreams. But should you, really?
Even though banks are willing to give you a large sum of money on favorable terms, it’s probably not in your best interest to go out and buy the biggest house out of the gate.
You can buy a relatively nice house that’s a little smaller and upgrade over time. Time and again we see people who take on a bigger mortgage than they could handle, and later regret it.

Housing debt is not necessarily ‘bad  debt.’ Everyone needs a place to live, and you should be able to live comfortably. However,  a mortgage should not feel like a burden, and neither should it prevent you from addressing your other obligations (living for today) and goals (living tomorrow). Here too, a balance exists.

What else should you know about mort- gage debt? Stay away from low variable rates that spike after a short introductory period. Fifteen and thirty-year loans are common, and recommended. At the time of this writ- ing (2018) interest rates are still historically low, and if you can afford to buy a house that you can see yourself staying in for 5-10 years, then do it. We always advise that you check with your financial planner to discuss how much house you can afford before you fall in love with a house. Make a rational decision before making an emotional one.

Help! I can’t start a business without borrowing money.

You are not alone. Your line of work  is capital intensive, and many dentists and specialists look to lenders for startup capital – to either purchase an existing practice, or to build one from the ground up.
If you’re looking for a business loan, obvi- ously do your homework and shop around. Though most banks are highly competitive – it’s important to compare offers.

Especially if you’re buying a practice it’s smart to hire a professional firm to conduct a valuation. You want to make sure you are obtaining it at a fair price. Don’t overleverage yourself in the business by borrowing more than you absolutely should to buy something that’s not going to produce as much as you need. Hire an experienced accountant who can advise you as you evaluate the practice’s financials.

Even ‘good debt’ needs a tactical plan

We often refer to student loans, business loans, and even mortgages as ‘good debt.’ After all, you may need a student loan to get an education, a business loan to start your career, and a mortgage to have a roof over your head.
The key to managing all of this debt is to be an educated consumer. Be curious, ask questions, and don’t feel badly about shopping around. This is your hard-earned money, after all.

More importantly, don’t focus all your cash flow on debt repayment. As a high earn- ing professional, you should have sufficient cash flow to both service your debt, and to set aside enough for retirement and other future goals.

Investment Advice offered through WCG Wealth Advisors, LLC a Registered Investment Advisor doing business as Treloar & Heisel Wealth Management. Treloar & Heisel Wealth Manage- ment is a separate entity from The Wealth Consulting Group and WCG Wealth Advisors, LLC.

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