The author and Jim Dahle before his talk in Tucson
By Dr. Amanda Liu, Guest Writer
I am an ordinary hard-working resident who has been blessed with the motivation to be debt-free. I attended a medical school in a high cost of living area (rent of $1700-1900 per month) with tuition and fees of more than $55K per year. Eight months into my intern year, my financial snapshot looked like this:
Net worth: -$31K
Debts
Student loans: $16K
Personal debts: $54K
Credit card debt (at 0%):$30K
Mortgage: $209K
Assets
Home (purchased 2 months before residency) Value: $261K
Cash: $19K
Children: One 7 year old daughter. (I consider her my asset, as I have put nearly all my disposable income towards her getting lessons/opportunities.)
I have a total non-mortgage debt of $100K and a net worth of -$30K eight months into residency, while many of my colleagues have a net worth of -$300K to -$400K. My net worth is negative, but it is only 1/10th the size of that of many interns. This post will explain why.
5 Reasons My Net Worth Is Almost Zero as an Intern
- I worked multiple jobs prior to medical school and even had $20K saved up prior to starting.
- I worked 2 jobs in medical school (one federal work study job, one self-employed tutoring)
- I used credit card offers to my advantage (discussed below)
- I responsibly borrowed money from family
- Lived frugally (before, in and after medical school)
My Mistakes
It's not like I did everything perfectly, and I would have done some things differently if I had it all to do over again. In retrospect, I would have done the following:
- Started a ROTH IRA prior to medical school and maximized the contribution every year I had earned income.
- Applied to medical school more widely. (I only applied to a few, and all in high cost of living areas.)
- Attended the cheapest medical school I could get into, as long as the education was decent.
- Attended a school in a location with a low cost of living.
The tips that helped me minimize debt apply widely to anyone who is in school or training that leads to delayed but greater income potential. Combine the hindsight that I have now with the rules I lived by and you may be even more successful than I am. If you are about to embark on intensive training/schooling, when you can hardly make a real income on the side, give some thought to my recommendations so that you can start your professional life with minimal debt and perhaps even a positive net worth instead of in a big hole like most of my contemporaries.
Rule #1
The most important financial rule I followed in medical school was the following:
Minimize and Delay Borrowing Student Loans as Much as Possible
Every dollar you borrow while in post-graduate education, starts snow-balling at high interest rates the second it is dispersed. For the class of 2014 medical school, unsubsidized student loans start accruing interest at 5.8%-6.4% on day one of disbursement, so borrow less than your budget would suggest you need.
There is no reason to let your student loans sit in a savings account paying an interest rate of 0.1% (taxable), while paying the government 5.8%-6.4% interest rate for it. Lenders, especially the feds, are EAGER to lend you money. Trust me on this. Even a wise investment in index funds, after expenses and taxes, may not give you a return of 6.4%, especially without taking significant risk. Not to mention that the return you get by avoiding the payment of student loan interest is essentially a guaranteed investment.
With the goal of making money off of borrowers, lenders have made acquiring student loan debt so easy that it's nearly unethical. In some ways, it is predatory lending because you get this “monopoly money” disbursed to you without jumping through any hoops. Meanwhile, the debt burdens creeps up on you while your nose is in a book and you are dedicating your life to your training.
What You Should Do to Minimize Student Loan Interest
From my experience in med school, all you need to do is shoot the school financial aid advisor a one liner email saying, “I need $10K of student loan money.” Within 30 days, you get a $10K (actually slightly less due to origination fees) check to deposit into your bank to buy anything you want or need. It feels like monopoly money, and that's how the debt burden creeps up on you.
However, since it is so effortless to access student loan money and you get it within 30 days, why not just borrow as you go, instead of borrowing a lump sum at the beginning of each semester? The feds and lenders lead you to believe the ONE way to get student loan is to figure out how much you need for the YEAR and request it ALL at the beginning of a school year. This benefits them, not you. They get to start charging you interest on money that you don't need from the begining of the school year. So while majority, if not all, of my classmates requested $80K in August each year as the school year begins, I requested NONE.
Then, I paid my tuition and living expenses with a credit card, usually one I had just opened and had a 0% deal on for 12-18 months. Since my tuition was $15,000-$17,000 per quarter, and the cost of living was pretty high, I regularly charged up a large balance on the credit card.
Due to credit card rewards and various promotions for opening a new card, I frequently made $500 per quarter simply off the use of credit cards. But the big savings was delaying the arrival of that high interest student loan debt by 18 months, on $22K of principle per quarter. A year and half of interest at 6.8% on $22K of principle was $2,200. When the 0% period promotional period expired, THEN I took out the student loan and paid the credit card off.
This is a conservative estimate of expenses, including tuition, for each quarter, every 4 months.
The more you need to spend, the more you get to save using this method instead of getting student loan the moment you need to pay a bill. Following this recipe, I saved ~$27K in interest during medical school, and made another ~$6K in cash back rewards. And remember, this interest saved is interest not capitalized into principle upon graduation and not snowballing for the life of the loan (or until it is forgiven if that is what you are counting on.) Of course, as you might imagine, I also have a heck of a credit history/score! Here are the step by step instructions as a recap:
- Get your credit report (Experian.com or similar)
- Apply for credit card(s) with promotional 0% APR purchases
- Charge your tuition and as much of your living expenses as possible on to this card.
- Get cash back rewards for as high as up to $500-$1,000 within 30-45 days of making your charges.
- Ride the balance interest free for 12-18 months, while your classmates are paying 6.8%.
- 30-45 days prior to the end of your promotional period, request a student loan to pay off your credit card. Thus, the credit card company never did get any interest from you.
- Repeat steps 1-6 every quarter, and before you know it, you'll have a high credit score, numerous promotional offers, minimal student loan/ interests, cash rewards, and a degree.
This is how throughout the span of my medical school, not only did I save tens of thousands of dollars in student loan interest, but I also made a few thousand extra in credit card cash back/promotional deals AND built a very good credit score.
[Founder's Note: I am totally impressed. I had never even considered doing this when I read this post. But it's obviously pretty brilliant. I even thought to myself, well, what if you just left all that debt on the credit cards and just declared bankruptcy at the end of medical school? Student loans don't go away in bankruptcy, but credit card debt sure does. By the time you get out of residency 3-5 years later, that bankruptcy is almost off your record. Unethical? Of course. But geez, I can't say it wouldn't be tempting when staring a $400K student loan in the face. Update- Apparently doing this is illegal, not just unethical.
Part of why this worked out well for this doc is that she worked before and during medical school, otherwise she would have never had credit cards with high enough balances to put tuition on them. And if you're not paying them off with student loans it would be very hard to keep getting new ones as you progress through school. At any rate, if you have access to high credit limit credit cards, this may be something to consider to lower your student loan burden, even if you don't take it quite to the extreme that this doc did.]
What do you think? Did you ever consider working throughout medical school? Did you use credit cards to REDUCE your med school debt burden? Why or why not? Do you think this is a strategy that can be recommended to students with adequate credit? Comment below!
[Editor's Note: Amanda Liu, DO, is a PGY1 and single mother of a young child who owns a home. However, what is remarkable about her story is the tiny amount of student loan debt she has, as shared in this story. She enjoyed writing this post so much, she started her own financial blog. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]
I think this is absolutely brilliant. I am just surprised she was able to get credit cards with limits high enough to accomplish this. Kudos on thinking outside the box, I am sure you are well on your way to be very successful in finance.
I too am impressed by this process developed by Dr. Liu. I would caution anyone who is considering this that the rates post promotion on credit cards can be 20+% and the could very quickly make any savings disappear. I do find intriguing the notion of putting all your tuition etc on credit cards and then filing for bankruptcy as you start residency. This could be a huge cost savings even with lawyer fees.
[Reply to Off-topic comment deleted.]
Might want to avoid that if you’re in the military, of course, as it would affect your security clearance.
You might have trouble getting to 400K in 0% credit cards, but it is an interesting thought! I currently have about 85000 in 0% credit cards used for my daughter’s med school bills. Parents might be in a better place to help responsible children with this, since they presumably have better credit card opportunities. It could be tricky though for large amounts if they would pay you back with loan money (not our plan), since Mom and Dad could only receive 28K without using up some estate exemption.
Does the school not charge you 3% or so for making the payment using a credit card? Obv, 3% is better than 6% but it seems to eat into the possible savings, no?
I get that by getting CC rewards you can make up some part of that, but it doesn’t make up for all of it, no?
my school didn’t charge any fee for paying tuition with credit cards. So it was 6.8% interest rate savings + the loan origination fee of 1% and up (if loans are taken out later, the origination fee is delayed).
But for school that charges a fee, it may make sense to use balance transfer checks, that some times charges 2-3% for 0% interest for 15-21 months (which equals to as low as 1.1% interest for the duration of 21 months) still beats the instantaneous 6.8% student loan interest.
Chase slate even charges NO balance transfer check fee for the first 60 days of account opening. This means you can literally write yourself a check (at no cost, not interest for 15 months) which you can then use to write a check to your school.
If your school doesn’t charge a fee to pay tuition with credit cards, it’s a straight shot.
If your school charges a fee, there are ways around. Not too much work considering the 1000’s of dollars you can save in interest.
hope this helps.
there’s a response below detailing other ways around the fee.
The complicating step is finding a school and/or landlord that will take a credit card pament without a big origination fee. Other than that, you are looking at just gtoceries, gas, entertainment (if any), books and car maintenance. Better than nothing but relatively peanuts.
Wasn’t an issue at my school, they would routinely charge 6k a month to my card, helped me get points to fly home, but her idea is even better.
My med school, for a n of 1, refused all credit card payments.
My college allowed credit card payments with 0.25% fee, thus cash back card at 2% is what I used then paid it off with loans or savings.
Medical school charged 5% for credit card payment, thus it was not possible.
The bankruptcy idea is a very interesting notion.
The facts and circumstances seem very unique to the author.
Some flaws:
1) All of the state schools in my state charge a ~3% credit card fee. I can’t imagine that a majority of schools will let you pay with a credit card with no fee.
2) The med schools in my state (and I suspect others) want their money per semester (some of it per annum) and not just per quarter.
3) Most med students fresh out of college can’t get approved for credit cards with that high of a limit, unless using a parent’s card.
4) Credit card companies will stop offering you new credit when you a) are a student with zero income and b) already have multiple cards with high limits.
5) It is often against the rules for students to have jobs during med school (at the schools I am aware of, and I believe this is fairly typical).
6) Finally, hyper-specific to the author, not everyone can “responsibly borrow” $54k from their family. Hell, why not borrow it all from the family and just bypass student loans and credit cards altogether.
All of that said, I appreciate the author’s comments regarding student loan “monopoly money.” It really is that way. Essentially if you ticked the box that you needed loans, the maximum amount was deposited in your account at the beginning of each semester. And I say maximum, but really there was more money just a phonecall away. You had to go out of your way to find out how to pay money back, and everyone in the administration thought you were nuts. My wife’s classmates were buying new cars, renting and furnishing uptown apartments, and thoroughly enjoying themselves right from the start, with interest compounding at 6.8% (and many of these saps also had loans from undergrad). The money almost literally falls out of the sky.
My wife (PGY2) and I sometime last year finally dug out of the red and are in the black, despite student loans, house note, two car notes, etc., although both of us work. Doesn’t really feel great, but it’s a financial landmark that I appreciate.
Oh yeah, and Kiyosaki would definitely disagree on your kid being an asset, unless perhaps you can sell him into an apprenticeship.
I didn’t know most schools don’t allow you to work. Glad I never asked if that was the case as I held 1 or 2 jobs the entire time!
I would be surprised if anyone has felt any real repercussions from breaking the “rules” against working during medical school. If her studies are in as much order as her finances, I’m sure she was doing well enough.
Can the author clarify details about paying tuition with a credit card? Did the school just take it? I think my dental school charged a 3% fee and most 0% cards (except the slate) charged a 3% fee if you had to do a paper check/balance transfer. So I always thought it was a wash. But I really like this outside the box thinking.
I think another benefit of working on the side wasn’t mentioned. You trigger tons of benefits, especially if you have kids. You get the Earned Income Tax Credit, Food Stamps (SNAP), Medicaid, WIC, section 8 housing, and a many other things by having some earned income. On paper you look destitute and student loans aren’t counted as income or assets. I moonlighted Thursday nights as a dentist doing cleanings/simple fillings for a doc and even though it wasn’t much – it triggered over $600 a month in food stamp benefits alone and a ton of other things.
I’m going to disagree a little with the author. I lived pretty frugal and had a 13 yo POS Saturn sedan that ate about a quart of oil every 2 weeks and didn’t even have a smartphone until I graduated in 2012, but I still took out maximum loans up to cost of attendance. When else in your life will you have access to uncollateralized debt with such flexible repayment options like IBR and forbearance? By taking out the max and living frugally I had a great emergency fund/travel/job finding fund. If my car blew up or I needed to fly to a job interview on an expensive flight, it wasn’t a big deal. If I needed to wait 6 mo. for the perfect buyout – no big deal. I was able to move to my first job and put first and last month’s rent on a house without it being a big deal. I wasn’t worried about it because I knew that my training would have a big paycheck later and right now I’m on track to have my $450,000 paid off in 5 years. Now that sofi is offering such low refinance rates, I’m even less apt to do this strategy, but I really liked this article and the author’s ability to shun debt.
yes, my school allowed using credit card for tuition as purchases without any fees, in other words, i got awarded 1-10% cash for charging my colossal tuition on credit cards and riding the interest for free for 1.5-2 yrs.
usually when you first open a credit card, the first $1000 spent can get you $100-300 cash back, then beyond that 1-2%, which is why i gave a range for the cash bank bonus with the 15k i charge every 4 months.
i used to receive balance transfer with 3% fee, but as i used credit card more often, i started receiving lower interest rates… ie. the balance transfer fee became 1-2% on a 1.5 year 0% interest, in other words, it becomes less than 1.5% annual interest to action such balance transfers.
additionally, there ARE balance transfers with ZERO transaction fees, such as CHASE slate.
and yes, totally agree with the benefits of working.
i did also get some assistance with childcare for my kid and reduced cost insurance, in addition to work study jobs.
Churn, baby, Churn!
Churning is exactly the idea.
there’s very little real cash in med school or residency
the easy thing to do is the make the cash FLOW
circulate a few time, one can avoid interest and get some cash back…
and when we have so little income, and so much tuition to pay, little goes a long way…
Impressive job paying off your loans. Nice work.
It says her net worth was 0 as an intern. Does this mean during her medical school she was able to make 360K? I’m still not sure how she got to a net worth of 0 after saving $2200 on interest each quarter? The loans were still there.
But either way, this is pretty innovative however as commented before most schools will not accept credit card payment without charging a fee.
This also intrigues me. The math in this post does not quite add up.
I think the answer likely is due to number 4 of her 5 reasons she is almost at a net worth of 0. Borrowing from family.
All of my med school classmates who are in the positive net worth, or low negative net worth, are there because they had family money or significant family financial support.
Also, working long enough before med school and starting with $20,000 in the bank, can get you quite far if the tuition is not a killer.
This would not be doable if you go straight from college into medical school.
You don’t necessarily need family help (unless spousal help counts). I worked in undergrad and and saved 25k, had scholarships for tuition. Started medical school with no debt and 25k in savings. In-state tuition was 20k/year. Took out 8500 in subsidized the first year (didn’t spend), paid tuition and living expenses with the 25k (cheap apartment was 350/month). Got married after the first year. Wife made ~30k/year. Second year was able to cover all tuition with additional 8500 in subsidized (plus 8500 from first year, plus a few grand from wife working). Last two years took out tuition only (lived off wife’s meager salary). Ended up graduating with about 65k in debt (most of which had been subsidized all through medical school). Took us 1.5 years into residency to be debt free besides a home mortgage, and without family help. At the end of 4 years of residency, after home sold quickly (no gain, but no loss), had a positive net worth of around 170k (average income over those 4 years was likely 90-100k/year, so we had a saving rate of around 50%, and decent market returns). You can get through medical school with little debt, but hardly anything in life is free, and we certainly made sacrifices. Certainly a lot of it seems worthwhile when I i’m 600k ahead of where many of my friends are starting, and haven’t had financial stress in several years. I personally feel a slight moral repulsiveness to declaring bankruptcy such as suggested (and also didn’t feel right about taking subsidized housing/food stamps, etc, although I did qualify). That’s likely an argument for a different day. Certainly good have saved more money using method suggested, but I think I remember large fee for putting tuition on CC. Perhaps this is a difference between attending an expensive private school for a public state school?
Yeah I don’t see how this adds up unless she made a lot of money in med school. The credit card idea is great but you are still gradually accumulating debt, not erasing it.
The other quibble I have, and I know people often disagree on this, is buying a house as a resident. You’re probably going to move after residency and there is no way to predict the housing market. What some see as an asset I see as a risk.
definitely a risk i was happy to take on.
my residency is long, 6 years in the same town. i did a lot work during match/ interviews to ensure that i link up prelim, radiology, and fellowship in the same city, for both emotional and financial stability.
we are really enjoying our house and plan to stay.
in the end whether i can stay or not is basically a decision of am i willing to take a pay cut. i think i will take any job available in my area or even do tele radiology because it would be cruel to uproot then my teenage kid in 5 years. i don’t mind making less, in such a low cost of living town that my family has grown to love.
Her math is a little off on how much she save a quarter as well. You may save the interest on 1/4 of your loan for 12 months but the other 3 quarters you save for a lesser time period (presumably 9, 6, and 3 months).
She has some interesting ideas but I think she discounts her family contribution and got incredibly lucky. Not to mention open and closing credit cards on a yearly basis would cause havoc to your credit score.
with what i did in med school, my credit score was 750-780 when i graduated with 55k of student loan. the range came from the different credit bureau, trans-union gives the highest score.
As she notes below, not quite yet $0, but pretty darn close. I took a little liberty with the title.
That is soooooo brilliant! We just took out our last loan and now I am choking myself for not thinking of this. Even if we don’t do the credit card method, just by delaying a semester to take out the second part of loans would have saved thousands in interest. I love the credit card idea! We have excellent credit, so we could have utilize this method. I am doing a similar thing by charging all the extra residency interview cost to a 0% APR credit card. So, I sort of know this method, but I was not smart enough to apply to tuition. Man…the power of knowledge. I still can’t get over how I didn’t think of it, booooo:(
it’s never too late.
what i did was only an extension of what you already did/knew.
i’m now applying the same concept in residency to max out my ROTH savings.
while credit card is not THE ONLY cash source i’m using to fund 23.5k of ROTH annually, it sure is nice to be borrowing interest free money for 1.5-2 years while making 1%-10% cash back (this literally means during that promotional period, the money you borrowed had negative interest!)
the key also is to stay disciplined and not grow comfortable with too much 0% debt because they will come due at some point, usually after 1.5-2 years.
One must have a solid plan to pay it off or transfer it to another low rate loan/credit card before the interest rate jumps to 20-30%.
i have one excel sheet to keep tract of when my promotional 0% rates expire, and i never ever, knock on wood, pay one day of interest to credit card companies since 2010.
prior to that i paid 2.99% on a credit card balance for a few months.
super grateful that my family did lend me 45k during med school, but my tuition alone for 4 years was 200k. plus my school was in the bay area california where part of my monthly rent in med school was 1.7k.
i ran some numbers, by delaying taking out high interest student loan, i saved nearly 60k alone in interest. (that’s assuming highest interest was 6.8% without accounting for majority of my classmates took out loans with higher interest, grad plus, private loans, etc.) the higher the interest, the more you save by delaying getting such a loan.
i also didn’t have a super large credit limit (probably 50k total initially) when first starting medical school, but just like muscles in our body, credit, when used responsibly, gets stronger and larger with time.
while i never had HIGH income, highest is now as an average intern w 50k salary, i do have a disproportionately high credit limit due to high usage and high pay off.
i’m also happy to share that i did pay off my student loan COMPLETELY a few months ago, now on track to max out the 23.5k ROTH space available to me at the lowest tax rate of my life going forward.
thank you all for your comments.
my goals is to help more of us become educated and (education) debt free by fostering interest and learning from one another.
DFD
First off, kudos to you. I was going to consider the same thing when I started med school but the days of easy 0% balance transfers and app-o-ramas of around 2005-07 are sadly gone/rare, and with my application profile (which was good credit, 750-775, I sadly had no true job since I went HS->college->med school and never earned more than $10,000 in a year) I didn’t find this to be a super feasible for me.
With that said, I’m still somewhat confused and feel like there’s something missing here. How much income did your side jobs earn you during med school?
I’m just throwing really rough numbers out here, $55k tuition and $1700 rent during med school = $301600. Cash on hand before starting school ($20k) + family payment ($45k) + credit card bonuses ($6k), income of $60k for intern year still leaves a shortfall of $170k… and that’s completely ignoring tons of other life expenses, tax income, money you actually did spend on interest, contributing $23k to your roth, etc. Did you really earn over $50k a year during med school, or am I just missing a part of the story? Your calculation of home value $261K and mortgage of $209k would explain some of the difference but not all.
My understanding is it is a little bit of everything- earnings, investments, increase in housing value, avoided interest etc.
I’d love to know how you had such a high credit limit (50k) before taking out loans. I’m trying to do something similar before I start medical school.
Thank you so much!
You’re not going to get an answer. Amanda passed away several years ago.
Thanks for writing the article, definitely food for thought. Even if I were able to get 40-50k (plausible) in 18 month 0% interest loans, I am not sure I could do anything with it unless I could directly pay my wife’s tuition with it (too late for this). I could rack up debt from everyday expenses and use the extra money for student loans, but that seems dangerous. Probably better off to just refinance and pay it off as quickly as possible.
In school, I never even knew I had the option to take the student loan funds on any sort of delayed basis. They just gave us the disbursement at the beginning of each semester, big lump sum into the bank account, most of which I wouldn’t need for quite a while. I kind of want to go back in time now…
A comment you’ll likely hear a lot is, “I wish I had thought of this”.
While not everyone will be able to work during medical school, pay tuition through credit cards, or have family give them a year’s worth of money, they can still benefit from some of these money saving ideas. Low cost schools, low cost areas, live with family, and only take out what you need in loans as you go along.
I did well in the low cost living expenses, sharing the cost of renting a house with roommates. When my old, reliable car was hit and suffered cosmetic damage, but because it was so old the insurance company called it “totaled”, I wish I had just continued to use the “totaled” car.
Possibly the biggest hit to my finances is that I didn’t get into medical school on the first try. So I have one year’s lost income that I’ll never recover. But had I gotten in the first year, perhaps I wouldn’t have chosen such a high paying specialty, and I doubt I would have met my wife.
I think the biggest rate limiting step is that most medical students wouldn’t qualify for a credit card that you can throw 20K+ on at a time. Hell, my med school tuition the last year was approaching 50K. I have a great credit score and my highest limit card which I applied for right before starting PGY1 was a 10,500K limit.
Huuuuuge gap in information:
How long did she live with her ex during medical school?
If there was a divorce, did she receive any money from that in the form of dividing assets or alimony?
How much child support does she receive every month and how much of that helps with her personal expenses?
I’ve been trying for work study, but didn’t qualify. Also, the jobs I tried to get conflicted with the variable med school schedule. What kind of positions did you work through work study?
I worked library job, research job, and tutoring BOARDS and MCAT
library job was least flexible with fixed shifts
other jobs are quite flexible with scheduling
Not sure you’re going to get answers to questions like those. Even bloggers have limits on how much of their personal lives they are willing to share.
I am not a doctor, nor did I attend a overly expensive school. But I did do something similar with credit cards while I was in school. I would sign up for those 0% promotional cards and charge my dorm and tuition to it and keep the cash that I got from interest free student loans and grant money in an online savings account earning 5%. Plus the rewards points that I used to apply against the balance.
where do you get 5% interest?
that’s awesome, please share.
My guess is he is referring to around 2005-06, CDs were fairly regularly 5% at that time. I wish I wasn’t in high school at that time because I most definitely would’ve taken advantage of AORs.
Oh yea, the days of the 5% savings account. I remember those. Haven’t seen them in a while.
You can still get 3-5% on 15-20K though in some checking accounts if you’re willing to jump through a lot of hoops.
one correction and some updates
My degree is D.O. not M.D.
Many of my readers/supporters are from my med school; a professor brought this to my attention.
My current numbers are:
Net worth: -18K (not quite zero yet, though WCI titled this post net worth zero, I guess he thought it was peanuts)
Debts
Student loans: $0
Personal debts: $50K
Credit card debt (at 0%):$34K
Mortgage: $208K
Assets
cash: 4k
ROTH: 8k
Home equity: 54k
ps. indeed my kid is a financial liability (emotional asset), as her summer camp/activities alone set me back by 4k this year…
The MD error is my mistake. Shame on me for not checking.
I think WCI hit the nail on the head with his comment:
“Part of why this worked out well for this doc is that she worked before and during medical school, otherwise she would have never had credit cards with high enough balances to put tuition on them. And if you’re not paying them off with student loans it would be very hard to keep getting new ones as you progress through school….”
I think that one of the key things to making the level of risk of this tactic tolerable is having cash flow. While her income prior to residency was less than $50,600 which is what she is making as an intern, she was still making money hustling side businesses although, how much positive cash flow is uncertain. Moreover, she continues to do many of these side jobs as a resident while making her current salary.
One thing the author does not mention is her EXTREME lifestyle. She is supporting 4 household members including herself and her daughter on her salary. Moreover, she is maxing out her $23,500 in Roth IRA and 401k equivalent contributions. Her post tax pay is at least $43,500 maybe more with other deductions and exemptions. Regardless she’s roughly investing half of her liquid cash flow and paying ~$14000 – $16000 in mortgage/property tax payments a year.
That leaves her about $6000 in free cash flow for the year, not including what she is making on the side. So in order to plan for a disaster, which she probably is cognizant of, she needs to “cut the fat” somewhere else, especially if she currently has $4000 in savings right now. The only way to do that is to truly live a poverty income level lifestyle, especially now that she can’t rely on access to student loans. And I’m sure she would attest to this as being true to her situation.
When I first heard of this method of spending, I thought it was extremely interesting but also extremely RISKY. I admit that it will buy you time and save you interest in the thousands of dollars, but unless you find some financial windfall when your interest free period ends or you are consistently trying to eat away at the debt while it’s interest free, the debt will still catch up with you, albeit more slowly if you are able to open new credit cards, or have over $250,000 in credit card limits as this author does and can balance transfer large amounts of debt from card to card. And unless she had this much credit prior to medical school she likely accrued that much credit through continuing monthly payments while working during medical school.
After thinking about this over and over again I decided against using this tactic because I don’t have $50-100k in credit card limits, although I do have a decent amount of positive cash flow as a resident and can continue to make payments during the interest free period.
Instead of trying to maximize my earnings by gambling on a potential 6-7% investment return while accruing 18 months of 0% interest debt or 1-2% annual interest, I’d rather just live beneath my means at a reasonable level while maxing out my Roth contributions ($23,500), pay off my credit card balances and be able to save enough money for a disaster (i.e.: large house expense in repairs, replacing a totaled car, large medical expense). I think this is a more reasonable and responsible way of saving.
Lastly, as a resident I don’t think it is ethical to be exhausting myself to the point of the author with the level of finance manipulation that she is individually practicing without the help of an accountant or financial advisor. I would be so concerned about my net worth to the point of exhaustion and compromise the level of care that my patients are getting. This defeats the purpose of being a doctor, doesn’t it? I hope all physicians went into whatever field they went into first and foremost to help people rather than as just as stable means to provide a high income salary.
You are absolutely correct and this is exactly how I feel about this situation!
She could also consider the roth money as the majority of her emergency fund, so there’s that.
We were getting ready for loans and payment for the 4th year (most expensive) at USD in South Dakota. I asked about the credit card option and I was informed its a 2.75% extra fee to pay with credit card.
Anyone got a method to avoid the 2.75% fee. With credit cards can you transfer to your bank and still get cash back? If there’s a certain card or company, I would love to know which one to look at. The specific tactics used would be great.
Look into a chase Slate card, they offered 0% fee balance transfer checks if you use it within the first 90 days of account opening, and it will be 0% interest rate for 18 months. (this was the case when i did it)
This way you can just write a check to your school to pay for any tuition/expenses as you would with a regular check, or write a check to yourself, deposit the balance transfer check into your bank, then write a personal check to pay your school.
This way you don’t have to pay your school the credit card charge fee, or the credit card company the balance transfer fee.
So the money you use from Chase Slate to pay for anything including your schooling will be truly 0% interest until the promotional rates end.
Numbers to pay absolute attention to are
1. balance transfer fee (should be 0 with chase slate)
2. length of 0% APR promotional rate (you absolutely want to have money ready to pay this off before it jumps to 20%)
only down side of Chase slate was no cash back rewards…
cc companies are unlikely to give you money to lend you money for free
hope this helps!
Good luck, and let me know if you have any question
You can always look for more information on my blog, and leave comments where you have questions.
there’s lots of information on my blog about using cc.
As Mike explained above, the author benefited as a single mom married to BigGov. I invite the author to tally benefits such as EITC, TANF, food stamps, sect 8 housing, free and reduced lunches, utility assistance, Medicaid, child care credit, and WIC.
I would hope the author took advantage of all of these options if applicable to her situation. I think they are a more appropriate use of these programs as opposed to a person who choses to take the benefits and not try to improve their situation to where these benefits are no longer needed. As a personal example, I used public health departments for well child care when I was in residency because that was all I could afford. I have more than paid back for any benefits I used in my tax dollars these past 25 years. With time, I am sure the author will pay back in tax dollars many times over any benefits she used.
[Off-topic comment deleted. Not saying I disagree, just that this isn’t a path worth going down in the comments section of this post.-ed]
[Reply to off-topic comment deleted.]
Intersting comment considering that majority of Medicare fraud is committed by healthcare professionals including many physicians. Did you read the $712 mil Medicare fraud bust this week?
I doubt she was taking much from big government as you make a case.
[Reply to off-topic comment deleted. Sorry I was at Lake Powell all week or this would have been headed off much earlier.-ed]
[Off-topic comment deleted. I’m sure there are places on the internet that welcome discussions like these. This is not one of them. It simply does not further the mission of this site.-ed]
Jz – Would you be willing to post some of your story? I find your attitude fascinating. Thx.
I will attempt to answers as many questions as possible.
First of all, many answers to your questions can be found on my blog http://www.debtfreedoc.com/ and please leave specific questions in the comment section of the blog.
Gabe, your story is inspiring.
it’s pretty close to mine. i didn’t have any tricks up my sleeve other than
1. working hard
2. spending little
3. minimizing interest
Full cost of attendance at my school was about 360k for 4 years and the interest accumulated would lead to about 424k at graduation (assuming one takes out full cost of attendance at the beginning of every school year)
i spent no where near the full cost of attendance in the first place, ie. I did not have as large a principle debt… i worked 2+ jobs throughout med school, frequently 40 hrs/week.
i had family help with some free childcare, even lived with my parents for 1 year and they charged me only 500/mo for rent and i bought some food… list goes on. I’m grateful for all the help i have gotten.
while many people here are interested in how EXACTLY i came out (educational) debt free at this point, i would like to sum up a few general principles that helped me minimize debt in the first place in addition to minimizing interest.
1. i was cheap. I found ways to cut everything down other than the tution. for example, when people spent 1-2k on away rotation, i spent $200/rotation by cooking/doing chores in exchange for free rent/rides etc. I slept on many couches on my interview trail. i shared study materials with people, didn’t buy any text books i worked at the library honestly didn’t have much time to read…
2. i had some personal loans listed above.
3. i started med school w 20k of savings to cover some of the most expensive rent i paid in med school initially, but soon figured that i needed to down size and rent smaller and cheaper (rented a room for me and my kid for 2-3 years)
4. Uncle sam helped me. I wasn’t aware i qualified for anything until 3rd year of medical school when my classmates with kids told me about the assistance they were getting. I got cheap health insurance, food stamp, and some cash but i didn’t get any of my tution for undergrad or med school paid and no subsidized housing/help w first home. If i had to guess, the cash value probably total 20k+ over the 4 years, would have been more if i got help as OMS1 and OMS2. I have indeed paid more taxes than 20k in my life time and will pay lots more.
5. time is money. I took 4 years off between undergrad and med school to raise my kid whil working odd jobs. I won’t be a fully boarded attending until I’m 36 with 5 more years of residency/fellowship ahead of me. Having a net worth of 0 at 30 is pretty much the same as having a net worth of negative 600k at 26 or 27. So for those who went straight for med school and will be YOUNG attendings, kuddos to you and congratulations, time is on your side.
Again, this post is not about my personal life and circumstances.
It is but my small attempt to share with others some of the many things that helped me along the way.
Credit cards, though saved me 66k interest and gave me some cash, were not the only reason i have little debt. There are other factors, many of them discussed in detail on http://www.debtfreedoc.com/.
I found this particular tip on using credit cards to minimize interest most effortless and interesting, hence I wrote about it.
On another note, this tip was NOT as effortless when I first started it in 2009 (before med school.) It took me some trials and errors to be efficient while in med school. Now, i have 1 excel sheet to keep tract of all my finances, and i check in once/2 weeks, takes about 1 hour. I try my best to lay out steps on how to use new credit card promotions and balance transfers. Again more details on the blog.
True I could have studied on average 15 more minutes daily in medical school and got a 260 on step I instead of 250, but what I learned by being proactive with my finances was helpful to me and hopefully may help someone else.
As an intern, my focus has been to take good care of my patients, learn about medicine, and help teach medical students. (So yes, I do tutor pro bono somtimes) I enjoy spending down time wtih my family, writing my blog, and tutoring boards/MCAT.
While 1 particular colleague thinks that I am a lesser doctor because I take care of my finances, family, and write a blog, I believe that as professionals we are free to do as we wish in our free time. I did not regret spending time to learn about finances during medical school; I am happy to be sharing and learning from my colleagues in medicine as well as other areas.
5 years ago., I was asked by my college friend who’s a successful business woman, “Why in the world do you want to go take on so much debt and be in school forever, when you are doing perfectly fine financially right now?”
I answered, “I want to learn more and humans are what i choose to learn about.” To this day, as much as I complain about how much money my medical education cost and how little time I had for my kid, I am grateful to have gotten this far… thanks to the help of many.
Thanks for a great honest post. I think you are a greater doctor for the diversity of interests, knowledge, and experience you bring to medicine-both through finance and by being a parent. DO NOT let anyone make you feel that you are a lesser anything ever! From one strong female to another…I am impressed! Best wishes for much peace, happiness, and further success in all aspects of your life.
Thank you so much for your kind words.
It’s funny how the negative comments stick more than the positive ones.
WCI did advise me to have thicker skin when I first started blogging.
Your words of wisdom and kindness definitely made my day!
Yeah, I’m not sure what the deal is with some of these comments. I had my son in med school and going through residency while he was so little was SOOOOOOO difficult. I can’t imagine how hard it has been for you with your little one, getting through med school and working at the same time, and now doing residency. What you are doing is AWESOME! And it’s all going to be worth it, I promise. There is nothing wrong with using government assistance if you qualify for it. You will MORE than repay what you were given 😉
I was lucky in that my husband worked while I was in med school so it was the only time in my life I didn’t have a job and it was beautiful. I went to school in Texas where tuition was about 10k a year (2005-2009) and we bought a great townhouse for 100k (our payment was like $700/month, cheaper than rent in the area). So I totally agree on your tips about going to a cheap med school in a cheap part of the country. My only other tip would be to wait until the end of residency to have a kid. And the reason for that isn’t even financial-as a mom, at least for me, the emotional toll of being away from my kid so much, was nearly unbearable at times. Now I’m an attending and I just work part time while he’s in school and life is pretty much blissful. But that is what early financial independence really buys you-the ability to structure your life however you want. And that is what you are going to be able to do in just a few short years. Hang in there!
Thank you very much for your kind words.
Encouragement and positive/constructive comments are essential to a budding blogger. It does seem that a few negative comments may negate many positive ones.
I did not anticipate the negative comments before I started the blog.
I thought it would be clear that I am trying to share what helped me in hopes of the tips may help someone else.
I will keep writing though because there IS positive feedback and I enjoy fostering discussion and awareness regarding finances.
I’m glad her overall strategy and individual techniques worked for her, but I suppose I could write a mini blog post on “5 Reasons My Net Worth is NOT Almost Zero as an Intern”
1. I came to med school straight from undergrad, during which I had worked and managed to graduate debt free, but had negligible savings coming into med school.
2. I worked during the summer after 1st year of med school, and that helped, but I didn’t work at all at any other time during school. I seriously doubt I would have been able to while keeping up my grades.
3. I actually tried the credit card technique. My credit score was good, but I just didn’t have a very extensive record. I applied to a bunch, got denied to most for no income, and only got approved for a couple low limit (<$1000) cards.
4. My family was not able to loan me money for school. They helped in so many ways, gave me food every so often, keeping me on their phone plan for cheap, but couldn't just loan me thousands of dollars.
5. I lived pretty frugally, but when you're taking out loans for living and tuition, it still builds up pretty quickly.
But still a great post and really encouraging! The takeaway for me is to be creative and leverage whatever unique advantages present themselves in your situation. I like how WCI took "Don't fight the Fed" and changed it to "Don't fight the IRS", I'd go even further and just say "Don't fight _______". If credit card companies are willing to give you 0% for 18 months, rewards for use, and high limits that you can pay back easily (with your loans), go for it.
Can u share more of your story? How much debt did you take on? What are your plans for paying it back? Would you have done anything differently in retrospect? I would actually enjoy a whole post from your perspective. My son is applying to med schools now. We will be able to help, but not sure how much he will let us. It is very eye opening to see how much has changed since we were in med school ages ago. I am so impressed with how many of you are taking control of your finances much, much earlier than we did. It will serve you well. Hang in there and be patient as the needle moves painfully slow in the beginning.
Kuddos to you for getting ready to help your son. He is very lucky.
I am not sure if WCI wants me to write another guest post. I guess if enough readers ask questions, he might say write another guest post for WCI.
Please visit my blog http://www.debtfreedoc.com/
Many things are discussed on detail there, specific questions are answered in the comment area.
I took out quite a bit of credit card debt, the most i had was 80k-100k at any given point in time through out medical school. i currently have 34k in credit card debt, mortgage, and personal loan listed above.
I think many of the critiques here hit all the main points I agree on. [Reference to off-topic comments deleted.-ed]
Anyway my biggest thing is that one it’s hard to have good control of spending if you don’t have good support ie significant other or family. Otherwise the spending turns into a form of monetary therapy especially with the stress involved.
I have more debt than I should have even though my parents helped me with housing etc. I ended up with about 135k when instate was only 20k a year and my parents paid for housing.
That said I’m way more frugal now that I’m starting residency.
For many of us the public loan forgiveness is a big deal and we mostly plan to take advantage of that. Doing so, especially with residency and fellowship, can significantly offset loan costs. As a result it may not make sense to pay them off ASAP
I know some of my friends are going for loan forgiveness.
I considered loan forgiveness myself since i have 6 years of training.
At my friend’s encouragement, i even considered taking out max amount of 4th year loan to use as down payment for a house, since in his words “the money is literally free, you can get it forgiven by just working 4 more years after residency in non profits!”
I almost joined the wagon of borrowing to my heart’s content, paying minimum for 6 years, and then 4 years paying as an attending, then poof, my remaining debt will disappear.
But I looked closer…
Three reasons I find student loan forgiveness dangerous,
1. gov keep talking about capping forgiveness, last year at 57k. this can pass anytime. if so that didn’t even cover interest accrued/capitalized before residency starts.
2. gov has not even figured out the final forgiveness application for the first “forgiven” class in 2017, it’s only 1.5 years away from them being forgiven 100’s of 1000’s of dollars, why isn’t there more guideline on what final forgiveness takes?
3. 40% of doctors plan for forgiveness, and majority of them have 300k now -500k+ (by the end of 120 IBR payments) in debt.
I don’t think our government can afford to absorb this much debt. Even if our government miraculously come up with the tax dollars to forgive 300k for a doc that’s making 300k/year, i’m not sure it tax payers would allow it.
PSLF basically is a unsustainable program, that can be stopped, capped, at any time, and leaves the debtors, indenture servants for several decades.
On the other hand, if the interest rate is more reasonable, like at 4 or 3%, then debt will not snowball out of control as it would under current student loan interest rate and IBR.
The combination of high interest and Minimum payment (that doesn’t even counter act the monthly interest on the principle) is deadly.
http://www.debtfreedoc.com/?s=loan+forgiveness
These are just my concerns for PSLF, but I would be really happy for those who are able to get forgiveness for 100’s of 1000’s of dollars, too 🙂
While i appreciate your enthusiasm and concern your argument is a bit misguided.
I believe you are constructing your points to make a claim at the end, yet several of your points do not fit the thesis.
For one, you are creating a straw man. I never argued that we should borrow to our hearts content because of Loan Forgiveness.
Furthermore, your following points also have significant weaknesses. Your main strength relies on a fire and brimestone fear stoking that is unnecessary. As a result, purposefully or not you are couching your language in hyperbole.
One- lets make it clear who the government is. PSLF is a congressionally approved law. Executive Branch (ie Dept Ed) cannot repeal it. The capitaiton was suggested by Obama via a executive mandate. This capitation in theory can be applied to existing PSLF. However, it cannot be done without appropriate public discourse which will not take place until December 2015. At this point, no mandate would pass- and only would take place in 2016 or later.
http://educatedrisk.org/analysis/public-service-loan-forgiveness-real
This article provides in detail the challenges the federal govt would face to make alterations to the current PSLF as it exists.
There are no miraculous dollars the govt has to come up with. The govt. has already given us the money. We just have to pay it back…with interest. Interest that has largely been considered burdensome- enough that Mrs. Warren has argued for refinancing the interest to a lower rate for others. For example, if you want to borrow money for med school today for many the interest rates are approaching 3.5%
Therefore there is a real understanding that current student burden is excessive….
which brings me to the point that the US government has rarely- and possibly never with the exception of Child predator laws – retroactively punished (even criminals) with future statutes. This is most likely to continue
Finally, should the PSLF be capped- by Obama (again this is not something yet done by congress- though there are those who wish to repeal it) – even Obama provides some relief in the form of 50% captiation on capital interest due to negative accrual. Thus, if you fail to pay 100 dollars due to hardship burden in interest owed at the end of the year, that interest would now become 50 dollars.
I appreciate your concern but it is important to provide real information and not try to scare others away from a potentially useful loan forgiveness program
Hi Jay,
Thank you for bringing up these points.
I was not aware of the evidence you brought up, which instills some confidence that PSLF will work for 40% of our peer. I read through the PSLF manual and was disappointed to find no clarity on how exactly the first class 2017 will be forgiven; additionally the possibility of 57k cap would not even cover interest accrued in medical school for some.
But I’m glad there is hope that “a lot” needs to be done before PSLF will be reduced or terminated.
I think anyone who choose to let their student loan undergo negative amortization needs to be fully aware of the risks and benefits of such conscious decision.
Thank you for sharing the information. I’m sure it is helpful to those committed to PSLF. I didn’t mean to scare anyone… It was just my personal disbelief at the sustainability of such program.
Where can you find med school loans at 3.5%?
when I was talking to Great Lakes (underwriters? ) they informed me that for loans for students starting in 2016 will be at 3.5% projected
this is great news.
if you find more details, could you please comment here to share?
this sure is much better than what i learned from my financial aid officer recently…
what is the most updated origination fees (1.073% unsubsidized until 10/2015 then 1.068% & 4.292% until 10/2015 then 4.272%, maximum amounts COA are listed online at http://studentservices.tu.edu/financialaid/cost.html, and interest rates available to COM students to fully cover their COA? Rates until 6/30/2015, unsubsidized 6.21%/ grad plus 7.21%, after 7/1/2015 5.84%/ 6.84%
Grad students too? That would be a welcome development.
The conversation was specifically about medical students. I figured his data was pertinent to that since that is what I asked. I assume he’s right :/ ??