I get a lot of comments and emails from docs, and I spend a fair amount of time on both physician-specific and financial forums. I'm often surprised to see doctors carrying debt that I see as completely unnecessary.
Unnecessary Debt
A Car Loan
The classic example is a car loan. It might be an attending physician several years out of residency going through their financials and listing a $10,000 car loan. Assuming no working spouse, this person grosses $20,000-$40,00o a month. How long should it take to pay off a $10,000 car loan? Well, when does your next paycheck arrive? That's when it should be paid off. I'd be embarrassed to say I'm in debt for a car. Broke people have car loans. People with an income of $250,000-$500,000 shouldn't be broke very long unless they have terrible money management skills. Therefore, if you are a doctor with a car loan, you probably have terrible money management skills. The status symbol isn't driving a fancy car; it's driving a paid-for car.
Credit Card Debt
The other silly debt I occasionally see doctors list is credit card debt. Now, take pretty much anything that came in the mail from a credit card company. Turn it over and look for a big box on the back. Read that box. Somewhere in that box, it will tell you that borrowing money from that credit card will cost you somewhere between 15%-30% in interest. If I could find an investment that paid 15%-30%, I would buy as much of it as I could, take out a home equity loan, and send my kids out to shovel driveways to get extra cash to invest. If you are carrying credit card debt, you are somebody's awesome investment. As my children have long known, interest is something you should get, not give.
More information here:
How Fast Can You Get Out of Debt?
An Emergency Fund and Debt?
Another interesting combination is people who say they have an emergency fund and yet still owe money. As physicians, we generally have access to all kinds of credit. I think I could probably run up $150,000 in credit card debt in the next hour if I wanted. Emergency credit isn't usually difficult to get. For us, the point of an emergency fund is to avoid going into debt if you have an emergency.
Debt Management?
There seems to be a popular concept out there that encourages people to “manage” their debt so they can use it to get wealthy. The arguments look good. The idea is basically to borrow at 4% and earn at 8%. Mathematically, there is great truth there. But behaviorally, people don't really seem to work that way. Once your mindset changes from debt elimination to debt management, people seem to get “comfortable,” savings rates go down, and spending goes up. Twenty years later, they wake up and find they are still in debt, and they really didn't take advantage of some huge arbitrage. It only works if you invest the money that didn't go toward paying off the debt (or avoiding it), and most people don't.
The other issue is that people don't really calculate out just how much this arbitrage is earning them. For example, let's say you are offered a 2% loan for a car. You have the $10,000 that the car will cost, but you think you'll do better than 2% investing. So, you invest. Things go pretty well, and over the next couple of years, you make 6% while you carry this debt. You've made 4% a year for two years. What's 4% of $10,000? It's $400, and $800 for two years. And after tax? Maybe $500. How long does it take you to earn $500? What else could you cut out of your budget to get $500? Exactly. Obviously, if you're making $200,000 a year, you can afford to service a $10,000 debt at 2%. It's not going to break you. But it's kind of silly.
I also find it very unusual for wealthy people to have a significant amount of debt. As mentioned, there are good arguments to be made to carry debt throughout your career and even into your retirement. But in practice, I know precious few wealthy folks doing that. The same mindset that makes people wealthy also makes them pay off debt earlier than required and not take out any more. Dave Ramsey does “Millionaire Segments” occasionally. These are generally Millionaire Next Door types who made $60,000-$150,000 throughout their careers and are now millionaires. Granted, these are a very self-selected bunch, but few of them still have debt (maybe a mortgage). And all deny that debt had any significant role in their wealth accumulation. Same thing with the millionaire retirees over on the Bogleheads forum. Same thing with most of those on the Milestones to Millionaire podcast.
Can you do some of it? Sure. We once funded our Roth IRAs during my PGY-3 year with a 0% credit card. We started a taxable account a year before paying off our mortgage (we were doing that the year this post was first published). Our wealth has not come from arbitraging debt. In fact, most of our financial success comes from the fact that we lived well below our means, eliminating much need for debt. The recipe is (almost) always the same—make a lot of money, save a big chunk of it, and invest it in some reasonable manner.
More information here:
Should You Pay Off Debt or Invest?
Long Student Loan Repayment Terms
We have numerous student loan refinancing companies that advertise here. They laugh at me when I tell them I want my readers out of debt in five years and that I don't really care what their 10-20 year rates are. Why do they laugh? Because they know what you guys are actually doing. And many of you are refinancing into 10- and 15-year student loan terms. I think you ought to be a millionaire 10 years out of residency, not a debtor. But hey, if you want to still be in debt a decade after finishing your training, pretend your student loans are a house, and get yourself a 15-year fixed student loan mortgage, knock yourself out. It's your money and your financial life. I look at it like this: the longest anyone ought to be in debt for med school is four years after finishing training, because that's how long it would take to pay for medical school via the HPSP “Scholarship.” If you can't get out of debt in four years, you'd have been better off in the military.
One issue with a long-term student loan is that you get a crummy rate. Sure, 5.5% beats 6.8%, but if you were going to pay it off in three or four years, you could probably get a 4% fixed and you would probably be comfortable with a 3.5% variable rate. And 3.5% is much lower than 5.5%. Lower rate = debt gone sooner.
But the main issue is that you still have debt after five, 10, or 15 years. It is a very rare doctor who is just as excited about practicing medicine 10 years out of residency as they were one year out of residency. It's not that they're burnt out (although that is so common that maybe they are), it's simply that life happens, other interests develop, part-time work starts looking more attractive, etc. If your loans have been gone for years and you have a huge nest egg at that point, then you can cut back and pursue other interests. If you're still in debt, well, sorry. Get back to work.
Forgiveness programs almost make things worse. With the possibility of federal forgiveness programs and employer loan payback programs hanging out there, many doctors start thinking maybe they won't have to pay back their loans at all. So, they subconsciously take out more or delay refinancing and paying them back as quickly as they can.
30-Year Mortgage?
Yet another area of silly physician debt is a long mortgage on your primary residence. You might be surprised to learn that nobody used 30-year mortgages prior to World War II. GIs came home and were eligible for a 30-year VA mortgage. Prior to then, shorter mortgages were the norm. Why did they go with the 30-year? Because they figured a typical career was 30 years and wanted the home paid off before retirement. Do you really want the VA to decide how long you should be in debt for a residence? And now with the housing crisis, people are talking about 50-year mortgages!
If you practice in Boston, Manhattan, or the Bay Area, perhaps you can't afford to buy with a 15-year mortgage. The rest of us don't have as much of an excuse, although given what housing prices have done since this post was originally published, we've got more of an excuse in 2026 than in 2016. Still, I think there is great wisdom in not buying a house so expensive that you can't pay it off in 15 years. Not only do you get out of debt in 15 years, but you get a lower interest rate, too.
The flexibility argument is bunk (“I want a 30-year just in case something happens; I'll still pay it off in 15”). Your mortgage should ideally be such a small percentage of your income anyway that if something happened that kept you from making the payment on a 15-year, you probably can't make it on a 30-year either. Plus, you have an extra decade and a half of exposure to “something happening.” Do yourself a favor and get the 15. If you want to be skinny, do what skinny people do. If you want to be rich, do what rich people do. Rich people use 15-year mortgages (and pay them off in less than 15).
More information here:
How to Pay Off Medical School Debt in 2 Years
Paying Off Spouse’s Student Loans Together
Personal Loans
For many years, we didn't have any advertisers on this website offering personal loans. We now have a few, but I hope very few of you use their services. When you have to have those loans, we also hope you pay them off very quickly and get back to the business of building wealth. Nobody borrows their way out of debt, and nobody borrows their way to wealth.
Rich people don't “manage” debt. They eliminate it. Not stupidly, but reasonably and consistently. It's a behavioral thing, not a math thing. There's a reason debt makes you uncomfortable.
[FOUNDER'S NOTE: A week ago, Josh (our content director), brought this post, originally published in 2016, to me and asked if there was anything I wanted to update. I did find a few things to update, but mostly the message I would give now is exactly the same as the one I penned more than a decade ago. Debt might be a tool, but it's not one that most financially independent multimillionaires thought wise to use.]
What do you think? Do you have “little debts?” Why or why not? Do most of the wealthy people you know carry a lot of debt? Are you “managing your debt” or “eliminating your debt?” Why?
[This updated post was originally published in 2016.]