Repaying physician student loans

Six-figure debt can sometimes feel like a never-ending proposition when repaying physician student loans. Monthly payments don’t seem to make a big dent and interest keeps on accruing. My $238,000 of medical school debt seemed very much like a mortgage—without the house.

My payment was almost $3,000 a month, which made a significant impact on my family’s monthly cashflow. That combined with our actual mortgage and living expenses brought us to a point where we felt like we were living paycheck to paycheck.

So, in mid-2017, my husband and I decided that we were done with carrying this loan burden and decided to pay off my student loans quickly. We hoped to pay it off in five years, much quicker than the originally planned 20-year standard repayment. We started making some big changes in the way we handled our cash flow.

Here is what we did:

We refinanced my loans. Once we decided to pay the loans off quickly, we decided to refinance my federal student loans at 6 to 8% with a private company that offered much lower interest rates. This helped us make each repayment dollar go further and saved us thousands of dollars in interest. However, we were cognizant that the reduced interest rate came at the cost of losing federal protections.

We went all in. Once we decided to get rid of debt, my husband and I became laser focused on that goal. When one of our cars got totaled, instead of upgrading, we decided to buy an equivalent car in cash instead of taking on another monthly payment. After contributing to retirement accounts to get the employer match, we directed all the rest of our savings toward debt repayment, instead of trying to do it all.

We visualized success. We represented our debt with a macaroni jar where each macaroni represented a thousand dollars. At the beginning of repayment, we put the rest of the principal balance and the anticipated interest paid in standard repayment into the jar. As we made payments, we celebrated at the end of the month by taking the macaroni’s equivalent to our payment out of the jar together. This helped motivate us to keep going and got the whole family involved.

We started “budget dates.” In order to maximize how much we were saving at the end of the month, my husband and I started meeting monthly to go over our spending. We started tracking our spending on a spreadsheet. At the end of each month, we met together to fill in the spreadsheet. In this process, we were able to identify ways we could save more money.

We increased our income. My husband had been staying home to take care of the kids and get his master’s. Once he finished his master’s degree in project management, he went to work and that helped us increase our income. I decided to change jobs and we moved to an area where we both could work that was also close to family who could help with our kids.

We downsized. In our quest to make room between income and expenses, we were motivated to cut all fixed expenses. So when we moved, we decided to downsize our living situation from an “attending house” to a “resident house.” Though the decision was psychologically difficult, it wasn’t very hard to implement once we made up our minds. This decision helped us free up a lot of room in our budget and also curbed the pressure of trying to keep up with the Joneses.

I started a side hustle. During our debt repayment journey, I started a website, which was initially intended as a hobby. Soon though, I realized that creating a business would help me gain the tax advantages of being a small business owner while also creating another income stream.

We rewarded ourselves. It was important to us not to deprive ourselves of experiences and life during the process of rapid debt repayment. So, we were careful to allot for fun experiences and restaurants in our monthly budget.

The strategies above helped us annihilate our debt way faster than we imagined. Instead of the originally planned five years, we were able to knock out my student loans just 17 months later, in early 2019.

After paying off my student loans, we were able to upgrade again to an attending house. But this time, we had a lot more breathing room in our budget and were able to maintain our desired monthly savings rate to invest and create financial stability and freedom in our lives.