I came across Dr. Wise Money through a Facebook group for personal finance bloggers. I wanted to keep in touch with what other writers were doing, and maybe make a few new friends along the way. And while we never actually had a chance to meet, I always found her posts interesting and inspirational. She
was as determined and productive of a person as I’ve ever seen!
(Sadly, Dr. Wise Money passed away recently. I don’t know the details of her passing, but I hope this post is just one more small tribute towards the memory of a truly extraordinary person.)
Even for those outside of the medical profession, it’s no secret that while doctors often earn a high-paying salary, the journey and expense involved to reach that stage of their career is often gargantuan. On top of a four-year college degree, future would-be doctors slog through typically three to four more years of medical school, and then another three to seven years of residency on top of that. So a total of ten to seventeen years of their professional lives earning little to no income, with their debts piling up in the process. For this reason, many doctors start their careers with hundreds of thousands of dollars in debt.
On top of this mountain, they face the tremendous cost of malpractice insurance, and giant income tax bills, which together limit their ability to pay off their debt and start building wealth. So while the rest of us can enter our thirties with nearly a decade of work experience, student loan debt paid off, and at least the foundation of our retirement nest-egg built, doctors are left staring up at a massive mountain still to climb.
However, Dr. Wise Money (DWM) was different. You can read her own account for the complete story, but suffice it to say that her formative years gave her a healthy fear of debt. So when it came to financing medical school, she got very creative. She took a hard look at the federal student loan program, and didn’t like what she saw — nearly 7% interest rates and over 4% origination fees (an up-front, one-time fee you pay when the loan is “originated”). On the other hand, DWM had excelled in paying off credit card debt before, and knew the ends and outs of how they work. She knew, in fact, that banks will compete for your debt, and by using balance transfers and zero-percent introductory period interest rates, she could finance her school costs for less than 1-3%!
But it gets even better, since DWM was earning points and rewards by using these cards, she was actually often getting negative interest rates, once you factor those into the equation. (And this was way before the European and Japanese central banks made the whole negative interest rates thing cool, so DWM was quite the pioneer!) At the end of the day, the banks were actually paying her to borrow money from them. Pretty cool, right?!
Now although residents are medical school graduates and technically doctors, they still don’t typically earn much money. My understanding is it’s usually around $40-50k/year. But that didn’t deter DWM. Once she entered her residency program and started earning that small salary, she still threw every extra dollar towards her debt. By age 30, she had paid off all her student loans, and by age 32, she was completely out of debt. And she did all of that as a single mom with no other income.* Amazing!
For those out there thinking that maybe they should take the same course as DWM, let me add a couple of words of advice. While her strategy was unorthodox, I think it made total sense in her circumstances, and applaud her ability to “think outside the box.” So here are my thoughts and tips for would-be DWM followers:
- Don’t be Afraid to Challenge the Status Quo — For DWM, just because other future docs were taking one particular path, didn’t mean she had to. She did her own research, and found a better way.
- Know the Details of Your Debt — Debt is all about the details: what’s the interest rate, origination fees, term, payment schedule, etc. I find that a spreadsheet is indispensable for this. (By the way, if you don’t know how to use a spreadsheet, learn. Your wallet will thank you!!) Plot all your debt in a spreadsheet, and examine the details like the back of your hand. For Dr. Wise Money, the key to her plan was to move the credit card balances from one card to another before the zero percent intro period ended. Being diligent and careful was key. If she missed the debt, she would have paid thousands in additional interest.
- Pay Attention to Compounding — Ben Franklin called it the 8th wonder of the world for good reason. Compounding interest is a powerful thing, both for good (with investments) and for evil (with debt.) So the lower your interest rate is, the quicker and easier it will be to get out of debt.
- Debt is Debt — It doesn’t matter what you call it, when you owe somebody money, you’re in debt. In DWM’s case, she used credit cards, but whether its credit cards, student loans, or some other form of credit, it’s the terms and rates that matter, not the name.
*My source for this is DWM’s own blog: www.drwisemoney.com