Most physicians and dentists have some debt. So, it’s no wonder that so many people are passionate about freeing themselves from the constraints of monthly payments and interest rates. You want to feel in control of your finances, especially with how expensive the medical field is.
However, there are also plenty of scams and fraudulent entities trying to exploit that passion and make an extra buck. Once someone signs the contract with these people, they find themself with little to no debt relief, ludicrously high interest rates, and debt collectors banging on their door.
That’s why it’s important to pay off your debt the right way. It may take longer, but nothing compares to seeing $0 on your next credit card statement or student loan bill. So, if you’re ready to make a dent in your debt, here are three strategies to help you choose the best option.
1. Debt Snowball
One method is the Debt Snowball, popularized by financial guru Dave Ramsey. The idea behind this method is to pay off your lowest balance first and build momentum, just like a snowball.
Pro: The main benefit of this method is that you rapidly reduce your payments and interest from your monthly expenses.
Con: The biggest drawback is that you’ll likely pay off a debt with a lower interest rate and leave a higher one still standing.
We believe this method is especially helpful to borrowers with multiple small debts. By knocking out small debts sooner, you improve credit score, eliminate monthly payments, and free yourself from interest. It’s a great method to add to your arsenal.
2. Interest Minimization
This approach addresses the interest rate problem. Here’s how it works: You prioritize the debts with the highest interest rates first, regardless of their amount.
Pro: You’ll quickly reduce your costs from interest payments, which frees you from the uncertainty of interest rates.
Con: More of your debts will stick around longer if one high-interest rate debt takes a while to pay off. If you have many small loans and one large loan, it will take a long time to get rid of the smaller ones.
We find this approach to help borrowers who have at least one debt with a notably high interest rate. The costs of monthly interest rates quickly add up, so if you have one debt with a very high rate, knocking that one out first will quickly pay itself back.
3. Consolidate and Attack
This method is about combining your multiple debts into one, such as putting car payments under a lower interest credit card. For example, if you have a car payment with a higher interest rate than your credit card, paying off your car with your credit card will save you hundreds per year.
Pro: This approach lowers your overall interest and reduces your monthly minimum payments. Less interest equals more money in your pocket every month, which you can save, spend on debt, or invest.
Con: By creating one larger debt, it’ll likely take more time to pay off and keep you in debt longer. This may equal much more in cost over the long term, which is a bad choice for many borrowers.
This strategy is effective for borrowers who find having multiple debts, all with different interest rates, confusing and overwhelming. They find relief in simplifying their portfolio by grouping all of their debts under the umbrella of one. When in doubt, keep things simple.
If you’re interested in learning more about our services, or how we can help you with your finances as a new or training medical professional, contact us here.