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Should Doctors Pay Off Their Debts or Invest the Money into Their Practice?

It costs anywhere from $70,000 to over $100,000 to launch a private medical practice. (1) The barriers to entry are sky-high, but so is the potential reward. You get to be your own boss, run your practice how you want, and provide treatment based on your own standard of care. It can’t be beat.

But many doctors face an all-too-common dilemma when they have money left over at the end of the month—should they invest it in their practice or use it to pay off debt? Unfortunately, there’s no right answer.

If you’re wondering whether you should invest or pay off debt, read on as we take a look at common scenarios that may help you make the right financial decision for you.

When to Pay Off Your Debts
Nearly 80% of medical students graduate with student loan debt—with most loans averaging $232,300. (2) Throw in an average $8,398 in credit card debt, (2) $202,284 in mortgage debt, (3) and $31,099 in auto loan debt, (5) and it’s no wonder doctors can make $200,000+ dollars a year and still struggle to make ends meet.

Here are some examples of when paying off debt first may make the most sense.

You have high-interest debt. Depending on the type of debt you have, interest rates can easily exceed 20%. If you have any debt with rates over 10%, we recommend paying them off first. Interest rates this high keep you buried in debt for the long haul.

You’re nearing retirement. Retirement is a time where you go from earning a paycheck to living off your savings. The less money you have to earmark for debt payments during your golden years, the better.

Your business is running like a well-oiled machine. If your practice is going well and you’re not currently hurting for a cash infusion, then chip away at your debt. Your personal financial health should be just as much a priority as your business’s health.

Your debt is all you can think about. Money is emotional. Some people can tolerate debt while others feel shackled to it no matter how small the interest rate may be. If your debt is adding unnecessary stress to your life, pay it off before you invest (even if it doesn’t make mathematical sense).

When to Invest in Your Practice
If you don’t have any high-interest debt (anything over 10%) or your practice needs the extra cash, it may make sense to invest first.

For example, if you know that updating your medical records software would free up enough time for you and your staff to see 10 extra patients a month, investing in your business could produce a greater return than paying off debt.

Or, if you know relocating your practice to a more desirable (read: more expensive) part of town would bring in an influx of patients, invest in your practice so you can make the transition.

When to Split the Difference and Do Both
Who says this has to be an either/or situation? If you’re on the fence about whether you should pay off debt or invest in your practice, split the difference and do both. For example, if you know you have an extra $3,000 a month to work with, invest $1,500 in your practice and throw $1,500 at your debt. You may not hit your individual goals as quickly as you would if you tackled them one-by-one, but you’ll still make substantial progress.

How We Help
Whether you just struck out on your own or have been in practice for years, it can be hard to know if you should use your extra cash to pay off debt or invest in your practice. If you need help choosing which route is best for you, we at SC Financial Services, Inc., are here to help you decide. But we don’t stop there. We do everything from succession planning to employee benefit package analyses, and everything in between! To learn more about how we help doctors protect and grow their wealth, contact me today at 480-214-9596 or info@scfinancialservices.com.

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