Debt - worried

[quibble]

Hi. I am graduating soon and hopefully starting residency soon in July. Currently have about $62K of debt (that includes both government loans and LOC). I am just very worried about the interest rates going up and how I am going to repay all this. Is this normal to graduate with so much debt? 

What is reasonable in terms of tackling this debt during residency? Possible that I fully repay all of it?

[shikimate]

The first step is to make a list of all your debts and their interest rates starting from highest to lowest. Also make note if interest on them is fixed or variable.

The second step is to find out if you can transfer the balance from higher rates to a lower rates. For example, pay off a 20% credit card with 3% line of credit.

The third step is to find out if any of your loans have deferral options. For example, sometimes a place will pay part of a loan for a family doctor in exchange for certain years of return of service.

The fourth step is to make a budget and calculate how much a month you can afford towards loan repayment

The last step is to start paying the highest interest loan first.

[HoopDreams]

37 minutes ago, quibble said:

Hi. I am graduating soon and hopefully starting residency soon in July. Currently have about $62K of debt (that includes both government loans and LOC). I am just very worried about the interest rates going up and how I am going to repay all this. Is this normal to graduate with so much debt? 

What is reasonable in terms of tackling this debt during residency? Possible that I fully repay all of it?

I wouldn't worry at all.

62K$ including LOC and Government loans is very normal.
Interest rates won't affect you that much, even if they double or triple.
You're paying prime - 0.25 and only interests are calculated.
You have 2 years post-grad residency to start paying back the capital.
You will make around 35-50K$ net per year in residency.

[Synth1]

OMG, 62K is nothing. Honestly, I'm not even sure how you pulled that off if you weren't living at home. The tuition alone at my med school was 20K a year. Many residents have MUCH larger debt load, and they'll be fine too. 

[Persephone]

I have heard of new psychiatry staff paying off their maxed out LoCs ($300k) plus government student loans in ~5 years after becoming staff. $62k really is nothing. You'll be in a great position post residency

[IMislove]

3 hours ago, Synth1 said:

OMG, 62K is nothing. Honestly, I'm not even sure how you pulled that off if you weren't living at home. The tuition alone at my med school was 20K a year. Many residents have MUCH larger debt load, and they'll be fine too. 

Working full time for a few years plus living with parents before med school may help hah. But yes it’s wild seeing the massive differences.

[itsgoingtibiaokay7]

Is it a good idea to at least pay the interest on these loans or even contribute a little throughout a 5 year residency? 

[unmatch]

I graduated with close to $200k in debt after med school (includes undergrad debt). I remember we had a financial advisor come to our med school class and we did an anonymous poll and I believe most people in my class voted for 150-200k of debt. I've paid down to $120k during my first two years of residency (albeit living at home). I imagine you'll have no problem paying off your 62k during residency or shortly afterwards, regardless of specialty.

[Snowmen]

On 4/1/2022 at 5:06 PM, itsgoingtibiaokay7 said:

Is it a good idea to at least pay the interest on these loans or even contribute a little throughout a 5 year residency? 

It depends on your strategy.

I personally had automatic contributions to my TFSA for roughly what I budgeted I would have left-over. That all went to index funds (mix of S&OF/TSX, S&P 500 and international indexes). Whatever money I ended up having left after contributions to my TFSA went to the LOC since it's basically a guaranteed 2,20% (and now 2,45%) return which is about the same as bonds but much more flexible.

I prioritized the TFSA since the historic return is much higher than the interest rate plus I have a high tolerance to risk and have a long-term outlook which is why I went for 100% stocks. The LOC repayment mimics bonds which are a classic strategy to mitigate risk.

On the side, I kind of invested in real estate by buying a condo that was a crazy deal (especially these days) that I'll renovate and then live in for a few years before reselling for a (hopefully large) profit or lease once I need something larger.

TLDR: Repaying the LOC is better than keeping the money in a chequing or savings account but stocks or real estate are typically better long term. Depends on that your priorities and risk tolerance are.

[Persephone]

On 4/1/2022 at 4:06 PM, itsgoingtibiaokay7 said:

Is it a good idea to at least pay the interest on these loans or even contribute a little throughout a 5 year residency? 

My goal for the first few years at least of residency is to pay the interest monthly on the LoC. My gov't loans are currently not racking up interest (federal portion is paused on interest till Mar 2023 and I am with BC who has permanently stopped student loan interest for my provincial portion).

[itsgoingtibiaokay7]

On 4/13/2022 at 5:40 PM, Persephone said:

My goal for the first few years at least of residency is to pay the interest monthly on the LoC. My gov't loans are currently not racking up interest (federal portion is paused on interest till Mar 2023 and I am with BC who has permanently stopped student loan interest for my provincial portion).

For the federal student loan, is it better to consolidate to LOC? I’m not entering FM so I don’t have loan forgiveness option if I were to stick with loan repayment. 
 

My understanding is that if I started loan repayment, I would be subject to a minimum monthly payment rather than having flexibility to just pay interest (or nothing) on LOC if I were to consolidate. The latter option would require considerably lower payments than min monthly payments, which would give me more wiggle room on my resident salary. 

[Persephone]

On 4/15/2022 at 11:42 PM, itsgoingtibiaokay7 said:

For the federal student loan, is it better to consolidate to LOC? I’m not entering FM so I don’t have loan forgiveness option if I were to stick with loan repayment. 
 

My understanding is that if I started loan repayment, I would be subject to a minimum monthly payment rather than having flexibility to just pay interest (or nothing) on LOC if I were to consolidate. The latter option would require considerably lower payments than min monthly payments, which would give me more wiggle room on my resident salary. 

If you want to delay doing this for a bit, you can request interest only payments for 6 months on your gov't student loans. While the interest is paused until March 2023, this means very low payments (b/c neither portion of my gov't loans are accruing interest right now, being from BC, I am paying $10/month, this will vary depending on your provincial loan origin). After that you get a reduced monthly repayment amount for 2 years. Mine reduced by about 40%/month. After the 6 months of interest only payments it may make more sense to consolidate. I don't have the room on my LoC to do that unfortunately, but if it makes sense for you I cannot see why not. Just do your math well or talk to a financial advisor!

[heartandsoul]

 

On 4/16/2022 at 12:42 AM, itsgoingtibiaokay7 said:

For the federal student loan, is it better to consolidate to LOC? I’m not entering FM so I don’t have loan forgiveness option if I were to stick with loan repayment. 
 

My understanding is that if I started loan repayment, I would be subject to a minimum monthly payment rather than having flexibility to just pay interest (or nothing) on LOC if I were to consolidate. The latter option would require considerably lower payments than min monthly payments, which would give me more wiggle room on my resident salary. 

I found this video helpful on loan repayment and whether to consolidate my LOC - as I already have almost $80k in debt...

If you're in Ontario and plan to go to a 5 year residency, there's a interest forgiveness program if you plan to stay in ON for residency and work which might make it worth it not to consolidate

 

[rmorelan]

On 4/1/2022 at 1:00 PM, quibble said:

Hi. I am graduating soon and hopefully starting residency soon in July. Currently have about $62K of debt (that includes both government loans and LOC). I am just very worried about the interest rates going up and how I am going to repay all this. Is this normal to graduate with so much debt? 

What is reasonable in terms of tackling this debt during residency? Possible that I fully repay all of it?

Just to add - that is probably a less than average level of debit to start with. Debit sucks but you will come out on the other side. 

Be careful with the Ontario loan forgiveness program - it truly is hard to be 100% sure that you will be staying in Ontario unless you happen to be a family doctor (yeah for flexibility!). 

Also hopefully as a side impact of the rising interest rates there will be greater push back on the just constantly increasing the medical school tuition. Some people with the higher end levels of debit - say around 200K which is also not unusual - could be soon dropping 10K post tax income on to those loans. It will start to get much more painful. 

Can you pay off 60K in residency? It is possible - but there are factors like where you are going (TO for instance is expensive if you happen to be there, and how long is your residency?) You have to balance the desire to pay it off with not letting the effort restrict your ability to be a good resident.