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  • Paying off Credit Card Debt as a Resident

    I'm new to this website, so I apologize if my upcoming question regarding credit card debt has been asked previously:

    I just finished medical school at an MD program and will be starting my five-year residency program in a few weeks. I got married last summer, which unfortunately racked up quite a bit of credit card debt that we haven't been able to pay off yet. I currently have $15,000 worth of credit card debt spread out across 4 different credit cards.

    I am slightly freaking out about this credit card debt, and I was wondering if anyone has been in a similar situation previously. Fortunately, my wife has a full-time job, and our annual salary between the two of us will be ~$110k before taxes over the next year. Is it possible to pay off this credit card debt given this dual-income we are about to have once I start residency? Is my anxiety justified?

    Thanks for any advice or words of wisdom.

  • #2
    Any kids? What does your monthly budget look like? Any other debt?

    This is something that can be fixed. However, you need to prioritize paying this off and NOT accumulating more debt as you start residency. I would avoid the credit cards at all costs unless you are paying it off in full every month.

    View residency as the opportunity to create the habits now to prevent future issues down the road. Hoping that your wife is on board with this as well. It is easy to let the increased income get the best of your, and soon enough you can end up sinking pretty quickly.

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    • #3
      credit card debt is a financial emergency. you should start paying it off before you start your residency, given your wife has a job. I sure hope she too recognizes this is an emergency. But it is totally fixable, as long as you prioritize it. Your anxiety is justified but don't be paralyzed by it...do something (pay it down) so your anxiety goes away. Don't go into CC debt again.

      If you can't pay off the CC balance monthly, then you can't afford the expense. If you can't afford the expense you need to get something that is less expensive and/or wait until you have the money to pay for it. Live your life that way.

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      • #4
        Just make sure you correct the underlying problem which is not living beneath (or even within) your means.

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        • #5
          Originally posted by NumberWhizMD View Post
          Any kids? What does your monthly budget look like? Any other debt?

          This is something that can be fixed. However, you need to prioritize paying this off and NOT accumulating more debt as you start residency. I would avoid the credit cards at all costs unless you are paying it off in full every month.

          View residency as the opportunity to create the habits now to prevent future issues down the road. Hoping that your wife is on board with this as well. It is easy to let the increased income get the best of your, and soon enough you can end up sinking pretty quickly.
          No kids yet, but we might be having one over the next 1-2 years. I have my federal loan debt from medical school and undergrad which is about $280k, and she has about $28k in federal loan debt from undergrad.

          Thank you for the advice, I appreciate it.

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          • #6
            We were paying for daycare and we managed to pay off 30k in student loans during my 4 year residency. And we had an emergency fund of about 15k. Our combined income during that time was 100k. So absolutely it's possible to pay off 15k of cc debt. But you need to figure out why you have the debt in the first place and you need to work on a budget together so you know where your money is going and set financial goals. That way you aren't just frittering money away on future junk, you are spending intentionally on things you value and that will make you happy/give you peace of mind.

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            • #7
              Originally posted by BrownsFan2021 View Post

              No kids yet, but we might be having one over the next 1-2 years. I have my federal loan debt from medical school and undergrad which is about $280k, and she has about $28k in federal loan debt from undergrad.

              Thank you for the advice, I appreciate it.
              step 1: take care of these CC loans ASAP, and make sure you are both honest with yourselves with how this happened in the first place. Don't immediately dismiss it as "oh, it was a wedding, that's a one-time thing." You'd be amazed at how many times you'll go through life and think what you're about to do is a "one-time" thing/expense
              Step 2: make a plan to address the student loans
              Step 3: make a plan to put money towards retirement (at least 15% of your combined HH gross income now, to increase to 20% once you're an attending)
              Step 4: https://www.whitecoatinvestor.com/live-like-a-resident/

              Plan to live like a resident while you are a resident and plan to live like a resident after you are done with residency. By all means go ahead if you guys want to and feel ready for kids in 1-2 years, but be aware that likely one of the consequences of that choice will be your live like a resident period will probably be extended, which includes no house. Don't be that household that feels they need a house because they now have a child. Ultimately you'll get a house but don't do it too soon.
              Last edited by JBME; 05-25-2021, 01:16 PM.

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              • #8
                I'll offer an alternative approach. Since you don't have the $15k sitting around in cash (I hope), I would consider opening another credit card (cue the gasps!) that is offering 0% APR on balance transfers, ideally for ~18 months. Make sure it has no annual fee, of course. Then transfer as much of the $15k as you can to this card. You could even open up a couple.

                This will stop the bleeding (i.e., interest) on your debt. Hopefully all of it, depending on what sort of credit limit you can get, but at least some of it (you can only transfer an amount equal to the credit limit minus transfer fee). Though you will likely have to pay a small one-time fee, it's better than paying interest on the entire balance every single month. Doesn't matter if the card is for you or your wife, but probably should go with whoever has the better credit score to try and maximize the credit line.

                If you aren't able to transfer the entire $15k to this 0% APR card, blast whatever interest-generating balance you have left over with as much cash as you can, while paying the monthly minimum on the 0% APR balance. Once the interest-generating balance is gone, then point the gun at the 0% APR balance, and blast away again. If you are unable to eliminate all debt by the time the 0% APR balance transfer period is over, open another card with 0% APR on balance transfers, rinse and repeat. Otherwise you'll get hit with interest on any remaining balance at the end of the 0% APR term.

                This process will minimize the total amount you pay in interest. It should go without saying, but do not make a single new charge to these new credit cards. Or your current cards. They are simply a tool for moving debt from high interest to low (no) interest, in exchange for a small one-time fee. Can't stress this enough, otherwise your problem will get worse, not better. New purchases (necessities) are made with cash, and any cash left over goes toward balances. Once the balances hit zero, don't spend more than you earn and this problem should be behind you.

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                • #9
                  Originally posted by bovie View Post
                  I'll offer an alternative approach. Since you don't have the $15k sitting around in cash (I hope), I would consider opening another credit card (cue the gasps!) that is offering 0% APR on balance transfers, ideally for ~18 months. Make sure it has no annual fee, of course. Then transfer as much of the $15k as you can to this card. You could even open up a couple.

                  This will stop the bleeding (i.e., interest) on your debt. Hopefully all of it, depending on what sort of credit limit you can get, but at least some of it (you can only transfer an amount equal to the credit limit minus transfer fee). Though you will likely have to pay a small one-time fee, it's better than paying interest on the entire balance every single month. Doesn't matter if the card is for you or your wife, but probably should go with whoever has the better credit score to try and maximize the credit line.

                  If you aren't able to transfer the entire $15k to this 0% APR card, blast whatever interest-generating balance you have left over with as much cash as you can, while paying the monthly minimum on the 0% APR balance. Once the interest-generating balance is gone, then point the gun at the 0% APR balance, and blast away again. If you are unable to eliminate all debt by the time the 0% APR balance transfer period is over, open another card with 0% APR on balance transfers, rinse and repeat. Otherwise you'll get hit with interest on any remaining balance at the end of the 0% APR term.

                  This process will minimize the total amount you pay in interest. It should go without saying, but do not make a single new charge to these new credit cards. Or your current cards. They are simply a tool for moving debt from high interest to low (no) interest, in exchange for a small one-time fee. Can't stress this enough, otherwise your problem will get worse, not better. New purchases (necessities) are made with cash, and any cash left over goes toward balances. Once the balances hit zero, don't spend more than you earn and this problem should be behind you.
                  This is a great idea - thank you so much. I've been looking into different balance transfer cards to do this, but I'm worried about submitting any applications in case it lowers my credit score further since it's already about average. Do you have any recommendations on balance transfer credit cards for someone with a fair credit score?
                  Last edited by BrownsFan2021; 05-25-2021, 04:28 PM.

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                  • #10
                    I would not worry about dropping a few points on the credit score. You (hopefully) will not be financing anything in the near future and your credit should have time to recover from any drop from applying for a credit card. I think the 0% transfer is a good idea with the caveat that Bovie stated that the credit card debt is still a financial emergency.

                    You anxiety is justified but the important thing is a course correction and learning from the error. In the long run $15k won't be a big deal but as others have stated if you continue this pattern you could have trouble. Physicians have easy access to large amounts of credit; avoid the temptation to overspend. Deal with this while a resident. Don't fall into the trap that you can pay it off as an attending.

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                    • #11
                      https://www.whitecoatinvestor.com/wp...5.35.28-PM.png

                      Not sure if you are fully understanding the seriousness of “emergency”.
                      Cheapest apartment. Do you have any possessions that can raise cash? One car or two? How new and can you trade down to a beater. No new furniture, Salvation Army and thrift stores. No eating out. You are farther tan broke.
                      The only solution is to payoff the high interest debt. Zero interest balances only postpone the fire. The can blowup if something goes wrong.
                      Anything you or your spouse can figure out to bring in cash or cut spending helps.
                      It isn’t fatal, so no need to panic. Never get comfortable with high interest debt.

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                      • #12
                        Yeah, your anxiety is justified. But the biggest thing as stated above is to make sure you and your wife learn from your mistake, and why it should never happen again. If only one spouse understands this and the other still believes credit cards are a tool for credit, it is setting you up for financial disappointment in the long run. 15K in the long run won’t sink you, but I’m more worried about the bad financial habits that can develop when you pay for things that you cannot afford.

                        sit down and devise a budget together that allows you to put all discretionary spending towards paying off the debt. Make it hurt a little -
                        even depriving yourself of certain small things (e.g. no vacations/trips until it is paid off). Credit card debt is a huge financial mistake that is one of the hallmarks of financial illiteracy.

                        But we all make mistakes, it’s often what starts us on the road to getting smarter about our finances. So if this is a turning point and a learning lesson for you, then you’ll be just fine

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                        • #13
                          You are someone that may benefit from listening to Dave Ramsey.

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                          • #14
                            Thank you everyone for the advice.

                            I just talked to someone who was trying to convince me to make a debt settlement given our credit card debt of $15k. They seemed to think that this was the best option in the long run instead of slowly bleeding from interest over the next few years while we attempt to pay it off. Do you think this is something I should consider? I don't think I'll be able to get a balance transfer credit card given my fairly low credit score. Thanks so much

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                            • #15
                              Originally posted by BrownsFan2021 View Post
                              Thank you everyone for the advice.

                              I just talked to someone who was trying to convince me to make a debt settlement given our credit card debt of $15k. They seemed to think that this was the best option in the long run instead of slowly bleeding from interest over the next few years while we attempt to pay it off. Do you think this is something I should consider? I don't think I'll be able to get a balance transfer credit card given my fairly low credit score. Thanks so much
                              That’s absurd. You will make $110k. You should be able to pay this off in a couple months.

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