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Dentist couple - Debt Payback Strategy

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  • Dentist couple - Debt Payback Strategy

    26 yo dentist couple - Florida
    2018 projected gross income: 240 - 260k
    Projected net savings after expenses: 100 - 120k

    His - 48K @ 5.125% (REPAYE 2.56% effective interest)

    Her - 300K @ 5.75% (REPAYE 2.875% effective interest)

    Roth IRA:
    His - 5500 (2017 contribution)
    Her - 5500 (2017 contribution)

    We don't have any retirement options at work so limited to Roth. We plan to do backdoor for 2018 and every year thereafter.

    Currently renting home with no intention of buying soon. Buying a practice will come first (hopefully within next 2-3 years).

    We own both autos and are quite frugal. Our incomes are quite low at the moment as we are new grads however should steadily increase in the coming years.

    Plan in order of priority:
    1. Fund 2018 backdoor roths 11K
    2. Both recertify for REPAYE in June - low 2017 AGIs
    3. Pay 48K note when funds available
    4. June 2019 - lump sum payment on her loan to avoid capitalization and decrease balance. Then refinance privately.
    5. Aggressively pay down her remaining loan.

    Thoughts? Does this plan sound okay for the time being? Should I modify anything?

  • #2
    It's not clear to me when you are finishing.  Do you finish dental school this year?  If so, sticking with REPAYE until you finish given the low effective interest rate seems like a good idea.  Taking advantage of the interest that is forgiven is wise.

    Where are you going to work that your retirement options are that limited?  Will you be self-employed?  Might be worth looking into a solo401K if that's the case?  (If you go the solo401K route, this is better than a SEP-IRA as it will allow you to take advantage of the backdoor roth without getting hit by the pro rata rule)

    If you are employed, why are your options so limited?  Sounds like a bad gig if that's the case.  Either way, you need to be saving for retirement and paying down debt.

    Only other question is if you were in the PSFL program with that amount of debt?  Have you been recertifying each year?  How many more payments do you have? Would it make sense to stay in that program?

    Otherwise, your plan sounds reasonable.  Some companies, like commonbond, will let you combine your loans with your spouse, though it is combined under one person's name.  If that person dies they are discharged at death.  It is controversial if combining your debt is a good idea, but I did that (I had 140k, wife had 40k).  My wife is a teacher and it just made sense for us.

    All depends on what you are looking for.




    • #3
      Sorry I should have been more clear. We graduated in May 2017 and have been working since the end of last year. We consolidated immediately under REPAYE following graduation to take advantage of the subsidy. Our current payment is $0 each month until June. At which time it will probably be about $100 monthly given the low 2017 AGIs as we only worked a couple months.

      We are employed at 2 different private practices and neither offer retirement plans. Aside from the Roth contributions all excess cash has been going into an Ally Savings acct.


      • #4
        Are you guys with small private practices or big evil chains? Why on earth don’t they offer retirement plans?

        Are you two on straight salary or percentage of net production? Any chance to get CE from the practice owners so you can add higher fee procedures like implants, molar endo, ortho, etc.? If not, you might want to do a short course or some weekend courses to add these tools to your belt.

        Are you working 5-6 days per week, or could you freelance to add some 1099 income and set up your own retirement plan?

        Check with dental practice lenders to see what kind of credit score, net worth, personal bank balance, etc. they want to see in order to lend on the most favorable terms. It was kind of eye opening to hear that Bank of America wanted a high credit score and $50-100K in your personal checking account. They largely didn’t care about your mortgage debt or student loan debt. Worse still, if you aggressively paid off debt and had plenty in retirement accounts but had less than $50K in the bank, they weren’t interested in lending.


        • #5
          Start taking practice transition seminars and business of dentistry courses now, before you buy your practice. You may want to send a letter campaign to older dentists who may be considering selling their practice. Avoid practice broker fees if you can.

          The teaser weekend classes from the practice management consultants are great bang for the buck. Levin Group, Mark Costes’s Dental Success Institute, etc. avoid Sterling unless you want to convert to Scientology. Jay Geier’s Scheduling Institute is overpriced in my opinion, but some people love it.

          There’s lots of good stuff that you guys can do to get ready to buy your first practice in 2-3 years. Don’t pretend it won’t be a lot of work to get ready and do it right. You also should try to sock away 6-12 months of living expenses before starting at the new practice. You could consider having one of you keep up the employee position while the other starts at the practice, or you could both jump into the deep end of the pool at the same time. Best of luck!

          Oh, practice demographics and location selection are key too! Dentegraphics has good reports for this. I also recommend Open Dental for practice management software and doing an asset purchase and standing up a new corporation rather than buying an older dentist’s corporation. You want to avoid liability for past work, old retirement plans and employment practices, etc.


          • #6
            If you haven’t already, I’d recommend subscribing to some good business of dentistry podcasts. It’s surprising how much good info you can get for free. Plus it’ll make your commute more productive and you’ll learn from other people’s mistakes instead of your own.


            • #7
              I’d put 100% of my time/money/effort into finding the right practice in the right location to buy.

              It took me 3 years to start my practice. I kept thinking I’d “feel” ready. The feeling never came. I was making crap money at a crap associateship and decided I’d rather be broke working for myself than broke working for someone else. You will learn how to run your practice. It’s not rocket science. Everyone makes it sound so voodoo.

              I’d say your income is “okay” for 2 new grads. You didn’t give any details about how much you’re working. It’s so much easier to take great CE when your own office is paying for it. As an owner I can buy any toy I want and take any CE I want whenever I want to.... and as my skills have increased my production per hour has increased.

              So that’s my advice. Buy the office ASAP unless you’ve found an amazing mentor you’re working for. The office is the best investment you will ever make. Plant the money tree while you’re young and watch it grow. Then when your combined income is $400k... or $600k... or $800k+... you can knock out the debt and really stash some money away.


              • #8
                With a 2018 AGI of ~$250k, REPAYE payments will be approximately $1875/month by July 2019, which is sufficient to cover the interest due.  Therefore, the effective interest = the stated interest rate.  The dilemma is if and when to refi in a rising interest rate environment.  If you anticipate remaining in REPAYE for less than 3 years, I suggest applying for refi relatively soon to determine the rates offered.  Make an informed decision at that point.  And, as other have said, begin researching ownership opportunities now.