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Debt Management for Physicians

March 30, 2013 by Chuck Krugh, CFP

Perhaps the most encouraging outcome of the latest recession is the increasing emphasis on debt reduction by most Americans.  We are borrowing less and saving more, and, hopefully, developing some more frugal habits that can lead to healthier finances in the future.  Still, many physicians continue to struggle with their debt.  It takes a firm commitment and a lot of discipline, but most physicians are only a few steps away from gaining the upper hand.  By implementing these debt management for physicians strategies right now, you can be more effectively managing your debt and on your way back to prosperity.

Get Control of Your Finances

Most physicians start out with a huge debt load, and some compound it because they aren’tdebt management for physicians watching where their money is going or are oblivious to their unbridled spending.  The first crucial step in debt management for physicians is to on a strict budget to know exactly what is coming in and where it needs to go in order to get control of their debt.

Budget for debt reduction: Your very first budget item should a debt reduction payment. This should be a dollar amount in excess of what you have been paying on your loans and credit cards, and it should be an amount that is sufficient to reduce your overall debt balance by at least 5% a month.

Cut back non-essentials: In order to cover your budgeted debt reduction payment, you will need to cut back on non-essentials. Dining out, new outfits, leisure activities, Starbucks, expensive gifts, and premium cable channels should all be on the table for cutting.  You’ll find most of your debt reduction payment right here.

Pay with cash: Just make the commitment that you will not use your credit cards. Change to a debit card and only carry a credit card for emergencies. Your cash expenditures need to be strictly in line with your budget.

Learn to enjoy frugal living: Frugal living is become much more fashionable, and there are whole websites dedicated to living large on less.  For some people, it’s like a sport to be able to find the best deals and get as much for their money as possible.  Coupon clipping has become hip again.

Strengthen Your Safety Net

Debt happens, especially when the unexpected occurs and there is nothing socked away in savings. Whose fault is that? Committing to debt reduction should not come at the expense of building a cash reserve or long term savings.

Budget for savings: Just as you need to budget for a debt reduction payment, you need to budget for a set savings amount each month.  This should be your second budget item around which the rest of your budget is determined.  You goal should be to build a six month cash reserve within a year.

Manage Your Credit

Reducing the cost of your debt can help accelerate it reduction and increase your cash flow even further.

Check your credit report: You may be paying more for interest than you need to. If your credit report has errors, or past disputes, you can get those removed and increase your score, which can lower your interest costs.

Know your limits: Your score is also impacted by the ratio of your credit card balances to their limits. If you can move your balances around so that none of your cards exceed a 50% debt to limit ration – your score will increase.

Take control: Call your creditors and ask for a lower rate or a balance transfer opportunity to a card with a lower rate.  They may say no, but it doesn’t hurt to ask.

CategoriesFinancial Planning Tagsfinancial planning,  money management

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