Embarking on a career in medicine is both exciting and rewarding. It can also leave you with a high level of debt if you’re not careful with managing your expenses and borrowing costs.
In fact, nine of out every 10 medical students will incur debt by the end of their medical education, according to the 2012 National Physician Survey.
About 30% of students expect to leave school with a debt of over $100,000 while 13% expect debt of over $160,000.
Minimizing debt during medical school is important to help start your career on the right foot. Here are five best practices to help you minimize your debt over the next few years.
1. DEVELOP AN ANNUAL BUDGET
Work through a detailed budget before the start of each year of medical school by estimating your costs and potential income, including:
- Basic costs: Tuition, books, school fees, rent/accommodation, food and entertainment
- Other costs: Travel, membership fees, insurance, interest accumulation or debt
- Sources of income: Summer work, grants, scholarships, student loans, gifts and family assistance
A budget will help you determine how much you need to borrow and help you manage your money better. To develop an annual budget and a financial plan for the future, work with a qualified financial advisor who understands the challenges faced by medical students.
2. USE YOUR BUDGET WISELY
Try to stick to your budget as closely as possible and meet with your financial advisor every year to review your budget, plan ahead and stay on track.
3. BORROW ONLY THE AMOUNT YOU NEED
Each year, borrow only what you need for that school year by using your annual budget to determine your maximum credit limit.
Having excess available credit can lead to overspending, which can make it difficult to finance the last years of medical school or residency.
4. PROPERLY TIME YOUR WITHDRAWALS
Try to minimize the interest that will accumulate on your line of credit by properly timing your withdrawals.
For example, do not transfer large amounts to your chequing account if you do not plan to use the money right away. If you do, interest will accumulate on your line of credit.
One alternative is to use your line of credit as your primary transaction account.
If your school allows payment of your tuition in two instalments without additional interest being charged, consider taking this option rather than making one payment at the beginning of the school year.
By waiting to pay the second half of your tuition in January, you will save on interest charges.
5. REDUCE THE AMOUNT BORROWED WHEN POSSIBLE
Deposit incoming funds to your line of credit whenever possible.
For example, if you have a summer job or have received a grant, deposit this income to your line of credit account—rather than your chequing or savings account—as it comes in.
This will reduce the daily interest charges that accumulate on your line of credit account. Then, just borrow the money back as you need it for rent, food and other expenses.
This simple yet effective strategy will save you money over the long run.
For more information about managing student debt or other financial needs you have, call 1 800 267-2332 or contact the MD MedEd CounselTM, a team of MD Advisors and Early Career Specialists dedicated to medical students and residents. MD provides objective advice at every stage of your career—from medical school through retirement. MD Financial Management is owned by the Canadian Medical Association.