Debt Management: What You Never Learned in Med School


If a pitcher in baseball gives up five runs in the top of the first inning, the home team suddenly finds itself scrambling to catch up before even coming to bat. That's not unlike the situation many physicians find themselves in when it comes to managing debt.

“There are three kinds of people—the have's, the have-not's, and the have-not-paid for-what-they-have's.”—Earl Wilson

If a pitcher in baseball gives up five runs in the top of the first inning, the home team suddenly finds itself scrambling to catch up before even coming to bat. That’s not unlike the situation many physicians find themselves in when it comes to managing debt.

According to a recent report from the American Association of Medical Colleges, medical education debt was 4.5 times as high in 2003 as it was in 1984. America’s medical school class of 2006 had average educational debt of about $130,000. In addition, 41% of medical school graduates reported educational debt in excess of $150,000, with a significant minority reporting obligations as high as $350,000. That’s some hole to climb out of.

The Debt Contributors

Robert Tucker, MD, MBA, a retired hand surgeon who is now a financial advisor with Plancorp, explains that in addition to medical school debt, young physicians who open their own practice often find themselves in a cash shortage situation.

“Typically, there is significant start up costs,” Dr. Tucker explains. “There’s equipment and personnel, and due to the nature of insurance payments, there is at least a three month lag from the time service is rendered till the time payment is received. And a new physician starting out doesn’t have a full waiting room of patients on day one. The practice could have cash flow issues for the first year or even 18 months.”

As an alternative, Dr. Tucker explains that many young, primary care physicians are entering into contracts with large groups or established practices. By doing so, they have a known source of income, their immediate practice needs are going to be met, but they avoid the start-up expense of establishing a practice.

“Whether it’s on a short-term basis or a long-term basis, there are some physicians who are best suited to go into an established practice where there’s going to be a definite cash flow,” says Dr. Tucker.

Living the Lifestyle

Larry Tolbert, regional vice president of Memphis-based Householder Group, says that on the surface, any time you owe somebody something, that’s bad. But upon closer examination, there is both good debt and bad debt. Good debt, Tolbert explains, is something secured by an asset, such as a home, that will most likely increase in value. Investing in yourself, such as medical school education—while costly—is also considered good debt.

What is bad debt? “I need transportation, so I buy the new, self-parking Lexus for $100,000” suggests Tolbert. “There is nothing of value securing bad debt except your own greed or lust.”

Physicians receive little, if any, financial training while in medical school. And because they’ve postponed, theoretically, their consumer spending for seven or eight years longer than the average college graduate, they want the things that go with a better lifestyle once they start their careers—and they want them quickly. And buying things doesn’t increase your net worth, says Chad Olivier, CFP, author of What Medical School Did Not Teach You About Financial Planning.

“Most of the time, buying things decreases your net worth,” Olivier explains. “If you go into a neighborhood and the biggest home there is $1 million, and you build a $2 million home, guess what? You’ll never get your $2 million out of that home. You’d better be prepared to live in that home forever and make your mortgage payments.”

Slaying the Debt Monster

Dr. Tucker says the best advice he can offer doctors, especially young ones, is to start planning right away. Planning, he points out, adds a sense of discipline throughout a physician’s career.

“Young physicians who do not have any children are really focused on building a practice, and yet that’s the perfect time to start making plans for how the educational needs of their children are going to be met 15 or 20 years into the future,” says Dr. Tucker. “The earlier you start, the easier planning is going to be.”

If debt management has already become a problem, sit down with a reputable financial advisor and put together a realistic budget that you can stick to. And, cautions Donald Levin, CPA, partner with Morrison, Brown, Argiz and Farra, you might want to avoid taking your problems to a debt resolution firm.

“Oftentimes, these entities just extend debt over a longer period of time, requiring larger interest rates,” Levin explains. “Typically, these debt managers receive a commission of 15 to 20% of your debt repayment. And your credit score can negatively be affected by use of these companies.”

Dr. Tucker echoes those thoughts. “Physicians must be careful that the advice they’re getting is impartial, and that there isn’t a product being sold or an underlying agenda. And I think they should work with an organization that has, at it’s disposal, a variety of mechanisms for helping with debt management, not just one mechanism that is applied to all individuals.”

Ed Rabinowitz is a veteran healthcare reporter and writer. He welcomes comments at

238%—Increase in medical school tuition and fees over the past 20 years.(American Association of Medical Colleges)

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