Even Physicians Can Have Problems Managing Debt

In today's economy, it's easy for anyone to accumulate a higher debt load than they're able to handle. According to financial experts, that's especially true for physicians. For example, it's not uncommon for physicians to find themselves with a home mortgage and a home equity loan, multiple car notes, even notes on other recreational items like boats or motorcycles, perhaps even a vacation home, and debt on multiple credit cards.

In today’s economy, it’s easy for anyone to accumulate a higher debt load than they’re able to handle. According to financial experts, that’s especially true for physicians. For example, it’s not uncommon for physicians to find themselves with a home mortgage and a home equity loan, multiple car notes, even notes on other recreational items like boats or motorcycles, perhaps even a vacation home, and debt on multiple credit cards.

“And, if they’ve started a practice and are self-employed, they’re going to have some sort of working capital start-up note, and perhaps even a mortgage on the office they’re in,” adds Jerry Love, CPA, ABV, CVA, PFS, CFP, president and CEO of Abilene, Texas-based Davis, Kinard & Co.

That said, there are ways for physicians to avoid falling into the lair of the dreaded debt monster.

Perception and psychology

Love explains that it’s almost too easy for physicians to find themselves in a situation where they’ve borrowed more money than they can afford to pay back. That’s because of the perception that they’re going to make—or already are making—a lot of money. That perception carries over to the real estate agent who wants to sell a physician the biggest and most expensive home, and the mortgage company that is willing to loan a lot of money because of the physician’s earnings potential.

But, physicians are just as much to blame, says Mary McGrath, CPA, CFP, executive vice president of Cozad Asset Management. That’s because they tend to look at everything in the absolute. “Physicians say, ‘I can afford that car. I can afford that house,’” says McGrath. “But what they don’t say is, ‘I can’t afford that car because I bought that house.’ They go from making maybe $50,000 to making $300,000 a year, and in their mind, they can afford anything.”

Baby steps

Both Love and McGrath preach the importance of physicians looking at their total situation. Because they generally start their careers with a higher debt load than most people, thanks to the costs of medical school, it’s important for physicians to get some of that debt under control before they begin rewarding themselves. Getting a nice house is fine, but don’t do that and purchase two cars, and take an expensive vacation.

“Try to be more selective and prioritize what’s important to you,” says McGrath. “You may be in a practice with a partner, but the partner has been practicing for 10 or 15 years and doesn’t have that debt load any more. So, don’t feel like you can live the same lifestyle they do just because you earn the same amount of money.”

And watch out for those credit cards, says Love, noting that having fewer is better than having many. “They’re like a cancer,” he explains. “Once they’re in your pocket, they have a way of getting balances on them. And forget the introductory rates. You need to view a credit card as 18 percent or more in interest. Because at some point, especially if you’re not careful, those low introductory rates are going to become high interest rates, and that’s not where you want to be.”

Debt settlement options

There are some who say that debt settlement is not an option, or that there’s no way a creditor is going to look across the table at a physician and believe he or she cannot earn the money to pay off the debt. However, physicians can, and do, fall into situations where the assistance of a debt settlement firm is necessary.

Consider the case of a physician we’ll call Andrea for the sake of her privacy. Andrea had been a very successful Illinois-based internist for 16 years. But a series of incidents led to depression, and Andrea became disabled. The problems began when her two disability plans refused to pay benefits, saying she quit her job before she became disabled. With her prescription medication running $1,600 a month, and still needing to support her three children—two of whom are in college—Andrea began withdrawing money from her IRAs and building up charges on her credit cards. She says she amassed nearly $300,000 in debt, in addition to almost $150,000 in IRA penalties.

Andrea turned to Nationwide Support Services to begin a debt-settlement program. Today she is in the final stages of settling all her debts, avoiding bankruptcy, and starting her financial life with a clean slate.

“Physicians, attorneys, business owners … anyone can find themselves in a situation of being unable to pay their debt,” says Joanne Garneau, president of Nationwide Support Services. “Debt settlement is a very viable way for people to be able to move forward when they get in a bad situation.”

Adds Andrea, “I never expected anything like this. For physicians starting out, you really have to save and not depend on your income in order to survive.”

Ed Rabinowitz is a veteran healthcare reporter and writer. He welcomes comments at edwardr@frontiernet.net.