Should doctors pay off debt or save for retirement first?

By Jonathan Ford Hughes | Fact-checked by MDLinx staff
Published September 14, 2022

Key Takeaways

  • Paying down debt vs. saving for retirement is an important decision for many doctors.

  • Public Service Loan Forgiveness programs and refinancing can help ease student loan debt burdens.

  • Taking advantage of employer retirement account matches is worthwhile as you pay down higher-interest debt.

Eliminate debt or save for retirement? It’s a decision most doctors will face during their careers. According to W. Ben Utley, head of Physician Family Financial Advisors, it’s a decision complicated by the desire to “get on track.” You might have even used those words yourself. Your friends who went straight into the workforce got a head start on saving for retirement. You took on med school, likely some student loan debt, and years in residency. So, what’s the priority, debt or retirement? 

While your layperson friends might have been able to start saving for retirement immediately, doctors have unique financial circumstances that bar them from jumping on the financial bandwagon. Utley has some physician-specific guidance; here’s what you need to do.

First, debt

According to Utley, the first step in answering this question is determining what type of debt you have and what type of job you want to hold. If you have student loan debt, those loans most likely originated from either a private bank or are federal direct loans. Once you know the type of loans that you have, it’s time to examine your career goals.

If you have federal loans, are you working for a qualifying non-profit and participating in a Public Service Loan Forgiveness (PSLF)-eligible repayment plan? Do you want to continue working in the non-profit space? In that case, it doesn’t make sense to attack your student loans, Utley says.

Why pay more than you have to? Meet the program requirements and eliminate as much of your debt as possible. 

“That’s something we wouldn’t want to blow up because the return on PSLF is almost infinite,” Utley says.

Not sure if you’re PSLF-eligible? Then it’s time to talk to an expert. This will be money well-spent if you can wipe out your debt.

Let’s say you’re a surgeon working for a small group practice (aka, not a non-profit). You know that this is the work you’d like to do for the remainder of your career. In that case, it’s likely best to refinance your loans.

"Before you pay off loans, you refinance them. You get the very best terms that you can."

W. Ben Utley

When you refinance your student loans, all of your loans are combined into one held by a private lender at a lower interest rate. If interest rates go lower, you can refinance again, Utley says.

Now, retirement

“Once I’ve hammered my debt down as low as I could, I would determine what gives me the best tax break and what gives me the best money back,” Utley says.

For example, let’s say your employer offers a retirement plan, such as a 401(k) or a 403(b) with a match. Get that match by contributing the required amount, Utley says. 

Or, does your employer offer a health savings account (HSA)? Fund it. HSA contributions are tax-deductible and growth in the account is tax-deferred.

The other great thing about an HSA is if you don’t use that money now, you can use it as your healthcare retirement account later.

And, back to debt

So, you’ve refinanced your student loan debt or are participating in a PSLF-eligible plan. You’ve cashed in on as many tax deductions as you can by contributing the max to a tax-deferred retirement account or HSA. And, you’ve done what you had to do to qualify for an employer retirement match.

Now, Utley says, you can start hammering your high-rate debt. This could be something like a credit card with a hefty balance and high-interest rate. Got that out of the way? Then, Utley says, focus on putting as much money as possible into your retirement plan, going beyond the match. Once you’ve done that, you can make a choice: pare back your low-rate debt, save for a house, or build up your emergency fund.

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