Can Debt Impact Your Life Choices?
By Mark B. Desrosiers, D.M.D.
The debt load dentists, and specifically endodontists, accumulate today can be staggering. The 2021 debt levels for graduating dentists was just over $292,000[i], and this does not include residency! From a public health and social justice point of view, it can impact the types of people entering our specialty. From the personal standpoint, it can have severe consequences on our lives. Understanding debt, and more specifically loans with interest, can help us manage debt and consider how it will impact us. Too many new practitioners are struggling with debt that is tying them to “the chair” and compromising their life balance. Some might even have financial burdens that tempt them to compromise their ethics. In this article, I hope to help you look at debt in a different way. Hopefully this will empower you when making decisions involving taking out loans, and paying them off.
Debt is not an evil. Going into debt for something that will appreciate in value, or provides a necessity of life is prudent. Of course, this includes our education, our home, and may include other things. However, excessive debt for these items, or debt for toys or other things that depreciate in value is not necessarily a good thing. By looking at a loan and dissecting it to see how much that loan really costs you is an important tool that will help you consider if taking out that loan is the proper thing for you to do. If you consider how many endodontic treatments you have to do to pay off a loan, it will help you consider the real cost of the loan. Let’s look at a loan in this way. I will be making a number of assumptions. Most are an attempt to get fairly close to reality while rounding numbers to make the explanation work. The important point is you can use this process to plug in numbers that are true to you and then use them to advantage.
Our assumptions:
A loan with a principal of $300,000, interest rate of 7%, term of 15 years.
Practice overhead of 45%.
Tax burden of 50%. This includes, Fed. Tax, State Tax, City Tax if appropriate, and charitable contributions including your contribution to the AAE Foundation.
You can use an online calculator to plug in any numbers and analyze a loan. A calculator I like is www.drcalculator.com. I like the basic mortgage calculator because it allows you to see the impact of making extra payments.
Inputting our principal, interest rate, and term tells us our payments will be $2,696.48/month. Over the life of the loan, we will pay $185,367.27 in interest. That means it costs $185,367.27 to borrow $300,000. So how hard do we have to work to pay just the interest?
To put $185,367 in our pocket we need to make twice that amount in before tax income. That means the profit from our practice before taxes and charitable contributions must equal $370,734. With an overhead of 45% our production will need to be $674,062 (.55p=370734). If we assume an average fee of $1,200 per endodontic procedure, you need to do 562 root canals to pay just the interest on your $300,000 loan!
You can adjust the assumptions to fit your situation. The point is, a loan costs much more than it first seems. Getting into a loan with this knowledge is powerful. You can choose to take a loan when it is for a necessity. You can evaluate the cost of a loan before you purchase something. You might hear a statement such as it costs $1,200 a month, that is just one root canal. Now you know that $1200 in your pocket is after taxes and overhead.
With this mindset you can decide just how much of a loan you need. In many cases it causes us to trim back our lifestyle so we are not going into debt as heavily. Using the loan calculator also allows us to see the impact additional payments can make toward lowering the interest we pay on a loan. Using the scenario I have detailed, you can see the effect of an additional payment of $1,500/month. This might be a situation where you pass up buying something and instead choose to lower your debt. This additional payment results in saving $96,051, reduces your payback period by seven years and three months, and gives you a return on your “investment” (additional payment) of 48% over the life of the loan! I cannot think of a better return that is as safe as investing in yourself by accelerating the payment of your debt.
I have no doubt that some will object based on the deductibility of some debt such as mortgage or student debt. It is deductible, but here too, you must calculate how deductible. The maximum interest deductibility for student loans in 2021 was $2,500. This is not a tax credit but a deduction to your income. If your income exceeds $70,000 that $2,500 starts to phase out. Of course, you also have to factor in the Alternative Minimum Tax. Interest is not as deductible as it first sounds.
Spend time looking at your finances. Avoid debt when you can. Accelerate debt payment when you can. As you lower your debt you will find that your life is freer. You will have opportunities to spend more time doing things outside your practice, and the time in your practice will be more enjoyable because you do not have to be there, but want to be there.
Dr. Mark B. Desrosiers is a District II Director of the AAE, and chair of the AAE’s Public & Professional Relations Committee.
The opinions in this article are of the author and do not necessarily represent the AAE. Dr. Desrosiers is not an accountant or attorney and has no financial interest in any statements made in this article.
[i] Hanson, Melanie. “Average Dental School Debt” EducationData.org, October 11, 2021,
https://educationdata.org/average-dental-school-debt