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Key Decision Factors: The Professional Perspective on Managing Debt

Contributed by Shawn M. Johnson, ChFC, CLU, CLTC
Vice President, Sales, Treloar & Heisel, Inc.


If you are a resident or an early career endodontist, you are probably wondering how you will be able to get ahead financially. The questions we encounter most frequently include “Should I pay off my loans? How much?”, “How soon should I make payments after graduation?” and “When should I start investing?” Let’s investigate these one at a time with insights from the AAE’s endorsed insurance vendor, Treloar & Heisel.

It’s not uncommon to have close to half a million dollars in debt once you put together dental school and residency expenses. The desire to make up for years of living a student lifestyle, coupled with the goal to ‘get rid of mountains of debt’ may feel overwhelming. This doesn’t need to be the case.

Accelerated Payoff Perspective

Everyone should carefully consider their options before rushing into an accelerated payment plan, even if income triples after taking that first job. First, look at the balances on your loan statements, and figure out if it’s feasible to pay off the loans within a ten-year period. If the answer is “yes”, decide if doing so will leave enough money to establish important financial milestones, such as developing emergency reserves, and starting a retirement savings program. If your balances are so high that a ten-year repayment window leaves you broke, you will want to consider a 25-year extended payoff, or even income-based repayment.

Key decision factors will include:

  • loan balances and interest rates on your loans.
  • If you have a 6% interest rate or lower on your loans, you might be better off not accelerating your payments, and taking any surplus and investing it in the market for the long term instead.
  • The importance of focusing on “the long term.” Only a committed investment will allow you to capture the upsides of compounding and market cycles.
  • Historically, the market has produced 8.7 percent return over an extended period of time. (Source: Vanguard).

Refinance Versus Consolidation

Don’t confuse refinancing with consolidation. Consolidation doesn’t necessarily save you money (other than service fees), it just means you make one payment rather than having to pay multiple lenders every month. Refinancing is actually replacing those loans with a lower cost loan.

The great news is that private firms now specialize in refinancing loans for high-income professionals. They know the risk of those loans defaulting is low compared to an average student loan that has a high default risk. Therefore, they are willing to give lower interest rates to doctors, dentists, attorneys, and other professionals. Our advice, if loan terms are acceptable, is to take the lower rate, establish a cash reserve, and utilize the remainder to accelerate the debt or begin an investment program.

When Should You Start Investing?

This one is easy. Start as soon as possible, today if you can! The question about whether you should pay off your loans, versus contribute to your retirement plan is actually a 30- or 40-year proposition. You don’t want to pay off your loans for two decades, be debt free, and then have zero in savings or retirement plans. This is the biggest mistake you could possibly make. You’d be missing out on the power of compounding interest, and missing out on powerful market cycles that could hugely impact your financial future in a positive way.

Debt is Part of Planning Your Successful Practice

The bottom line is, that debt is what allows you to generate the income you always dreamed of, doing the job for which you have prepared for years. A good rule of thumb is to dedicate approximately 20 percent of your income to some sort of ‘net worth building program’ – a combination of paying off debt, setting up emergency reserves, and starting a savings plan.

Whatever you do, don’t go it alone. Always work with a qualified financial professional who can show you the way. Good luck!

About the author

Shawn Johnson is Vice President of Sales at Treloar & Heisel, Inc., the premier financial services provider to dental and medical professionals across the country. He has assisted hundreds of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and dedicated client service. For more information, visit

Securities, investment advisory services and financial planning services offered through duly qualified Registered Representatives of MML Investors Services, LLC, member FINRA / SIPC. Supervisory Office:Six PPG Place, Suite 600, Pittsburgh, PA, 15222, Phone: 412-562-1600. Treloar & Heisel, Inc. is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. CRN201803-200285

Historical return, 1926 – 2015, of a moderate 60/40 stock to bond portfolio is 8.7%.

When determining which index to use and for what period, we selected the index that we deemed to be a fair representation of the characteristics of the referenced market, given the information currently available. For U.S. stock market returns, we use the Standard & Poor’s 90 from 1926 through March 3, 1957, the Standard & Poor’s 500 Index from March 4, 1957 through 1974, the Wilshire 5000 Index from 1975 through April 22, 2005, the MSCI US Broad Market Index from April 23, 2005 through June 2, 2013, and the CRSP US Total Market Index thereafter.

For U.S. bond market returns, we use the Standard & Poor’s High Grade Corporate Index from 1926 through 1968, the Citigroup High Grade Index from 1969 through 1972, the Lehman Brothers U.S. Long Credit AA Index from 1973 through 1975, the Barclays U.S. Aggregate Bond Index from 1976 through 2009, and the Spliced Barclays U.S. Aggregate Float Adjusted Bond Index thereafter.

For U.S. short-term reserve returns, we used the Ibbotson 1-Month Treasury Bill Index from 1926 through 1977 and the Citigroup 3-Month Treasury Bill Index thereafter.

Source: Vanguard Portfolio Allocation Models.