$500k of Business Debt Bites the Dust
Honestly, it’s mind blowing for me to write this post. I have major imposter syndrome anytime I even think about numbers this high.
And before we go any farther: please don’t send me messages telling me I’m limiting myself by “not thinking big” or some such nonsense. These are freaking huge numbers. And not only on a global scale (where the median household income is under 10k) but in the USA as well (where the median household income is about $61k) and even in the shiny bubble of doctor salaries that I live in, where the average individual income is anywhere from $100k to $300k depending on your specialty and time in practice and blah blah blah.
So, yes, it feels crazy to write this post. It’s also really fun for me to write this post, because I’ve been waiting impatiently for this day ever since I realized it was within my grasp this calendar year. And here it is!
Why I’m Telling You About It
I can’t speak for other specialities but as an orthodontist, especially in the first 10 years of your career, it’s easy to find other doctors who will tell you that you’re not making enough. Or that you are not practicing efficiently enough. Or that your real problem is that need to hire more advisors or do more self-care or or whatever other magical thing you’re not doing but should be. Spoiler alert: much of this advice comes with a solution involving you buying something from the person offering the advice.
Some docs will share about their student loans, especially now that the media has popularized complaining about them. But actual spending and investment numbers are still pretty hard to come by in the high-income crowd, as is encouragement to stay the course in debt-payoff and spending efficiency (which makes sense, because these topics don’t make good clickbait the way student loan protests and get-rich-quick posts do).
So I figured I’d put my own numbers out there, both as a data point for anyone else who wants it and as a way to keep myself motivated in my personal financial goals.
Also, I want you to know that PAYING BACK DEBT FEELS AWESOME. I know all the arguments for not doing it any faster than you have to: I could be deducting interest payments, I could be investing to try to get a higher ROI than my interest rates, I’ll regret paying back debt instead of taking more vacations because YOLO, and so on. I’ve addressed many of the common objections to repaying loans quickly in this post.
About the Debt
My purchase price on my share of the practice was $590k in October of 2013. The original business loans had 10 year terms and interest rates of 5-6%. They were financed in part by my buisiness partners (the sellers) and in part by a local bank.
My student loans were hovering around $200k when I took out the business loan. Add on the one mortgage my husband and I had at the time, and we were very near $1 million in the red at the end of 2013.
As of today, 5 years and 4 months later, I have paid off over $500k of that original principal balance on my business loans. (There is about $88k remaining to be paid off, including principal and interest.)
About the Repayment
While I love my job and I do make good money, this debt payoff has not happened without effort. The same steps that have helped us destroy our student debt are the ones that have helped us with this business debt.
I wrote quite a bit about this in our “FAQs about Student Debt“. Here is an except from that post with the FAQs that are probably the most relevant to the business loan discussion:
Should I buy a home, start a family, and/or invest elsewhere while repaying loans?
Once you have actually figured out your long-term financial plan (and agreed on it with your spouse/partner if applicable), you will be able to know for sure whether it’s time to make other big life changes. A few important points along these lines:
If you’re not sure if you should rent or buy, you need to keep renting. Renting is not the bane of success. And buying a house will cost you way more than the sticker price.
If you’re not sure if you should have kids, you should not. If you do decide to have kids, remember that kids are not as expensive as society wants you to believe.
If you have your disability/life insurance and emergency fund all set and you know your long-term financial plan, I think getting other investments rolling while repaying debt is great. We certainly have done it that way, and most other doctors I know have too. I like to think of debt repayment and investment as all part of the same goal of increasing our net worth.
Is your life totally lame because all you’re doing with your money is repaying debt and investing?
Nah, I think our life is pretty kick-ass. Although our 12 year-old will be happy to explain to you all the reasons he thinks we are lame.
Okay then how are you doing all of the above things on a part-time work schedule, and how do you keep track of it all?
Here are the short answers:
We keep the lines of communication about money (including our debts) wide open. It’s a topic for anytime, anywhere. Yes, we talk about it in front of the kids.
We look carefully at all of our debts (including investment debts) every 6 months, and honestly asses our progress (or lack thereof) as well our future goals and the timelines of those goals.
(If you’re unsure what loans you have floating around out there, you need to spend some quality time looking at your own credit report and on the phone with the Department of Education.)
We have a non-budget.
We track our spending down to the penny. The way you feel about your money changes when you have to stare at exactly where it goes every month.
We keep our life overhead low, especially relative to our peers and especially for living in a high COL area. This is what allows us to have the part-time work schedule that we’ve enjoyed ever since school ended and to stay true to our commitment to real work-life balance.
Our mortgage is less than 10% of our gross take-home pay (while many “experts” tell you 28-36% is what you can “afford”). We have no car payments, we pay less than $100/mo total on car insurance, and frequently go for days without even using our cars.
We don’t spend very much money on our kids. In case you didn’t catch it above, here’s how we got ready for our newborn for less than $350. And here’s a post about our approach to the kids’ birthdays, and here’s why they didn’t get new stuff last Christmas.
We have real skills besides the ones we use at work.
We travel for free.
We have inexpensive, healthy hobbies. Running and hiking cost nothing. Biking and backpacking and skiing cost next to nothing if you take care of your gear properly.
In Conclusion…
If you’re feeling the strain of high levels of business debt, I hope this post can inspire you climb out of that hole as quickly as possible. You can get there… and you’re not alone on the journey!
Unrelated: That sign in the banner is from Copper Mountain in Colorado. Skiing down Hallelujah Ridge does not disappoint.