I’m in the process of writing an article for endodontic residents on how to deal with their student debt. The principles apply equally to any other kind of debt … practice debt, mortgages, car payments, credit cards. Paying off your debt is the best investment you can make financially. Here’s why, and even though your numbers may be different depending on your debt, the impact is the same:

Debt example

Consider taking on a debt of $300,000 at 8% for 30 years. The monthly payment is $2201.29. After the first year of payments, you have paid $26,415.48 but the balance owing is still $297,493.91. That means over 95% of your payments went to pay interest and less than 5% ($2506.09) paid toward the principal. Another way to look at it is if you paid an extra $2506 toward the principal you will have eliminated or made $23,909. This is a 950 percent return on your money guaranteed without tax consequence.

The interest rate of a loan hides the fact that you’re paying almost everything to interest at the beginning. It doesn’t matter whether the interest rate is 8% or 5% or 3%, the vast majority of payment amounts at the beginning of the loan pay interest. In this 8% example, it takes until Month 258 (over 21 years into the loan) until less than 50% of the payment is for interest. At that point, over $162,000 still remains to be paid off but you have already paid $557,933,78), which is nearly double the original loan amount.

Investing in debt repayment

Just like the true cost of debt is rarely understood, the true benefit of making extra payments toward debt is not fully appreciated. Paying down your debt faster is the best financial investment you can make. Consider our example, suppose at the end of the first year, you were able to make an extra payment equivalent to 12 months of payments. That would be an extra $26,415.48 paid at the end of Month 12. What is the impact?

Normally, the principal balance at the end of Month 12 is $297,493.91. However, after the extra payment the balance is reduced to $271,078.43. That’s less than the loan balance would normally be after 101 monthly payments. In other words, you have saved yourself 89 future payments and shortened your loan timeline by over 6.5 years.

89 payments saved from the equivalent amount of 12 payments is a return rate of nearly 750%. There is absolutely no investment in any financial market that can come close to that level of return. If you have debt and you are investing money in any kind of financial scheme other than debt reduction, you’re costing yourself more money in the long run.

Grow your income to eliminate financial stress

For many doctors, debt is a source of constant financial stress. It’s stressful because the debt combined with other costs of living means you're living right at the line. How do you find the “extra” cash to accelerate debt payments?

The answer is your practice, which is your economic engine. Increasing your clinical efficiency, better teamwork and improved marketing are needed so that you can add one or two more completed cases per day. With all of your practice expenses already paid, just one additional case per day can add as much as $250,000 to your bottom line depending on the level of your fees. Two cases more per day gives you half a million more per year, which is a very powerful way to eliminate your debt quickly.

It is the team that drives this level of growth, which means the best investment you can make in your practice is to invest in your team’s efficiency and practice systems. This is why Endo Mastery exists. It’s our purpose and my personal goal for every doctor to enjoy endodontics, have fun every day without feeling stressed or rushed, and live a wonderful life with their family that is free of financial limitations.

If you have any sort of financial stress in your life, practice stress in your daily schedule, or challenges with your team’s level of execution, I really encourage you to reach out to us. We’ll be very honest with you about your situation and what you can do to have a great practice and life. For most doctors, we can transform your roadblocks into achievements far more easily and quickly than you would believe.