Physicians & Dentists – Pay off your student debt or invest for your future?

It’s not uncommon for medical professionals in Canada to leave school with hundreds of thousands in debt.

Typically med and dental student debt comes with an interest rate of a prime minus a half (1.95% today). That’s cheap debt.  

Now that you’re earning that high income, should you be paying down your debt as fast as possible?

Here we have a professional with $120,000 of student debt and $3000/month of extra cash flow that can be used to either pay this down faster or to invest.  We've reviewed 3 scenarios with different debt paydown targets (5, 10, 15 years). In each scenario, funds are first directed towards debt payments. Any leftover is invested at an annualized rate of 6%. Once the debt is paid off, all extra cash flow is then directed towards investments.

As you can see, the slower the debt paydown the higher the value of the investments at the end of 15 years. This is the result of the spread between what you can earn on your investments (6%) and the rate you’re paying on your debt (1.95%).

Math Answer vs The Emotional Answer

The math is telling us that a slower debt paydown is more advantageous.  The reality is we’re dealing with human beings that have emotions and markets that don’t provide a consistent 6% return on investment every year.   If debt is causing you to lose sleep at night, it’s alright to focus on paying it down faster as long as you’re aware that it comes with the cost of missing out on long-term investment gains. Personal finance is “personal.”  There’s no one size fits all.  It’s about finding what is right for you.

- Brandt Butt, Investment Advisor, CIM®

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Brandt is an Investment Advisor and part of an award-winning team at Endeavour Wealth Management with iA Private Wealth. Brandt’s focus is working with incorporated physicians and dentists between the ages of 35-45 who are looking to set themselves up on the right financial path in hopes of reaching a point where they are choosing to work, instead of having to.

Brandt’s team delivers value through advanced financial planning solutions for incorporated professionals while working closely with their accounting and legal professionals. By doing so, Brandt’s clients’ situations are optimized which can save them hundreds of thousands in taxes each year allowing them to grow their net worth faster with the goal of reaching complete financial independence.

This information has been prepared by Brandt Butt who is an Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.