Consumer Debt: A Healthcare Professional’s Story

Consumer debt can destroy your financial peace of mind. Are you overwhelmed by credit card debt or bogged down by car loans? You’re not alone. The 2023 Medscape Physician Wealth & Debt Report showed 1/3 of doctors have a car loan and 1/4 have credit card debt.

For many, debt is a significant barrier to achieving financial stability and wealth. The journey out of debt requires dedication and a well-thought-out plan.

Types of Debt

Financial planner and author Eric Tyson coined the phrases “good debt” and “bad debt.” Some say debt is leverage and will help you get rich. Others say debt is the ticket to financial ruin. Neither extreme is 100% correct in my view. Mr. Tyson’s distinction is helpful.

Good debt is money that is borrowed to buy something that is likely to go up in value. An asset that is likely to appreciate like a practical education or business debt.

Bad debt is used to buy something that’s likely to go down in value. A car loan is an example. Some vehicles drop 25% in value in the first year of ownership. Paying for a vacation on a credit card will not produce streams of income or grow your assets. Even though you may enjoy the break in your life, you are using bad debt.

The debt to avoid or cut first is all bad debt. Erasing good debt is a more subtle endeavor. That depends on the alternative uses for your money.

My Debt Struggle

I know the pain all too well. A negative net worth and staggering interest payments can be soul-crushing. My descent into debt was a gradual one, driven by spending more than I earned.

Before medical school I was very careful with spending. I even had a budget. I always lived on less than I earned. Then came medical school. I couldn’t work enough to pay for it. That forced me to use student loans. I kept this “good debt” small.

During residency I finally earned a paycheck. But I was stressed out and had minimal free time. I didn’t budget. Being single I loved to date and socialize whenever not working long shifts in the hospital. I made money, but not much. Not enough to maintain a “rich doctor” lifestyle. I was paid only once a month. I often ran out of money before I ran out of month.

So, I turned to credit cards for the difference. A meal out here and there or a weekend getaway here or there. I was frugal and didn’t go crazy with splurges, but the small debts grew.

Some months I couldn’t pay off the credit card in full. It wasn’t the end of the world. I paid some interest or a fee. Not a big deal. I began to rely on credit cards to bridge the gap between my expenses and income. This dangerous precedent spiraled out of control.

Slippery Slope

It seems even easier to enter credit card debt now. Cards are more prevalent and easier to use. Cash is less common and accepted less by merchants. Reward programs and points encourage more credit card use. Many cards have no annual fee and come with buyer protections. All this adds up to more enticing troubles.

The turning point for me came when I found myself juggling payments between credit cards. I found it a harrowing and humbling experience. It became stressful and embarrassing. The card companies started calling me and I dodged their calls. I started paying off one credit card with another. Borrowing from Peter to pay Paul.

The mess grew. I didn’t have the time or energy to address the problem and so it grew from my benign neglect.

Drowning in debt feels terrible. I feared bankruptcy.  The stress of mounting bills and the inability to keep up took a toll on my mental health. With bankruptcy looming – a path my father took – I sought an alternative. But I turned it around, and so can you.

The Decision to Escape Debt

Overcoming debt starts with a firm decision. As a smoker quits cold turkey after a health scare, finding your motivation is crucial. For me, it was about gaining peace of mind and the chance to build my net worth. I needed relief from the stress and embarrassment of untenable debt payments. Identify your “why” to empower your “how.”

Dave Ramsey’s Approach

Dave Ramsey’s teachings have been a beacon for thousands seeking debt freedom. His books, podcasts, and YouTube provide a solid foundation for debt management. His book, “The Total Money Makeover,” is a great starting point.

The logical way to tackle debt involves picking the debt with the highest interest rate. Pay it off as fast as you can and then move to the next.

Dave recommends a different approach. He said the problem is not with logic or math, it is all about behavior and emotion. You got into the problem partly due to emotional decisions and non-productive behaviors. Don’t ignore all that when trying to get out of debt.

He recommends starting a “debt snowball.” Pick the debt with the smallest balance, not the highest interest rate. Let’s say you owe $200 on a credit card with 16% interest and $900 on one with 18%. Attack the $200 first and watch it disappear. You will feel great after that success. You then attack the next one with more momentum.

Debt snowball is a way to get rid of credit card debt. This picture shows a snowman with a debt snowball.
Create a “Debt Snowball”

The momentum is like an enlarging snowball. It is fueled by your emotional high from conquering and from the extra stream of payments. Now that one debt is gone you have more money to use to attack the next account. The debt repayment cash flow grows over time as does your sense of accomplishment. Dave Ramsey found this method effective for thousands of people,

Professional Help

If personal efforts aren’t enough, credit counseling services can be invaluable. They craft a budget and negotiate lower interest rates. That helps you have a path to financial freedom. Due to my stress-levels and time constraints I needed outside help. I didn’t have the time, energy, or experience to renegotiate my debts and form a workable payment plan.

I wasn’t sure who to turn to. My family members weren’t particularly good with money. I was too embarrassed to ask a friend. Would calling an attorney lead me toward bankruptcy? I learned of another option.

Consumer Credit Counseling Services (CCCS)

CCCS offered a lifeline. They provided a Debt Management Plan (DMP). They reviewed my debts and income, established a budget, and coordinated my payments. I needed to only send one check to CCCS each month and nothing to the creditors. This was doable and convenient. The plan provided peace of mind.

This route allowed me to fulfill my obligations and avoid bankruptcy. It was a relief to have a plan. I felt good knowing I would pay all my debts in full as promised. The harassing phone calls also stopped during the repayment process. What a relief!

Reflecting on the CCCS Experience

CCCS was a mixed blessing. While it helped me manage my debts and avoid bankruptcy, it also had a lasting impact on my credit score. I don’t remember whether I was informed at the time of the damage CCCS does to your credit history. Even though I paid my debts in full, but credit report listed “charge off” on many accounts.

My credit score also plummeted. The effect was nearly as bad as a bankruptcy. I was unable to get any reasonable credit for many years. Once married I relied on my wife’s stellar credit to provide any debt. In hindsight, negotiating with creditors or bankruptcy might have been worth it.

The lack of access to credit wasn’t all bad. I’m not sure I was making the best financial decisions at that point in my life. Funding from debt may have allowed me to magnify my mistakes. I was forced to be strategic in my savings and purchases. That forced a level of financial discipline that I needed. It also made me cautious about avoiding future debt disasters. The downside of leverage is now something I feel to my core.

Journey to Financial Prudence

This experience instilled in me a deep aversion to unnecessary debt. I have since been committed to financial responsibility. This journey contributed to my stability and wealth over the past two decades.

Your Turn

What’s your experience with consumer debt? How did you handle it, or how would you approach it now? Share your thoughts. Let’s discuss the role of CCCS and the implications of debt repayment.

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  1. Matt said:

    Physicians fall into the trap of “work hard” play hard. They get into crazy practice patterns and then when they have time off need to make up for it. I had one colleague who would take amazing trips all over the globe. The when back would complain the there was not enough work in the practice and others were getting more consults. It was a consistent event and we always knew when the complaints came there was either a new car, recent trip or home in the picture.

    January 29, 2024
    • Good point, Matt
      We physicians are often our own worst enemy.
      I tend to fall into the “work hard, work hard” trap. I need to force myself to plan “fun” stuff.
      But I totally agree with what you are saying and I’ve seen that type of physician. Sometimes the spending isn’t for fun trips. They have gotten into a status-seeking pattern and must have the best landscaping, country club, private schools, etc. Those are fine if well-chosen and consistent with your values. But if chosen because the Dr. Jones’ next door chose it – then it can lead to an endless cycle of work and misery!
      Thanks for the insightful comment.

      March 1, 2024

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