Dentaltown August 2015 - (Page 58)

cover story feature DEBT-Repayment Basics for DENTISTS by Konstantin Litovsky I f you started practicing dentistry sometime in the last decade, you know that being in debt is a fact of life no dentist can avoid. An education at a private dental school can cost well over $400,000, and purchasing a practice in some states on either coast can set you back anywhere from $500,000 to $1 million. In the past 15 years, the average graduating dentist's loan debt has risen to $240,000,1 yet this number hides the fact that a small (but increasingly growing) number of dentists who specialize will have a student-debt level that can be more than two times that amount, putting tremendous pressure on new graduates and limiting their career choices. In addition to student and practice debt, most dentists will also have a mortgage and will also be responsible for their children's higher-education expenses. Carrying a large amount of debt into retirement can be a huge problem for those who do not have adequate retirement savings. For one thing, student debt is impossible to discharge in bankruptcy.2 Debt repayment should be a key component of every dentist's financial plan, and there is excellent and extensive advice on debt management offered by financial gurus like Douglas Carlsen.3 Let's concentrate on the basics of loan repayment and 58 AUGUST 2015 // dentaltown.com developing simple rules that will allow you to make an informed decision regarding your financial future. Prepay or invest? Whether you have student loans, practice loans or a mortgage, one of the most common questions is whether it makes sense to pay off your loans early or invest your money in stocks, instead. Do your loan interest rate and principal amount matter when deciding whether to repay your loan quickly? What rate of return do you need from your investment to justify investing, rather than prepaying the loan? Let's take a 25-year, $500,000 student loan with 6.8 percent interest and a monthly payment of $3,470 ($41,640 per year), and consider two possible prepayment scenarios. With 6.8 percent interest, if you opt for a 25-year repayment period you will effectively pay double your loan amount in principal and interest payments. On the other hand, if you pay off this loan in 5 years, you will save $445,000 in interest payments. (See Table 1.) Let's now consider what happens if, instead of prepaying the loan, we invest the money. For each prepayment scenario above, we'll compare the remaining principal under the regular payments and the compounded extra payments at the end of the repayment period. The compounded monthly extra payments have to be larger than the remaining principal to justify investing instead of prepaying. Principal Regular Payments $500,000 Prepayment Scenario #1 $500,000 Prepayment Scenario #2 $500,000 Interest 6.8 percent 6.8 percent 6.8 percent $3,470 $3,470 $3,470 $0 $1,000 $6,000 25.00 14.82 5.24 $541,108 $294,749 $95,812 $1,041,108 $794,749 $595,812 $0 $246,359 $445,296 Monthly payment Extra monthly payment Repayment period (years) Total interest payment Total payment Interest savings Table 1. Interest rate savings for prepaying the loan. http://www.dentaltown.com

Table of Contents for the Digital Edition of Dentaltown August 2015

On Dentaltown.com
HOWARD SPEAKS: Do You Need to Retire Your Views on Retirement?
PROFESSIONAL COURTESY: Product Perfection is Not Guaranteed
Continuing Education Update
The Chasolen Effect
Poll
5 Strategies for Maximizing New-Patient Referrals
Pediatric Dentistry, Parents, and Spoiled Kids
Finding the Hidden Treasure: Prevention = Treatment + Motivation + Compliance
The Three Dimensions of Endodontic CBCT: Treatment Planning, Patient Understanding and Referral Relationships
Implant Drivers and Driver Tips for Single-Torque Wrenches
Are the Top 1 Percent Safe?
Debt-Repayment Basics for Dentists
A Creative Approach to Retirement Funding
Diode Use in Orthodontic-Related Procedures
Thin Implants
Stick With It: A Systematic Approach for Bonding CAD/CAM Restorations
Product Profile: Uncomplicate Business
Establishing an Accounts Receivable System
Yoga for Dentists
Practice Solutions: Ivoclar Vivadent
Ad Index
Why Dentists Need to Be Mobile-Ready
Rehabilitation Case with CAD/CAM Design and Excellent Results
Industry News
Product Profi le: LocalMed
Dentally Incorrect

Dentaltown August 2015