Welcome to Fix My Finances, Yahoo Finance’s personal finance series. Each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight, and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
In today’s episode, we meet Erin, a 32-year-old from Portland, Oregon, who recently finished her medical school residency. Erin is starting a new job as a pediatric urgent care doctor. It’s a high-pressure job with high earning potential, but her medical school student loans have her on edge.
Deep in student debt
According to the most recent data from the Association of American Medical Colleges, 76% of the class of 2016 had student loan debt after medical school. Of those in debt, the average balance new doctors owed: More than $189,000.
Erin owes about $183,000 in student loans from medical school. Most of those loans are federal loans, and that’s usually a good thing. Federal loans tend to have lower interest rates than private loans. However, in Erin’s case, her private loans have a lower rate, about 5%, while her federal loans have a 6.5% interest rate.
Erin’s largest federal loan totals a little more than $78,000. New York-based certified financial planner Stephanie Genkin says Erin is a great candidate for refinancing that loan with a private lender because of her line of work. “Professionals like doctors and lawyers have higher income so it’s a lower risk for the lender,” Genkin says.
Genkin says she should shop that loan around to a few private lenders to get a lower interest rate. She suggests checking out companies like SoFi, Citizens Bank, and Earnest.
The balance of Erin’s student debt is still intimidating even if she can refinance and obtain lower interest rates. However, her earning potential is solid, and her salary should allow her to keep up with the monthly payments.
Genkin advises that, as she is paying off the loans each month, she shouldn’t ignore saving for retirement or establishing an emergency fund.
The good news is Erin has already done both. She has $40,000 in a bank account her parents started for her as a child, and Erin already put $2,700 in a Roth IRA earlier this year.
Erin’s job will also offer a 401(k) after she completes her first year working there. And she has another from a previous employer.
“She should prioritize maxing that [new 401(k)] out next year, instead of prepaying the student loan,” says Genkin. “That’s going to be more valuable in the long run than accelerating payment of relatively low-interest rate debt.”
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