MtoM #81 - Orthodontist Pays Off $540K In 4 Years

This is the White Coat Investor podcast, Milestones to Millionaire, celebrating stories of success along the journey to financial freedom. Welcome back to another episode of the Milestones to Millionaire podcast. This is your host, Disha Spath, and we're on the White Coat Investor. Today we have the pleasure of having the Northernist, and she's going to tell us her story about how she paid off $540,000 in four years. Holy cow. I can't wait.

At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on paying, potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help.

All right, let's get into our interview today. Welcome.

Hi, nice to meet you. Excited to be here.

Yes, nice to meet you. Can you tell us about your profession and how far you are out of school?

So I'm an American and next month I'm almost five years out of residency and yeah, I'm practicing in the New York area and yeah, been practicing here ever since from the beginning. Graduation.

Wonderful. So you're like, in New York City proper?

Oh, I almost. So I'm originally from the Dominican Republic. Yeah, I settled here. I like it. Wow.

Wow. Talk about high cost of living.

Yes. Yes. So it's no joke, but it's doable. It's all you got to do is stay in the plan.

So, in the setting of this high cost of living area, tell us exactly how much you paid off.

So, as I was preparing for this podcast, I should be very mind blowing just writing down the numbers, but the Exact amount was $548,920.05.

Oh, my God. Holy cow. Congratulations. And how long did that take you?

Thank you. So that took me approximately four years and two months.

Wow.

Yeah, because when I started this journey, I didn't necessarily started Being heavy on my loans when I wasn't really sure of how to address the loan situation. Especially because when you're in school there's so many routes that you can take. There's so many philosophies where you can invest and then you pay it off or you kind of like let them ride and let them kind of serve it themselves or the government at some point might forgive. But again, I feel like out. I started heavily on them, I would say few months and not even from the beginning yet.

Wow. Wow. So what made you decide to just go ahead and pay it off?

So I, I graduated. I didn't even get my license right away. It took me some time. Then I started working. And then a good friend of mine, her name, she listens to the show. She handed me this book, she said, hey listen, you should read this book. It's called the White Coat Investor. Have a good tip for doctors and finance and all that. I started reading on it and the whole concept of living as a resident, it just makes so much sense because yeah, we've been experts on delaying gratification for such a long time. And that is, you know, some people I guess do feel comfortable with it. But I do come from a background where my parents are not at all. That is very. He does all these investments and everything pretty much from his own financial well being. Like no debt at all. And yeah, it just lasted. Plus I didn't really come from. It was kind of like a frugal household. So to me getting accustomed to the income slowly just made more sense. And yeah, from there on I realized, look, this is actually doable. And then I started looking at the numbers, seeing how much money I owe and, and something that I discovered with my loan servicer that I don't know if a lot of graduates know this, like recent graduates and this applies especially to those graduating this summer that when you go and look at your loans online, you're going to have the cap versus cap of the loan like the principal and you're going to have the interest and they're separate and they'll remain separate during that grace period. So that means that all this money on interest in my personal situation had almost $100,000 that Accumul just from being in school. So all of that money, if you can keep as much as you can on that before it capitalizes almost like free money. So yeah, I realized that and obviously I just started working. My checks will go right away to all those little courses that I already took and I was building on savings But I try as much as I can to hit that interest before it actually taps and became principal altogether.

Yes. That's so smart.

I think it's an awesome tool. If anyone that can do it, I highly recommend it because it's going to decrease your total loan amount.

Yes. That capitalizing interest is the magic of compounding interest when we talk about investing. But when you have debt and your interest is capitalizing on your debt, that magic of investing is completely working against you. You're going the opposite direction. Your interest is becoming more debt. It's hor. It's, it's. It's the seventh wonder of the world when it's working for you. But if it's working against you, you have to know the details and you need to know how to get yourself out. You know, you. If you can pay down the interest before it capitalizes, that is the best thing you can do for yourself. Because that interest, once it capitalizes and become. Becomes principal, then starts earning more interest every single day.

Exactly. It's interest over interest. Yeah.

Well, great job. So tell us how you did it. How did you pay off so much money?

So, yeah, I guess at first I refinanced. I mean, it took me at least a year and a half though, to find a good band that I felt comfortable with with a good rate. And this was pre Covid. I'm sure now with COVID you can get better rates, but this is pre Covid. I got a really good one, I would say. I mean, my loans were from 5, 6, 7, as most people have federal to 3.4, I believe back then. And even though that I couldn't, it made a huge difference. And I did not do long term payments every single month because I realized that I like having the security and the safety net of having something in the bank just in case something happens. I mean, for example, Covid hit and I lost my job. And all of a sudden having that little cushion really helped me through those months. Even continuing my agreement with the bank to keep making payments. I didn't stop, but obviously all those lump sums were put on hold. But yeah, I kind of set up quarterly goals. So four years, four times a year, I would drop a significant amount. And it almost became as like a phone challenge. Like it, It's a lot of money dropping 25, $30,000 in one shot. But then you would see how the whole balance readjust. My interest rate, my interest payment also readjust. And you see that you were going from paying $900 to $500. So that was potentially motivating and it kept snowballing and it became a good challenge, a healthy one. And that's how. Yeah, eventually it got paid off.

Amazing. I love that strategy of using your debt payoff money as kind of an emergency fund in the short term. Where did you put that money that you're going to put towards your loans every quarter?

So I had an emergency plan for sure. This is besides the loans, but it's just for me to have extra, you know what I mean? Like, let's say when you have a debt that is so low in interest, I feel like it opens up the possibilities for other things. I was focusing on paying off my debt, but at the same time I was mindful of any other opportunities that could arise. I don't know, from buying a property or even a practice that could come up and I could, you know, purchase it or whatnot. I was never close to that idea. But in the meantime, nothing was coming up. And the only thing that I really had was the loan. That's where I ended up focusing on. But yeah, I kept everything in one single account. And as soon as that I had enough to hit that goal, I just dropped. Dropped it on the loan, the actual loan.

Okay, so you basically kept it in a checking account, correct?

Well, I kept it in that. High savings. High yield savings.

High yield savings. Okay. All right, great. And were you speaking of investing, were you investing alongside like in your 401k?

Right? Yeah, I started my 401k, so I've been maxing that out. I haven't been doing anything like backdoor IRA or whatnot, but I did my, my 401k. And yeah, now I've got where I'm actually considering doing other stuff. I started investing in regular ETFs and whatnot, but in the beginning with mostly 401k savings and loans.

Great. So I really like that idea of just beginning with your career with paying off debt and using that time to make some progress on your net worth by paying off debt, but also using that time to learn about investing and kind of plan how you're going to invest once all this money has been paid off. So what are you planning on doing with all the extra cash flow that you have now?

So I am. I've been thinking of maybe purchasing real estate or now I'm building up some savings to, let's say the practice ownership opportunity arises and just enjoying life a little bit more. And I work hard this last few years. I did take ownership. I mean, this is not. I work five or six days a week. And now I can finally, I mean, I'm doing this on my day off that I purposely took so I can, you know, have a Friday off during the summer. That's something that I've never done before and I could have, but I chose not to. So that way it feels sweeter now. And I just feel like initially it is. It is so much easier to grow on your income rather than to downgrade. Imagine graduating and getting, not to offend anybody, but personally, if I graduated and got, I don't know, Mercedes right away and then turns out, oh, maybe that wasn't a great idea. Now I have to downgrade to a Honda.

Yes.

I personally prefer to get to that Mercedes point slowly. That's what I've been doing my whole life. It has worked out.

That's amazing. Yeah. Actually, we didn't cover how much your income has been throughout this payoff period. How much has it been?

So I started on a good salary base, 275, and then eventually went up as I was taking up shift working five to six days a week. So 385 to 390.

Nice. And are you single?

I am single. No kids, so. Yeah, well, in a relationship, but no, no kids.

Oh, someone's on the market. Oh, in a relationship. Sor. Okay. All right. Just kidding. She's off the market. So wonderful. Yeah. You know, for some, for someone who's single and unmarried, but in a relationship making almost $400,000 a year, it's such so easy to get distracted and get sucked into the lifestyle. Inflation and the deeder odd effect of upgrading and upgrading and upgrading and needing more upgrades. It's so smart that you took the initial time after your training to just pay off debt, hunker down and build yourself a solid financial foundation and then upgrade now that you're debt free, that you don't have student loans, you can enjoy life a little bit more, work a little less if you want to and slowly get to that Mercedes point. Like you said.

I think what can be very daunting is this is what I perceive from a lot of my peers that I talk to about this, I guess, philosophy of doing this. It's, you know, the whole living as a resident is not very appealing. I mean, we've been in School for 10 years, 10 years plus. We just want to move on with our lives and do this and do that. But I have to be. I mean, I didn't necessarily look like a resident. I had to get a new car because I was driving farther I did have to live to move to like a higher cost of living area. I did travel some. I mean, I didn't, you know, but I just budgeted and I planned for it. I wasn't living in right disease. I was, you know, be just more mindful of my spending. And if I was able to live as a resident on $40,000 a year, 30, $40,000 a year, I can easily continue that and still like enjoy way less than 100 and still have this surplus that needs to go somewhere and focusing on one thing and keep going.

Awesome. Yeah. You utilize the power of your huge shovel that you have with your income and with just a little bit of mindfulness about your spending, you were able to make so much progress and you still enjoyed life. I love this story. Thank you so much for coming up on this episode and sharing your story with us. Thank you so much.

Thank you for having me. It's been quite a goal for me to do this and just being on the show is just sharing on top of the ice cream. I very much appreciate it and I thank you guys for everything that you're doing for the community and help us out. Sharing a light on finances on so many people that truly, truly need it. From the bottom of my heart and everyone that listens to. Thank you and thank you to Dr. Dali. He's absolutely amazing.

Yes. Oh, I'm so glad. I'm so glad we were able to make a positive difference in your life. And thank you for doing the same for the people coming up behind you.

You're welcome.

That was such a great story. I really found it interesting how she put all her extra money in her checking account until four times a year she would put a big lump sum towards her loans. And that's actually really smart in case you that extra cash for a little bit, you have it. And it did work out really well for her in the when she lost her job during COVID That was brilliant. I also really thought it was inspiring how she paid off so much debt while living almost in New York City and just said, and she was still enjoying life. She was still doing what she wanted to do, she was still traveling, but she was just a little bit more mindful about her money and learned how to budget. And that really gave her the power to be able to pay off so much money in such short amount of time. Really great. Another great point she made was about the capitalization of interest. And if you can pay off some of the interest that you have accruing before it capitalizes right as you get out of school, that's a huge gain. The ROI there is amazing because then you don't have that capitalized interest. Also acting as principal and earning more interest as you go on. So if you can get that before you refinance and refinancing is a point where interest capitalizes onto your principal. If you can do that before amazing, please do that. Thank you so much for listening today. It's been such a pleasure.

At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter time frame could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help.

Thank you so much for listening to the Milestones to Millionaire podcast. This is your host, Dr. Disha Spath. Keep your head up, shoulders back. You've got this. We can help at the White Coat Investor. The hosts of the White Coat Investor podcasts are not licensed accountants, attorneys, or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.