Are you afraid that some day you will be walking down the street and, out of nowhere, some debt will attack you? Do you live with that fear? I think that most chiropractors do fear debt. Their mantra is to be “debt free” at all cost. Now don’t take this the wrong way. I am not advocating that you should get in debt and stay in debt. I just believe that there is “life after debt” as well as “life with debt.”
Debt, as I have stated in the past, is not necessarily a “four-letter word.” Not all debt is bad. You must first understand what debt is and how to work with it to do one important thing: accomplish what YOU want to accomplish, not what someone else feels EVERYONE should accomplish. Got that? Good! Let’s continue.
Debt comes in all shapes and sizes. You probably have some of the following debt:
1. Student loans
2. Mortgage on a home
3. Credit card debt
4. Just plain debt
I have chosen these four, but I am sure that you have others as well as some that I have never heard of. It really doesn’t matter. Let me show you how you can deal with these four now.
Student Loans. Now there is a big one! Most students leave Chiropractic College today with a six-figure loan. How can a person manage this? It’s not easy. You must first remember that paying off a loan like this is like trying to eat an elephant. You cannot try to choke it down in one bite. You must do it bite by bite. The same is true with any debt. Student loans are quite unique. They allow you as long as thirty years to pay it off. They now even let you deduct some of the interest you pay as a tax deduction, so that lowers the interest rate that you are paying, after taxes.
I always suggest that people consider consolidating their loans as soon as they graduate, which locks in the interest rate and also changes the loan to simple interest instead of compound interest. I also suggest that you take the longest payout possible. This gives you a lower payment and you can always accelerate payments later to pay this loan off early. Some may suggest that you will end up paying a lot of interest and they are correct, if you kept this for the entire life of the loan. That is not what I suggest. Your major concern should be about cash flow at this time. Once your “positive” cash flow improves, you can accelerate your payments and pay off the debt earlier.
Mortgages. “The cheapest money you will ever buy.” Never forget that statement. Think about that for a moment. You get a mortgage for $150,000 at six-percent interest. You are in a thirty-percent tax bracket. That means that the loan only costs you a “net” of just 4.2%. Can you borrow money anywhere for that amount? If that is the case, then why pay off your mortgage early? If you do pay it off and then need to get to YOUR money, how do you do it? You must BORROW it, at whatever the CURRENT rate is. That number could and will go up in the future. My advice is to take a thirty-year mortgage and, if you want to, make some extra payments and cut the length of the mortgage to suit you.
Credit cards. This is the one item that could ultimately destroy mankind! Those little pieces of plastic can do a lot of harm, but they can be useful if you know how to play the game. Do you have any in your wallet? If so, what interest rate are you paying? If you are paying over twelve percent, then you need to do some work.
When was the last time you called your credit card company and ask them to lower your rate? If you haven’t done that then you need to do it now. Believe me when I say that they will not call you in this lifetime and offer to lower the rate because you are such a good customer! You can get a fixed rate of below ten percent, if you call and ask for it. Believe it or not, but credit cards are probably the best source of money at the best interest rate and terms at the present time. By the way, if you use a credit card for purchases for your practice, the interest you pay on that card is deductible since it is for business purposes. So, if you have a card at ten percent interest, the cost is really only seven percent if you are at a thirty-percent tax bracket.
Just plain debt. The four letter kind! I’ve lumped all of the other debt under this category. It could be a line of credit, auto loan, equipment loan, or whatever. It’s just plain old debt. If the debt was incurred to purchase something for your practice, then the interest on that loan is tax deductible. This makes the “net” cost for this money more reasonable. It is important to keep personal debt separate from business debt for that reason. It is important to keep good records, too.
When was the last time you reviewed all your debt? I am not suggesting that you do this so you can beat on yourself! You might be able to consolidate some debt or refinance some debt and possibly lower your payments and the interest rate you are paying. It never hurts to check. I have seen some amazing savings from just such a review. You might want to consider doing this one night when there is nothing worthwhile on television. Make sure you have all the information you need to do a complete review before you start.
After all of this, do you now feel a little better about debt? You should! Maybe a few deep breaths are in order and close your eyes and repeat after me: “Debt is not out to attack me. I can control debt. I do not have to let debt control me.”
Believe it or not, debt can be your friend.
Stanley B. Greenfield has been engaged in the fields of Financial Management and Insurance since 1962. He is a Registered Financial Consultant, and was awarded the designation of RHU, Registered Professional Disability and Health Insurance Underwriter, in 1979, as one of its Charter Members.
Mr. Greenfield has authored thousands of articles concerning tax, financial, and practice management, and has spoken throughout the world on these subjects to both business and professional associations. He is a regular contributor to numerous other professional journals.
Mr. Greenfield also serves as a member of the Board of Directors of the Florida Chiropractic Foundation for Education and Research. You may reach him at [email protected], call 800-585-1555 or 904-513-2229 or visit his website, www.stanleygreenfield.com.