Practice Management Toolkit

Frequently Asked Questions (FAQ)

Debt Management Part 1

Q – I’m interested in learning more about loan consolidation but where do I start?

A – If you are an ADA member, visit the website for Collegiate Funding Services (www.cfslaons.com) under the ADA Member Advantage Program. Or call them directly at (866) 312-7227 for information on both federal and private loan consolidation. Get familiar with the particulars of the process, the rates, the length of consolidated loans, and see how you might benefit from one of their programs. Then shop around and see how the rates, terms, and service of Collegiate Funding Services compare to other institutions.

Q – Should I payoff my loans quickly or stretch out my payments?

A – Most people do not like to take on and carry large amounts of debt, especially the sums associated with educational loans needed to obtain a professional education. Opinions differ on how to manage that debt as well. There is much to be said for stretching loan repayment, lowering monthly payments, and “saving” the difference. That monthly “savings” can then be contributed to a retirement program at work, used to fund an individual retirement account (IRA), or simply deposited in personal (taxable) investment accounts. Others dislike the idea of carrying debt for protracted periods of time. The choice is yours.

Remember that when it comes to investing, time is an asset. Use it wisely and take maximum advantage of starting to invest as soon as you can after you finish your dental training. In this writer’s mind, you’ll be better served to pay your educational loans with future rather than present dollars.

Debt Management Part 2

Q – What time period should I use to consolidate my loans?

A – There is no one answer to this question. But obviously, the greater the amount of your student debt, the more helpful a longer-term loan can be in reducing your monthly payments. If you leave school owing $150,000 you can lower your payments dramatically by consolidating loans to get a lower rate and stretching repayment over 30 years. Conversely, if you have only $10,000 in loans you can still benefit by consolidating the loans for the rate reduction. Do some calculations to see how much the monthly “savings” would be with a 20- or 25-year loan. Remember, you can always pay off the loan balance early without penalty.

An added benefit of a lower loan payment is a reduction in your debt-to-income ratio on your credit report. This is a good thing should you seek a home mortgage or loan to purchase a practice.

Q – What should I do with the monthly savings after I consolidate my loans?

A – That’s the $64,000 question. You have any number of different options available to you. But how you actually use this money will depend on your personal and professional goals and plans. You could put the money in safe, short-term investments if you intend to purchase your own practice or buy into an existing one. Or you may wish to maximize your IRA or practice retirement plan contributions each year, and place any remaining money in taxable investment accounts for your short-term personal and professional needs

What you wind up doing with the “savings” will depend largely on your short-term, intermediate-term, and long-term goals. Until you decide what you want or need to do, play it safe and put the money in insured and very liquid assets (money market mutual funds, short-term certificates of deposit, short-term individual bonds, etc.).

Visit the Practice Management section of the Crest Learning Center frequently. We’ll be offering information on a number of personal finance and investing ideas. Hopefully you’ll find this feature helps you make more informed decisions.

Do you have questions?

We’d love to hear from you. So if you have any questions about this topic or some other subject, please click here.

And don’t forget to visit the Crest Learning Center website often to look for updates.

Note: Practitioners who offer a retirement plan through their practice have a fiduciary responsibility to educate their employees about their plan and investment principles. By encouraging your employees to avail themselves of the free information on this website, you will take another step in demonstrating your compliance with Regulation 404(c). This subject of ERISA 404(c) compliance is explained in Series 4 of the Personal Finance CD-ROM and will be covered here at a later date.