All the Right Plastics in All the Right Places.

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Credit card companies helped me pay off my student loans faster by reducing my accrued interest by 60k after 4 years of med school.

 

debt freeI love credit cards. They have helped me pay for medical school expenses/tuition on 0% APR, reduced my overall med school debt by 60k in interest, given me lots of cash back & rewards, allowed me to channel my cash flow into my retirement and Mini’s college savings.  Thank you, big banks! For giving back to small people once in a blue moon.

 

While most people see credit cards as the trap/ lock and chain around one’s financial life, when used responsibly and cleverly, one can really turn the table around & use credit cards to free themselves from other higher interest debts such as 6.8% student loans.

Set for life bike
Protect yourself, your ability to earn, and your loved ones.

Many people are incredulous about my credit utilization style. Here are some numbers & facts…

My credit stats:

  • Credit scores from 3 credit bureaus: 780+
  • # of credit cards (all you see in the above pile): 52
  • # of balance transfer offers with <2% effective annual interest rate (post transaction fee): 10 offers/month
  • Late payments*: never in my 18 years of credit history
  • total combined credit limit: 250k
  • highest credit limit on 1 card: 51k
  • revolving debt balance as of 5/18/16: a huge ZERO

Just learned recently that late payments on credit history are not very strict. Payments have to be overdue >60 days before it’s reported to the credit reporting agencies. I have a couple late payments (2-3 days late) in the last 18 years but none impacted my credit score because the credit card companies/banks didn’t report these “late” payments.

CD_250x250_Web_Nov2013
Get your biggest deal right, the first time.

I use credit cards for:

Catch up game
All these things I need to do Today, not 6 years after medical school when I finally become a practicing attending. Credit cards allow for cash flow re-direction to my priority and interest-free (or even negative interest) $ on which I can get 8+% return on. For once, big banks way of using time value of $ can be used by every day ordinary people like me 🙂

 

 

  • Everything chargeable. why not, simplify my life, gives me cash back or rewards, track my expenses in one place (I usually only use 1/2 cards actively at any time.)
  • Cash back: 10-30% of each dollar charged
  • Emergency fund: why would I set cash away (idly not making me any return for emergency fund when I can charge onto Citibank Simplicity card and ride the balance 21 month interest free? at the end of 1.75 years, I would have enough money saved in a brokerage to pay it off completely anyways.)
  • Fund my 401k, Roth IRA, Mini’s 529: Chase Slate offers 0% transaction fee for me to write a check to myself for anything (up to my credit limit of 25k.)
  • Pay off other high interest debt: I initially paid off my student loans when I was rejected by DRB for student loan refinancing (yes, in a few months DRB rolled out product to refinance PGY’s for the first time in history. I would have qualify to refi with DRB if I waited a few months. oh well.)
  • Live a little: I will charge Mini’s art studio set up in our new home… enjoy it while paying the costs back in 21 months. For once, gratification is not delayed, pay back is.

A Minimalist’s Approach to USMLE I: You Can Excel in Medical Boards and Beyond.Purchase this short read and ace the test!

Key principles to smart credit use:

image courtesy of baybusiness.com.au
image courtesy of baybusiness.com.au

Cash is King.

Discipline: be realistic with how and when you can pay the credit cards off. Transferring to another card is an option, but paying off is even better 🙂

time is more valuable than moenyTake advantage of Time value of $. If you can borrow at -10% to 0% from credit card to fund your ROTH IRA earning 8%… Why not leverage this debt?

Be on the right side of the bank. In other words, Be The Bank. Collect rather than pay interest.

image courtesy of ariannabelle.com
image courtesy of ariannabelle.com

Organization: remember VSAS & ERAS & AAMC? you must be an expert organizer by this point of your medical career. Start a master excel sheet, keep track of your credit card due dates, debt amount, monthly minimum payments. Stay on top of, just a month before, your sweet 0% interest rate (APR) converts to the nasty 29% big banks are waiting for.

image courtesy of spudcomics.com
image courtesy of spudcomics.com

Take the bait and bounce before the switch.

image courtesy of 2ndskiesforex.com
image courtesy of 2ndskiesforex.com

Most importantly, know thyself. If playing the big banks doesn’t gyve with you, don’t do it.

Know thy enemy. It’s simple. They want to get 30% more money back from you than what you charged/borrowed. Don’t let that happen.

So what do you think? Comment below.

The Day I Started with Nothing…

johnjay.digication.com
For us medical school grads, the debt burden is easily 10 times heavier. On average, we owe 180k as class of 2015.  image curtesy of johnjay.digication.com

I will always remember how dreadful it seemed when I learned that my cost of attendance for 2010-2011 (first year of medical school) was about 90k… I’ve never made 90k a year prior to starting medical school (in fact, I still have not made 90k a year as a PGY2, 6 years after I started med school in 2010). I could not imagine borrowing 90k, only 8k of which was subsidized (interest free during med school), and rest came with 1-4% loan origination fee and 6.8% interest snow-ball starting day one of med school.

Along with this dread came one of my favorite memories of Mini Wise Money.

I was crying and complaining on the phone to my mom, feeling wronged by the fact that I had to get into so much debt to become a doc in the US, when the rest of the world pretty much made med school free appreciating what aspiring doctors already give up by embracing such an all-consuming and demanding career.

Then, the 2 year old Mini Wise Money, tried comforting me,

“Mommy, don’t be scared of monies. I am here. [MWM gave DWM a hug.] Don’t be scared of monies.”

Because of how expensive my medical school was, the day I started with nothing was March 2015, of internship year, when I was 30 years old.

I tried everything in my power, worked 7 jobs in college, 2 jobs in med school, to “start with nothing” at the age of 30; while my non-med friends already have a house, cars, fat retirement funds, kids college savings, annual family vacations to exotic places.

But I’m grateful to be starting at zero at 30, rather than 40, 50, or 60.

Here today to share one major reason why I was able to pay off my student loan within 1 year of graduating medical school.

Here’s my guest post on my financial mentor White Coat Investor’s blog, detailing how I minimized and delayed student loan interest.

Hope this helps!

Here is a flow chart that demonstrates how interest starting day 1 of medical school on the federal student loans we borrowed just for 1 semester of tuition snowballs… This is for the numerically inclined people, just so that every step of math is accounted for and the number I’m using has solid backing. Feel free to skip the flow chart if it’s dizzying. This flow chart itself warrants 2 posts to elaborate (which will be coming in the future…)

To summarize the chart:
15k borrowed on Day 1 of med school + loan origination fee + daily simple interest*
–> $17,816 @ graduation of medical school
–> deferred for 3 year residency
–> $21,756 @ when finishing 3 year residency
now imagine borrowing 15k every semester (3 times a year, totaling 12 times to finish medical school)
this is just tuition and fees… no living expenses. 
and the loan assumption is based on the cheapest (not grad plus) federal student loans.
*In my personal experience, there’s no subsidized loan anymore starting 2012. But a reader pointed out that he still had subsidized loan in 2013… Not sure if there is inter-school variation in federal loan offerings. Either way, during my first 2 years of medical school, there was a nominal amount of subsidized loans. It was up to 8k annually that I could borrow. The subsidized loans prevent 100% of the interest accrual during school and first 3 years out of school if one selects IBR payments. After PGY3, subsidized loans will receive 50% interest subsidy for negatively amortized portion of the loan like the unsub loans if one’s on REPAYE (Revised Pay As You Earn).

cc vs student loan

 

  • How did you pay for medical school aside from taking out student loans?
  • Did you work during medical school? Was working a plus or minus on your medical school academic performance?
  • If you are a med student (today or again), what would you do to minimize your student debt burden?
  • Do you think the credit card method is too risky? Why or why not?
  • Since you have the discipline and intelligence to make it into med school &/or survive med school, don’t you think you can apply 3% of your brain power to take advantage of credit card offers to help you build net worth?

please share your insights, questions, experiences below. We are here to help one another 🙂

Top 10 Ways Mini Will Pay for Her College… on Her Own (Mostly)

I just started funding Mini’s 529 this year with goal of maxing out first 2 years @ 14k each. I’m front loader in all things I deem worthwhile: studying, investing, or building businesses. Since Mini can be heading to college in 9 years (if she doesn’t decide to take a sabbatical from school to run a business venture), the investment that gets to be truly impactful/fruitful will be the dollars that gets to grow in the stock market for the longest.

If I max out in 2016 and 2017, the principle of 28k can grow for about 7-8 years, which means based on the rule of 72 (+ assumed annualized return of roughly 8-10%), the 28k gets a chance to roughly double by year 2025 when Mini starts college.

Ok, so that’s 56k for her college. Not a whole lot, considering some financial advisers are encouraging my attending radiologists in my residency programs to save >1/2 million for each of their kids’ college expenses. (I whole-heartedly disagree with advisers who recommend saving >1/2 million for each kids 4 year college, and think that it’s likely an Asset Under Management motivation on the adviser’s part, but that’s discussion for another post).

So Mini gets optimistically 56k for college from the 529 I started this year; what else is she going to do to ensure debt-free-ness after her college degree?

johnjay.digication.com
I decided that the biggest gift I can give Mini is getting her educated & debt free after her bachelor’s degree. johnjay.digication.com
  • If she’s anything like her mom, she will work a job or 2, or 3, or 7…. Just kidding. While I in fact did work 7 jobs simultaneously for a few semesters in college, I do not think it is a healthy practice. Mini can work one or at most 2 jobs, but not 7.
  • If she’s nerdy like her dad or mom or aunt or grandfather, she can tutor and make a killing. I started with $10/hr at 16, up to $400/hr at age 28. In college, I charged anywhere between $20-$200/hr for helping others achieve academic excellence and further mastering my fund of knowledge.
  • If she’s jockey like her dad (who was a near-Olympic level rower at an Ivy League University) and she learn to negotiate with college financial aid offices, she’ll likely get a full ride sports scholarship.
put your money to work
Insert Mini Wise Money for Doctor instead. Mini is way ahead of DWM because she learns at the tender age of 8 that $ works for her; she doesn’t work for $.

 

If she continues her business ventures that she’s started as a mere 8, 9 year old, Mini’s money will work for her like no tomorrow (money invested doesn’t take a vacation, doesn’t get sick, doesn’t sleep.) Mini’s current money making ventures include:

  • “Walkie Dogie” when business blooms a little, Mini will hire help and take a cut from each dog-walker/pet-sitter. Mini will be in Hawaii scuba diving with her parents while her diligent employees walk 10x neighborhood dogs than Mini could do on her own.
  • Freelance Art: Mini has been selling (few, as DWM wants to hold on to her original art work) originals and replicas of her artwork, ranging from painting, sculpture, to photography. She will continue to apply herself as she’s naturally inclined to art; nicely the money follows when one does what she’s good at.
Ella pencil art
Newest art modality Mini’s added to her repertoire. Coincidentally, the youtube 20 some year old artist is a multi-millionaire from her popular instructional youtube videos & associated products. If Mini can draw like this self-made young millionaire-you tube-artist at the age of 8, & Mini’s equipped with an adventurous, fearless, entrepreneur spirit, sky is the limit 🙂
  • Investment: Mini has saved 95% of her gift money & has been investing in her mother, Dr. Wise Money, getting 10% guaranteed return at the DWM’s bank. As DWM and Mini discussed adjusting down the guaranteed interest rate to a more realistic range 2-3%, Mini has decided that she will buy a couple shares of a few companies she likes and hold her shares to see long term gain. Mini has no desire to be a day-trader; in her own words, “it’s too much work and the money is not guaranteed for the hard work.”
  • Summer camp business. DWM is starting a highly sophisticated summer camp for kids around mini’s age summer of 2017. Mini, mini’s dad will be DWM’s business partner. By the time mini starts college, she would have (helped) run the summer camp for 9 summers. She can continue and likely will take over the business ownership from DWM by then. This operation will likely bring Mini 10’s of 1000’s each summer after she pays her workers.
time is more valuable than moeny
Mini will take advantage of Time Value of $ and Cash is King principles. She will borrow $ from credit card companies @ 0 to negative interest rate to fund her education, while putting her cash flow where she can make the most tax-efficient return; like in index funds in her Roth IRA.
  • For everything, there’s credit card.
    • DWM’s credit card. DWM currently has 250k of credit limit in her credit cards combined. It would not be implausible to charge all of Mini’s college expenses on DWM’s credit, if it makes sense. Free flights to Hawaii, 5-30% cash back, lots of gift cards for dining, entertainment, & pretty much you can think of under the sun etc.
    • Mini Wise Money’s credit cards. Like I said before, if you don’t stretch or work your credit/borrowing muscles, it ain’t gonna grow. DWM has plans to provide Mini with a monstrously high credit score & large credit limits to start in her early 20’s (setting her up to purchase homes, left and right as soon as she gets her first good paying job. which may or may not be After college given that Mini has her money working for her at the tender age of 8.)
Mini pays for college herself
Instead of going to Mommy/Daddy bank for college $. Mini will have her own bank 🙂 She’s learned early to be on the right/money making side of banking… Leveraging time value of $ for rather than against herself.

 

  • Though least preferred by DWM, DWM can always step in and pay a bit of Mini’s college with her paycheck 🙂 DWM can afford to cash flow Mini’s college expenses as by the time Mini’s starting college, DWM would have already achieved financial independence (2023) for 2 years, which means, all DWM’s income after 2023 is NOT necessary for living but cream on the top.  Since DWM doesn’t plan to retire at age 40 even though she could at 38, DWM will have plenty of cash flow to make the green papers rain, for a worthwhile cause… Mini’s education.

Bonus!

If it makes sense, Mini can also take out student loans (i.e. federally subsidized student loans for undergraduate education, where the student loan has 0% interest rate while student is enrolled in school full time). Upon graduation, when the student loan starts charging 6+%, Mini can look into refinancing with banks, pay off with her own savings in brokerage account, or pay off with 0% interest credit cards, and off course, last resort, there’s mom Dr. Wise Money to help.

  • how will your kiddo pay for his/her college?
  • are you saving like crazy for them? (As you can tell, I don’t think you need to. Better save for your retirement first.)
  • did you know even doctor’s kids can get full-ride scholarship to small, pricey, private colleges? knowing what you are worth is an incredibly important skill.

Please share your insights, experience, & insights below.

Sale on Sale Bonus Post: Ebate’s Birthday

It’s Ebates birthday this week, and they are celebrating with 15% cash back at many, many participating stores!

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