How to avoid common practice ownership conundrum: Using good debt to retire bad debt
Experts detailed a financial strategy practice owners can use to save on debt repayment long term and build wealth quicker.
Online, many high-earning dentists have presented a dilemma when it comes to practice ownership: They often struggle with the option to pay off hundreds of thousands in student loan debt prior to making other financial commitments or take out another loan to purchase a dental practice, according to a news article from Yahoo Finance. The experts cited in the article provided a scenario in which a dentist three to five years postgraduation is carrying $450,000 in student debt with rates of 6% to 8%.
They argued that because practice owners often more than double their annual earnings after buying a stable practice, dentists should consider the second route and tackle the debt with the greater interest rate first. Those who wait to pay off their student loans before becoming practice owners may forgo over $1 million in owner-level earnings. In addition, because small business administration and conventional practice acquisition loans have interest rates that are currently lower than the student loan interest rates that dentists three to five years out of school may be carrying, dentists who become practice owners can refinance their federal student loans to private loans if the rates are lower than 6% and use their post-tax income to pay off their highest student debts. Dentists who wait to invest in practice ownership until after their student debt is paid off may miss out on acquiring the practice they wanted and could encounter higher asset prices.
The experts noted that prior to refinancing their student loans, dentists should evaluate the risks in losing federal protections and ensure that their loans are not eligible for debt forgiveness.
Read more: Yahoo Finance
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