While residency income is reasonable relative to the average Canadian (unless you make the mistake of calculating your salary per hour), you will not realistically be able to eliminate your loans. I have always told my residents and fellows that a more practical goal is to aim to not go further into debt.

Debt Repayment: The weight of debt
By today’s standards, I got off easy, with “only” $80K in student loans. However, until I paid them off, I felt like I was dragging a psychological burden around with me. As in many cultures, I was raised to believe in avoiding carrying debt, even “good” debt like a mortgage in a home appreciating in value.

Pros of debt repayment beyond peace of mind:
1. Financial freedom: Eliminating loans means you are freeing up future income that would have been tied to interest payments. You could look at this as a ‘guaranteed return’ on your investment by avoiding interest; those that can’t handle the emotional swings of investing in markets going up and down (the ‘risk averse’) may prefer this. This is particularly useful if you think that the interest rates on your loans will go up in the future, or if you have high interest credit card debt. Once you are debt-free, you can use income for investing, or enjoying life without debt-related stress.
2. Better credit score: The elimination of debt can positively impact your credit score, leading to better interest rates on future loans.

Early Investing: The power of compound interest
To paraphrase a quote attributed to Albert Einstein, compound interest is the eighth wonder of the world; those who understand it, earn it and those who don’t, will pay it. Investing early in your career can set you on a path towards financial success, since you will have a longer runway to benefit from time in the market compared to those that started investing later.

Pros of early investment beyond compound interest:
1. Diversification: Investing in a well-balanced portfolio can spread risk and provide opportunities for growth in different sectors and asset classes. While I was busy paying off my student loans in 2003, I missed out on buying Amazon stock for $2.62 per share, and Apple at 32 cents.
2. Liquidity: Investments can be sold off in the event of an emergency, unlike money that is used to pay down loans.
3. Tax benefits: Investments in tax deferral strategies like an RRSP can reduce taxable income, which can be useful early on, particularly if an MD has not established a medical professional corporation yet.

The road to financial security is paved with informed choices, and depends on your financial situation, goals, and risk tolerance. Paying off debt and investing for retirement early are both valuable strategies, each with its own set of advantages. Of course, new MD grads don’t have to pick one or the other; for many, a blend of gradually reducing debt while starting their investing course may be the right balance. Talking to trusted colleagues and mentors, or financial advisors can certainly help.

Author: Dr. Krishna Sharma, Chief Medical Officer, Specialty Medical Partners