3rd Step to Financial Freedom – Debt Management

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“Annual income, twenty pounds; annual expenditure, nineteen pounds; result, happiness. Annual income, twenty pounds; annual expenditure, twenty-one pounds; result, misery.” – Wilkins Micawber in David Copperfield


Debt has a bad reputation. It is prevalent, no one wants it, and everyone who has it wants to get rid of it. Everyone wants to be debt free.

There is, however, another way to look at debt. Debt is a financial tool to meet your personal and financial goals. For example, according to the Association of American Medical Colleges the median level of medical student debt was $180,000 in 2014. While we’d all agree that this level of debt is high, when necessary it has allowed most of us to meet our personal goal of becoming a physician.


Dealing with Debt Wisely

Banks and financial institutions see physicians as low-risk and are willing to loan us a lot of money, which can be good or bad. You can probably get a loan to buy a $100,000 luxury car, and while this might be fun, it is probably not wise. The same thing goes for a jumbo mortgage.

Every time you are considering a loan, you should ask yourself if what you are about to purchase is worth it. Will that fancy car or extra large house truly bring you happiness? Or does it just bring a ton of overhead, increased expenses, and four extra rooms you’ll need to buy furniture for.

The book The Millionaire Next Door by Stanley and Danko was a longitudinal study of millionaires. This study showed that most millionaires don’t drive expensive cars. In fact, most drive “normal” cars or buy them used. In addition, most don’t live in large houses in expensive neighborhoods. Their study showed that physicians are notorious for buying these items to live up to society’s expectations. Doctors are supposed to drive luxury cars and live in expensive neighborhoods, right? This is also why they found that physicians under accumulate wealth and have much a lower net worth than their income would predict.

Do yourself a favor and buy a smaller house, drive a less expensive car, and avoid a boat. You don’t want to own the boat, you want to be best friends with the owner of the boat. Skip the vacation home. You can probably rent an equivalent home for much less than it would cost to buy it, and in 2013 the Nobel Prize in Economics was given to Robert J. Shiller, who showed that housing prices barely outpace inflation over the long haul, making real estate a less attractive investment.

While the ultimate goal is to get to the point where you can pay cash for cars and other major purchases, you will likely take out loans for some period of time when a major need arises. Here are some financial rules of thumb to keep you from getting in debt beyond what you can handle:

  • Monthly debt payments (excluding your mortgage) should be <20% of your monthly income.
  • Your housing costs should be <30% of your income.

No matter what debt you accumulate, make sure you always make your payments on time. The #1 factor that goes into calculating your credit score is your ability to make timely payments on your debt, and your credit score will determine the interest rate you are charged on nearly every loan you ever take. One late $50 payment could cost you thousands of dollars on a mortgage, for example.


Credit Cards

“Keeping a balance on your credit card is about the worst financial move you can make.” – Burton G. Malkiel, Chair of Economics, Princeton University, Author of A Random Walk Down Wall Street

The quote above says it all. If you are going to use a credit card for the convenience, always pay off the entire balance every month because the interest rates they charge can be very high. If you can’t control your credit card debt, cut them up, cancel them, or only have one that you use in special circumstances. If you have to keep credit card debt, make sure you ask your credit card company to lower the rate or transfer the debt to a low rate card. Check credit.com, cardtrak.com, or lowcards.com for a list of low rate cards.


Good Debt?

In addition to helping you achieve financial goals that are important to you, debt can be used to limit the amount of your own investments that must be in cash equivalents. Having easy access to credit can provide a nice backstop in case of a sudden need for cash.

If you have equity in your home, a home equity line of credit can serve this purpose. Their interest rates are usually low and the interest is often tax deductible, further lowering the cost of borrowing. Home equity lines of credit (and other lines of credit as well) should be set up in advance, not after you or your spouse/partner loses their job and you are a credit risk. Beware of fees your lender may charge and see if you can find one that will waive them for a slightly higher interest rate. A slightly higher interest rate isn’t that big of a deal as you hope to never use this line of credit anyway.


Student Loans

Despite the HPSP program and USUHS, many readers will have significant student loans. Since I never had student loans, I will admit that this is a weak area in my financial knowledge. By far the best source for information on student loans, paying them off, getting them forgiven, and refinancing them is The White Coat Investor. I would STRONGLY ENCOURAGE anyone, especially those with student loans, to check out this resource. It is unparalleled and the most useful financial site for physicians on the web.

Probably the most important step that residents can take to pay off their student loans is to avoid jumping straight into the “doctor lifestyle” as soon as they graduate residency. If you continue to live like a resident until your student loans are paid off, it shouldn’t take more than a few years to get rid of them, after which you can splurge a little and enjoy your income free of student loans. This is easy to type and hard to do, but just a few years of “roughing it” can wipe out your student loans.


Paying Off Debt

When you pay off debt, you are earning an after-tax return equivalent to the interest rate you are being charged. For example, if you pay off credit card debt with an 18% interest rate, this is the equivalent of earning a guaranteed 18% return on your investment tax-free. With the long-term rate of return for the stock market averaging just under 10%, you can see that paying off high-rate debt is often a better move than investing in the stock market. In other words, it makes no sense to pay the minimum on high-interest debt like credit cards while investing in the stock market. Pay off your high interest debt first.

The one exception to this is if you get an employer match on your retirement account contributions. If you get a 50% match, that is an immediate 50% return on your investment, so contribute to your retirement account up to the maximum that your employer matches, then pay off high interest debt. Unfortunately, military physicians don’t get any match right now.

If you have multiple loans, pay off the one with the highest interest rate first. In addition, see if you can stretch out the payments for your low interest loans over a longer period of time, lowering your monthly payments and freeing up cash to pay off your higher interest debts faster. For example, if you have credit card debt with a 14% interest rate, a car loan with an 8% rate, and a mortgage with a 5% rate, pay off the credit card first, then the car loan, and then the mortgage.

Keep in mind that it often doesn’t make sense to pay off debt when the interest rate is lower than the after-tax rate you could earn on an investment. If you want a number, I would pay off high-interest debt (rates greater than 6-8%) such as credit cards, car loans, and private educational loans. If the rate is less than 6%, as with most mortgages nowadays, it probably makes more sense to invest the money in mutual funds and pay off the debt as slowly as possible.

Another move to consider is to take out a home equity loan to pay off high interest debt. You get a lump sum with a fixed interest rate that is often lower than your current debt and pay it off over 5-15 years. In most cases the interest you pay is tax deductible. Keep in mind that you could lose your house if you default on this type of loan, and beware of any up front fees that you need to factor into your calculations.



Don’t wait until a crisis hits (divorce, job loss, disability, or a lawsuit) to get your debt in order. If you have major problems with debt and need help, seek a fee-only financial planner with experience with high-income individuals who can help you restructure and manage your debt.

Senior O6 Positions in DC Area Available

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Here are 2 senior (O6 or O6 select) positions available.  If you are interested, contact your Detailer:

  1. Deputy M2 – M2 Deputy Position Description
  2. Chief of the Clinical Service Section, Immunization Healthcare Branch, Defense Health Agency

One of three section chiefs in the Immunization Healthcare Branch.

The role of Clinical Services Section is to anticipate, assess, and mitigate existing and emerging vaccine preventable disease by:

–Providing expert clinical consultation and case management 24 hours/day, 365 days a year

–Providing comprehensive healthcare clinical support and patient advocacy

–Supporting management of pandemic emergencies
–Delivering best quality immunization healthcare information, educational resources, and training services on-line and on-site
–Monitoring and evaluating the safety of vaccines
–Contributing to the body of knowledge in immunization healthcare through public health investigations, surveillance, and clinical studies

Responsible for leading and managing the 37 Civil Service employees in grades GS-11 to GP-15 assigned to the Clinical Operations Office and the Education and Training Office. The staff works in seven locations scattered across the United States.

Preferred speciality in Aerospace Medicine/Occupational Medicine/Preventive Medicine.  The focus of what we do in the Immunization Healthcare Branch is population health, not direct patient care.

FY16 Medical Corps Special Pay Guidance Released

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Here is the FY16 Medical Corps Special Pay Guidance:

FY16 MC-DC Special Pay Implementation Guidance

Here is the website where you can get further information:


And here is my video podcast explaining all the various special pays:

Introduction to Medical Corps Special Pays

Director of Behavioral Health Position at Ft. Belvoir – Open July 2016

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Here is the information on this leadership position for O5/O6 officers as well as some information on the directorate:

FBCH Dir for BH Request 15 Sept 15

Behavioral Health Directorate Welcome Letter

If you are interested, contact your Detailer.

Updated List of Service Schools – MedXellence and MHS Capstone Added

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There are 2 new service schools, MedXellence and MHS Capstone.  If you want these added to your record, check the updated promo prep document below for the procedure:

Joel Schofer’s Promo Prep Guidance – 23 SEP 2015

Service Schools (Medical Only)

The Top 5 Critical FITREP Mistakes

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When I was a Detailer, I would review a lot of records for people who failed to promote. Over and over again I would see FITREPs that reflected poorly on the officer. A lot of the time they didn’t realize it was even an issue, and sometimes they did it to themselves. Here are the top 5 FITREP mistakes you want to make sure you don’t make:

  1. Getting anything other than an early promote (EP) when you are getting a 1/1 FITREP, also known as an “air bubble.”

If you are the only officer in your competitive category (meaning that you aren’t competing against anyone on that FITREP), make sure you get an EP. Just like a single air bubble, you should “rise to the top” and get an EP. If you don’t get the air bubble and get a promotable (P) or must promote (MP), it reflects poorly on you unless it is CLEARLY EXPLAINED in the narrative why you are getting a P or MP. Here you can see an officer who got a 1/1 MP in his/her last FITREP and how it would be noted at a promotion board:

Air Bubble

For example, if your reporting senior doesn’t give newly promoted officers an EP, your narrative should say something like, “Newly promoted officers do not receive EP rankings.” Sometimes this happens because your reporting senior is an officer from another service and he/she doesn’t understand the “Navy rules” for FITREPs. Sometimes it happens because either you or your reporting senior wants to give you a P or MP so you can “show progression” and get an EP. If you want to show progression, do it on the overall marks, not the final promotion recommendation. For example, give yourself a 4.0 EP, then a 4.17 EP, and finally a 4.33 EP. DO NOT give yourself a P or MP if you are getting a 1/1 FITREP.

  1. Both officers in a competitive group of 2 getting a MP FITREP.

If you are in a competitive group of 2, your reporting senior should give 1 of you an EP and the other a MP. If he/she gives you both a MP, it reflects poorly on both of you. Most often this will happen at an operational command and/or when there are 2 officers who are competing but are in the same promotion year group. Make sure your reporting senior doesn’t take the easy road and give you both a MP. One of you should get the EP, and the other can get a MP with a strong narrative explaining why.

  1. Declining from an EP to an MP without changing competitive groups (or “moving to the left”).

Most often I would see this when a resident who was in a large competitive group was given an EP FITREP. Then when they graduate from residency, their competitive group shrinks and they don’t get an EP but are left with an MP. Here’s what it looks like on when projected at the promotion board:

Moving to Left

If I was you, I’d fight this like a dog. If they can’t keep you at an EP and you didn’t do anything wrong to deserve this, make sure the reason for your drop from an EP to a MP is clearly explained in the FITREP narrative.

If this happens to you because you are changing competitive groups, like when you get promoted or move from residency/fellowship to a staff physician at the same institution, it is not a black mark in any way and is expected.

  1. Not getting a 5.0 in Leadership.

If you are writing your own FITREP, you can’t give yourself a 5.0 in every category, but of all the categories Leadership is probably the most important one. Make sure you give yourself a 5.0 in Leadership because that is what the promotion board is looking to promote, future leaders. Having less than a 5.0 can send a bad message to the board.

Sometimes you have no control over this, and sometimes you may deserve less than a 5.0 in Leadership, but do your best to get a 5.0 there if at all possible.

  1. Giving yourself an overall trait average less than your reporting senior’s average.

Every reporting senior has an overall trait average for each rank that includes all of the FITREPs that they’ve done for that rank. You want to try and find out what it is.

While a reporting senior can look up their average on BOL, you can’t. You can, though, see it on your Performance Summary Record if you’ve received a FITREP from them at your current rank. Although it changes every time they do more FITREPs, their average the last time they did a round of FITREPs can be found on your PSR and is highlighted below by the red arrow with blue text (this reporting senior had ranked 6 LCDRs and had an average of 3.50 at that time) on one of the slides from my FITREP video podcast:


If you have never received a FITREP from your reporting senior at your current rank, maybe your one of your friends has. The other way to find out their average is to ask your chain-of-command. Someone, usually the command’s FITREP coordinator, will know their average for your rank.

It is probably obvious that once you find out their average, you’d like to make sure you are above it. Sometimes there is nothing you can do to be above it because you are getting a P and/or you deserve to be below it, but make sure you don’t rank yourself below it if given the chance to write your own FITREP.

In summary, those are the top 5 FITREP mistakes I often see. If you are interested in learning more, grab a copy of your FITREP and watch this video podcast. In 45 minutes you’ll know everything you need to know to write effective FITREPs.

Fall 2015 Medical Corps Newsletter

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Here is the Fall 2015 Medical Corps Newsletter:

Medical Corps News Fall 2015