4 Reasons Why So Many Doctors Struggle With Debt

debtreasons debtstruggle Apr 09, 2019

Have you ever met someone who told you, “One of the best things I ever did was take on a lot of debt.  My success is due to the massive amount of debt I have, and spending the rest of my life making payments is a great monthly reminder of my excellent decision to get into debt!”  Of course not.  No sane person would ever say this, but indirectly this is true of most Americans in regard to their relationship with debt.  Americans in many ways are addicted to debt! 

Debt in America is higher than it has ever been, totaling $13.54 billion at the end of 2018, according to the Federal Reserve Bank of New York.  According to the report, auto loans increased by $9 billion, credit card balances went up $26 billion, and student loans increased by $15 billion – all this in just the last quarter of 2018! 

A big problem for many Americans is we like stuff.  Unfortunately, it’s stuff we usually can’t afford to pay cash for, but lenders are all too happy to loan us money to scratch our itch for a new car, boats, RV’s, motorcycles, bigger houses, rental homes, college education, etc.  Some may argue the reason many are so deeply in debt is the lenders who target people like doctors with plenty of stable income and a desire to reward themselves after spending more than a decade in education and training.  However, no one has ever forced anyone (as far as we know) to sign on the dotted line to take on debt.  It’s completely a personal decision we do all on our own.

There is some truth that lenders can take advantage of high earners like physicians.  Our mailboxes and inboxes are stuffed full of advertisements enticing us to take on debt with low monthly payments so we can buy things to make us happier.  This leads to our first reason why so many people struggle with debt.

Reason #1 – We believe buying things will make us happier.

One of us (Scott) can remember when he bought his second new car.  He had just paid off his first new car, a 1994 Honda Civic, and like most people who have just paid off their car, he went out and purchased, well, actually leased, his next new vehicle a fully loaded SUV.  Data suggests that he is no different than car buyers today where the average person owns their vehicle 71 months and pays for it over 69 months.  In other words, on average, most consumers pay their vehicle off and two months later start back up again with another vehicle payment.  We just can’t seem to be content driving an “old” car.

To put this into perspective, if you take the average monthly new car payment in America, which currently stands at $530, and act like a typical person and like Scott did a few years back, keep purchasing a new vehicle every time you paid off your old one from age 25 to 65, but instead invested that money each month and earned a modest 8% you would have $1,779,407!  Do you like your new car that much?  Probably not, but for many it’s hard to think about decisions that affect us 40 years out, especially when we are enticed by the scent of a new car.

Hard work pays off in the future.  Laziness pays off now.

-Steven Wright          

The end of Scott’s story is anything but “happy”.  As with most new car purchases, the “newness” wore off within the first few months (actually, about the time the first payment was due), but the monthly lease payments kept coming due.  He ended up putting way too many miles on his SUV and turned it in three years later and had to pay an additional $2,000 mileage penalty on top of the 36 monthly payments.

Reason #2 – We have been conditioned to think debt is "normal".

Do you consider yourself to be “normal”?  If you’re reading this blog you’re probably working toward being abnormal, and that’s a good thing when it comes to debt!   

What is normal?  Another way of looking at normal is saying someone is “average” or just like most others, and in America that means being deep in debt and broke.  Let’s also define what being broke means.  It has nothing to do with your salary, which for most of our readers is well into the six-figures.  Typically, if you told someone, especially someone who’s not a doctor, what you earn each year they’d think you were wealthy, which could be true, but for most doctors deep in debt it’s not true.

The challenge many people face is developing a mindset that paying cash for what you want should become your new normal, but our society will tell you that is anything but normal. 

Normal is focusing on whether or not we have the financial resources to make the monthly payments.  Normal is being in debt all of our adult lives.  Normal is having a month-end mindset instead of a five, ten, or twenty-year mindset.  Normal is living paycheck-to-paycheck even when you’re making six-figures.  Normal is spending more than you earn.  Normal is living for today instead of saving for tomorrow.  Do you want to be normal?        

Reason #3 – It takes too long to buy with cash.

We live in a world where waiting for anything is unacceptable.  We want what we want, and we want it right now!  In the 1960s Stanford researcher Walter Mischel conducted a famous study that eventually became known as the Marshmallow Test.  In his study, which has been replicated dozens of times since, Mischel and his team would bring a young child (usually aged 4-5) into a room and place a single marshmallow in front of them.  The child was told that if they could wait 15 minutes for the researcher to come back without eating the marshmallow, they would be rewarded with a second marshmallow.

As you can imagine, especially if you have children, some of them gobbled up the marshmallow as soon as the researcher left the room, but many were able to hold out for the 15 minutes.  Following the research subjects over the course of their lives, Mischel and his team uncovered most of those who were able to resist and delay gratification had better life outcomes such as better social relationships, careers, fewer behavioral problems, and better grades.

Some would argue that delayed gratification is a sign of maturity.  We would take it a step further and say it is also a sign of financial maturity when you can delay purchasing something you really want only when you have waited long enough to save the cash to do it.  Many of us have failed at our own marshmallow test.  Scott fell victim when he leased the new SUV he couldn’t wait to pay cash for.  He could have waited the 3-4 years it would have taken to save the cash to buy the SUV, but that was just too long to wait when all he needed to do was sign and drive to fulfill that new vehicle itch so many dealers were willing to scratch for him.    

Reason #4 – We are trying to keep up with the Gateses.

Keeping up with the Jones’ is no longer the problem for many.  The Jones’ are your average couple, and who wants to be average?!?!  The Gates, Bill and Melinda, are worth nearly $100 billion.  It’s no longer fashionable to be just an average couple.  Many of us, without even being aware of it sometimes, work to always be one step ahead of others.  We want to have the biggest house on the block; the most expensive cars in our four car garages; the biggest screen in our living rooms; the most luxurious vacations we can post selfies of ourselves enjoying on social media.  Long-gone are the days of keeping up.  We are now living in an age of staying ahead of everyone else.

Scott fell victim to this when he leased his SUV.  His coworker had just leased a new vehicle, and this got Scott thinking about replacing his paid-off Civic his coworkers had nicknamed the “pregnant roller skate”.  He didn’t need a new car, but if he was going to get one it had to be much better than his coworker’s new car.  At the time it didn’t seem like a competition, but looking back, there certainly was some element of competition in being able to roll into the parking lot with a fully-loaded SUV that would make his coworkers jealous.     

Many view life as a race in which you’re either winning or losing.  Whether we want to admit it or not, we live in a world where everything can be viewed as a competition.  We’re all for winning with your finances, but a major stumbling block is seeing your competition as those around you – friends, colleagues, neighbors, relatives.  Are we really competing with others?  Is there some prize we get like the bumper sticker says, “The one who dies with the most toys wins!”  Of course not.  No one would say this is true.  So why do we so often live our lives as if we are in competition with one another?    

Change is hard.  Getting out of debt requires sacrifice.

There are dozens more reasons we could add to this post for why debt is such a challenge to most people.  However, these four reasons are some of the top causes why so many struggle with debt.  So now what?  How can you deal with these challenges or others that may be causing you to stumble in your walk to get out of debt? 

First, we feel it’s important that you realize everyone struggles with getting out of debt.  We’ve never met anyone who’s told us it was a breeze and they didn’t have to work at it.  Getting out of debt requires sacrifice, but the great thing is once you’ve made the sacrifice you can enjoy the benefits for the rest of your life.  We are living proof that the sacrifice is worth it.  We gave up the urge to do the typical things doctors do when they get the first big paying job and buy all those things we’d like to have with debt, which brings us to a second point in how delaying purchases does something to your mind about the things you desire.

Waiting often leads to more time to think about whether or not you really want that big new car or to take the two-week vacation you don’t have the cash for.  Sometimes you’ll find the urge for what you want goes away and you look back and are glad you didn’t make the purchase, even with cash.  We can also attest that waiting and paying cash for something you really want makes enjoying it feel far better. 

We moved into our new house five years ago and had to stare at an ugly dirt yard from our living room and kitchen every day for over a year.  We could have gone out and found a dozen banks who would have loaned us the money to put in a pool and covered patio and kitchen area, but waited until we had the ability to pay cash for it.  We can tell you swimming in our pool and spending time outside in our backyard feels a whole lot better knowing we don’t have to make a monthly payment for that enjoyment.

Two final points.  One is that we can learn from the children in Mischel’s experiments who succeeded.  Those who did well tended to find something else to focus on; to take their eyes and minds off the sweet marshmallow in front of them.  Some probably thought about how great it was going to be getting to eat two marshmallows, while others likely thought about something else to take their mind off the treat.  In either case they shifted their mind to a greater future or to a completely different subject.  We can do the same as adults by focusing on what it will feel like when we have what we want and purchased it with cash or do as the kids and turn our mind to something else like paying down debt.

Finally, having a competitive mindset can be helpful, but instead of looking at others as your competition look to compete with yourself.  Huh?  What we mean by this is focus on competing with the former you.  The normal you who saw debt as just a part of life.  The old you who was deep in debt and doing little to nothing about it.  Scott can clearly say he is far better than his old self who would have kept making the same old mistakes leasing bigger and bigger vehicles instead of becoming the debt-free millionaire doctor he is now.  Leave the old you in the dust as you too become the new you, the next debt-free millionaire doctor!

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