Debt a bitter pill for future doctor

By MP Dunleavey

Nobody plans to dig a hole that's $326,956 deep.

Even when Tara D. decided to go to medical school back in 2001 -- knowing she would incur a lot of debt -- she never dreamed she would end up with $308,407 in student loans and $18,549 in consumer debt.

In fact, Tara, who is now completing a residency in western Massachusetts, didn't even know how much debt she had until a couple of months ago.

"I just kept borrowing money," she admits. "I told myself, this is what you do when you go to medical school. I knew one day I'd earn a good salary, and I'd pay it back -- and that's what most doctors do. So I didn't think about it."

But without a trust fund or wealthy parents as a cushion, Tara decided it was time to get a grip, and she ordered copies of her credit reports.

"That was the first time that I added up everything I owed," she says. "I was totally shocked. I realized I had to get this under control."

Where she is now

Here is Tara's detailed debt breakdown:

• She has $117,702 in government student loans, which she consolidated last year into a fixed-rate loan at 4.25%

• She has another $190,705 in private loans, all at variable rates, ranging from 7.91% to 9.25%. These are already accruing interest.

• Her car loan is $12,404 at 6.09%.

• The balance on her MasterCard is $6,145 at 0% for another eight months.

• Total: $326,956

While that sounds like an insurmountable debt load, remember that when Tara completes her residency in 2009, she anticipates that her starting salary will be in the $150,000 range.

Also, she lives in a small town where her cost of living will be relatively low -- if she stays there.

A community approach

I first read about Tara's predicament last month on the Women in Red message board, and I was struck the sheer size of her debt problem.

I posted a message challenging the board to come up with solutions that Tara could use. And in the meantime, I solicited some help from a pro: Galia Gichon, a New York-based financial adviser and founder of Down-to-Earth Finance, an educational organization.

• Video: 3 ways to avoid the student-loan trap

The challenge was to help Tara create a workable get-out-of-debt strategy, given her current situation and her projected income when she begins working as a full-time physician.

An honest tally

As with most people who take those first, painful steps toward taking control of their finances, Tara faced a few of her own miscalculations.

With about $2,650 coming in and only $2,115 going out that's accounted for, obviously there's a cash leak somewhere. Tara thinks part of it is shopping for clothes and perhaps going out with friends, but she isn't sure because she's new to tracking her expenses.

Tara also backed off from a tentative plan to pay down all her consumer debt before June 2009, when her student loan payments kick in. "I don't think it's possible to pay off all of it."

She also thought that her private loans couldn't be consolidated at a fixed rate, and that she would be stuck paying the variable rates.

Continued: Setting things straight

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