High Earners with High Debt – What to Do?

questionmark It is a question we hear a lot from the high earners we work with; and one that is particularly common among health care professionals – should I pay off a debt or should I invest? The long and short answer to that question is – it depends. Consider the two scenarios below…two common situations with very different recommendations.

Scenario one – Should I pay for a home in cash or get a mortgage?
This is a common question among high earners. They have money in savings that could be used to purchase a home in full, however, they are wondering if it would be better to obtain a mortgage and invest the money they would have used to purchase the home.

The most important first step in determining the right answer for the client is to assess the current mortgage interest rates vs. how much they could earn on investments. For example, when looking at the current average mortgage of around 3.7% vs. an investment with an earning potential of 6-7%, it might be better to take out a mortgage and put the funds you would have used in the home purchase for other investment opportunities. In addition to the tax advantages of a mortgage, the earnings from the investments could be used to pay off the mortgage quicker.

Scenario two – Should I pay my student loans or invest?
Often, having a high earning job such as a physician also can come with a great deal of student loan debt. Medical professionals regularly ask us if it is better to invest the money they are making or pay off their debt. Again, as in the above scenario, it depends.

Consider this situation – a practitioner has a student loan that is drawing 7.5% interest. They also have the opportunity to purchase investments that could potentially earn the above noted 6-7%. In this scenario, it is better to pay off the debt than it is to earn less than the interest they would accrue on the loan.

In the end, every situation we encounter is unique and requires its own considerations. Additionally, each client is different and has special circumstances to consider. With that in mind, we always recommend talking to a fee-only financial planner about your specific situation to ensure that the best possible decisions are made on your behalf.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.

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