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Pay down medical school debt or invest? Five steps to finding a balance that works for you

For a physician new in practice, like you, paying down debt versus investing is an important consideration when deciding whether to invest in a registered retirement savings plan (RRSP) or tax-free savings account (TFSA). You may have significant medical school debt and feel pressured to pay it off. However, you know that investing is also a wise decision, as physicians generally don’t have pension plans or other retirement benefits.

"The decision on whether to start paying down debt or start investing can be challenging for many physicians new in practice. That’s because, for the first time, they are earning a salary and need to find a strategy for managing their income," said James Pitruniak, Early Career Specialist at MD Financial Management.

There is no one-size-fits-all solution. The key factor in making this decision is finding a balance that will work for you—one that will take your income, personal goals and approach to savings into account.

Five Steps to Finding Your Right Balance of Debt Repayment and Investing

"The decision on whether to start paying down debt or start investing can be challenging for many physicians new in practice. That’s because, for the first time, they are earning a salary and need to find a strategy for managing their income," said James Pitruniak, Early Career Specialist at MD Financial Management.

1. Calculate Your Net Worth

Start by calculating your net worth—everything you own (your assets such as a car, a house and investments) minus everything you owe (your liabilities such as medical school and credit card debt, and your mortgage). This will help you determine the nature of your debts, understand how they are affecting your finances, and set realistic short- and long-term goals for maximizing your net worth.

2. Determine Your Goals

Besides paying off your medical school debt and saving for retirement, you may have other goals, such as buying a home. In this case, paying down your student loan will help free up your cash flow to carry a mortgage.

However, taking advantage of the RRSP Homebuyers’ Plan can also be useful, as it allows you to withdraw up to $25,000 from your RRSP to buy or build your first home. Additionally, mortgage lenders prefer to see that you have savings before determining whether they can lend you money.

Investing in a TFSA allows you to save funds that grow on a tax-free basis. The funds can be withdrawn at any time, and contribution room is restored the following year. Saving in a TFSA is a great solution for funding shorter-term goals.

3. Assess Your Personal Approach to Money

Knowing your financial personality will help you to customize your approach to paying off debt and investing. For example, some physicians are uncomfortable with debt and prefer to focus on becoming debt-free, even when the math suggests that investing would be beneficial. There is nothing wrong with this approach—you need to feel comfortable with your financial strategy.

Even if you’re focused on paying off debt, you might want to start saving a small amount as well.

4. Factor in Taxation

Another important factor to consider is taxation. Generally, debts must be paid using after-tax income. In Canada, the top marginal income tax rate can be as high as 50%. That means that if you were to save $10,000 of your employment income for paying off debt, you might end up increasing your net worth by only $5,000 on an after-tax basis.

In contrast, a contribution to your RRSP is tax deductible and is, therefore, made with before-tax dollars. The tax is not payable until the funds are withdrawn. That means that if you were to allocate $10,000 of your employment income to your RRSP, your net worth would increase by the full $10,000 until such time as you withdraw monies from your RRSP and have to pay the tax.

Any money you have invested in a TFSA grows tax-fee. Contributions are made on an after-tax basis, which means the funds are not subject to tax when they are withdrawn.

5. Talk to an MD Advisor

So, should you use your money to invest or pay down debt? The answer depends on a number of individual factors, such as your goals, your personal approach to money and taxes. An MD Advisor will help you make the right decision and create a customized strategy based on our more than 45 years of experience in working with physicians like you.

An MD Advisor can help you:

  • Create a customized strategy to organize your debts and will give you practical advice on how to pay them off sooner.
  • Seize financial opportunities by designing a personalized financial plan that reflects your financial reality and helps you increase your net worth.
  • Track your progress and monitor your net worth over time, so you can see just how fast you’re achieving your goals.

"Finding the right balance starts with booking a meeting with your MD Advisor to get a good understanding of your current financial reality—your net worth, income and spending. Then you will be able to understand how much money is left over and build a strategy for allocating those funds," Pitruniak said.

When you talk to us, we’ll help determine what’s right for you and set you on the right financial track. “We ensure that your financial plan is continually aligned with your goals and current financial realities. As your income increases and you transition into practice, your MD Advisor can help you make adjustments to find the right balance,” James added.

For more information about debt management, investing or other financial planning topics, contact an MD Advisor. MD offers objective advice at every stage of your career—from medical school through retirement. Find an MD Advisor near you.


The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies.