Dentists: Is all debt bad? Not really, and here's why

Debt has a bad reputation. Many people try to avoid it. But many people, including dentists, also know that debt can work in their favor and in favor of their dental practice finances. How?

Nov 2nd, 2016
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Debt has a bad reputation. Many people try to avoid it. But many people, including dentists, also know that debt can work in their favor and in favor of their dental practice finances. How?

Contrary to popular belief, some debt, either personal or for your dental practice, can be beneficial. Debt against an asset that could appreciate or debt to increase cash flow for a business opportunity can be good debt, for a variety of reasons.

Consider a mortgage on your home. For most people the interest paid on a mortgage is at least partially tax deductible. Additionally, the interest rate on long-term mortgages is at historic lows, meaning you could potentially grow your money faster than the interest rate banks are charging. This could mean that you might pay off your home faster by holding the mortgage and investing for long-term growth with your extra payments.

What about funding dental practice ventures? Is there a new product line or market you're interested in? Startup capital for payroll, materials, advertising, and marketing can all be funded by well-structured debt, which could keep cash in the business coffers for other operations.

A good deal of the dental equipment in offices today is being funded by debt. But those loans provide the equipment that streamlines procedures, keeps patients happier, and helps patients accept treatment plans.

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Dentists know debt all too well. People argue both ways regarding whether student loan debt for dental school is a good idea or a bad idea. While many dentists enter the field with “too much” student loan debt, the outlook for the field of dentistry is largely good. That being said, carrying student loan debt to get into practice might be a viable strategy, as long as the debt is managed and the dentist does not come down with a case of “doctoritis,” the malady that befalls new doctors and causes them to overspend in their early years of practice.

Short-term, revolving debt such as credit card debt is generally not a good idea to keep on the books, since this type of debt usually has very high interest that is not tax deductible. It's debt that's usually for things that do not appreciate in value.

Should a dentist use credit cards to fund large purchases? Maybe. Maybe not.

Monthly supply purchases are one of the more predictable expenses in most dental practices. Using a rewards card, i.e., one that provides airline miles or hotel nights, to purchase supplies each month could provide additional cash flow as well as the rewards. If the purchases and the budget to fund these are recurring and predictable, and the dentist is disciplined in their use, then using a credit card each month makes sense. But making large capital purchases is generally not a good idea using short-term credit such as credit cards. This is because the interest rate is usually high on cards.

In short, the judicious use of debt to fund opportunity can be a very positive strategy.


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Will Parrish is a founding partner of Slate, Disharoon, Parrish, and Associates LLC, located in Knoxville, Tennessee. He specializes in services for medical professionals, business owners, and corporate executives. Feel free to contact Will with questions via email will@sdp-planning.com or directly by phone at (865) 357-7373. Visit their website at sdp-planning.com.

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