Examining what you owe

Debt is a burden many veterinarians carry. The average 2019 graduate owes roughly $150,000 in educational debt, according to the American Veterinary Medical Association (AVMA). Veterinary professionals also often juggle credit card, loan, and real estate debt from multiple creditors and lenders throughout their careers. The amount of debt you carry can affect everything from your credit score and borrowing power to your bank account and mental health. While some borrowers sought deferment or forbearance on payments due to the pandemic, this only provides temporary relief. A longer-lasting solution is needed to truly gain more control of your financial situation. If your obligations have you feeling overwhelmed, consolidation may be the answer for you. Debt consolidation is when you use one loan to pay off your other debts in full. Benefits of this include: simplifying and taking control of your finances, improving your credit profile, and providing easier management of your money. Examining what you owe It’s nearly impossible to run a veterinary business without taking on some level of debt. As owners open new lines of credit and take out loans to help cover their costs, it’s easy to lose sight of the cumulative amount owed, which can be especially true when multiple payments are on auto-withdrawal. Do you know how much you owe? To better understand the overall cost of your debt, put it down on paper so you can see it in black and white. Here are some areas to examine: • The number of open accounts (credit cards and loans) • The number of payments you make each month and their due dates • The monthly amount you pay on each account • The interest rate you’re charged on each account • The cumulative balance of all outstanding accounts • The estimated time it will take to pay each balance in full, based on your monthly payments There are some telltale signs that indicate you may be carrying too much debt. These include: you can only afford to make minimum monthly payments, you’ve maxed out all of your lines of credit, you owe money to multiple lenders, and you miss the occasional payment. Even if missing a payment has nothing to do with not having enough money, it still can be a sign you’re juggling too much debt simply because you lost sight of what you owe and when you need to repay it. The impact of debt on veterinarians Business finances are complicated enough for veterinary professionals and practice owners. Adding in the burden of debt only compounds the challenges they may feel, especially in today’s economy. There are many ways debt can negatively impact borrowers. For starters, it can hurt your credit score, as 30 percent is based on how much money you owe. According to MyFICO, the amount of debt you carry can impact your ability to pay what you owe on time. The higher your balances, the more likely you are to have difficulty paying them down. When this happens, it can lower your credit score, which impacts not only your financial profile, but your ability to borrow and obtain the amount you need in the future. Managing debt through consolidation Taking out a loan might seem counterintuitive if you’re trying to lessen your debt load, but it can be an effective approach to helping improve your financial situation. Here are some key features a debt consolidation loan can offer: Simpler payments When your debt is spread out among different creditors and lenders, you have to track multiple balances, payments, and due dates throughout the month. When you consolidate into one simple payment to one lender on one due date, you significantly simplify your payment planning, making your budgeting easier. Longer terms The longer the term of your loan, the lower your monthly payment can be. This is a key advantage to a veterinarian looking to have access to more money each month. Stretching out the amount you owe over a longer repayment period allows you to make smaller, more affordable payments each month while keeping more cash on hand. Fixed terms A fixed monthly payment means the amount you owe each month never fluctuates, so you know exactly how much you need to set aside. No credit impact A loan that can reduce your credit utilization and, in turn, boost your overall score to ultimately strengthen your borrowing power is important to consider when approaching your financial situation. Now let’s look at the benefits of consolidating your debt. It can lessen stress: Financial burdens can cause strain in your life, affecting your health, relationships, and business. Managing a veterinary practice during a pandemic is especially challenging, and having to manage multiple debts on out-of-sync payment schedules only adds to the stress. Simpler payments can ease anxiety and create a less cluttered financial calendar, which in turn reduces the risk of missing a payment, especially if you schedule automatic withdrawals. Choosing a due date that aligns with when your practice earns more income enables you to know you have enough funds to comfortably cover your payment and other business costs, giving you one less thing to worry about. It can present a clearer financial picture: Consolidating your debt can provide a clearer view of your practice’s financial outlook and help you better forecast for the future. A clearer picture can help you prepare for investment opportunities and help you feel more confident when responding to any unexpected costs that may arise. When you only have one payment to make, you know where your finances stand and how much cash you have available. When money is tight, it can be hard to focus on anything else. With improved cash flow, you can worry less about the day-to-day and stay focused on the big picture. It can improve your debt-to-income ratio: Debt-to-income (DTI) ratio is the total amount you owe divided by the amount you earn before taxes and withholdings. Refinancing will help you cut down your debt and reduce your DTI (ideally, it should be 30 percent or less). Having a stronger financial profile sets you up to take advantage of better financial opportunities in the future. It can help you save more money: With a longer term, your monthly payment could be lower than a loan of the same amount with a shorter term. As you’re paying down your total debt, you can have more cash in your account each month to put toward your business. Consolidating with a fixed-rate loan means you can plan around a consistent cash flow each month and a longer term can mean a lower monthly payment so you can have more in the bank. Also, if you’re stuck with high-interest bills, a debt consolidation loan can often leave you with a lower interest rate, resulting in a lower payment. It can create more opportunities: The money you can save through debt consolidation can help you invest in new opportunities at your practice and in your career. Consider how you can use extra funds to make an impact, from allocating them toward personal protective equipment (PPE) costs, purchasing new equipment, launching marketing initiatives, or offering new services. The funds you save can also be used to create an emergency reserve—just in case. Find the right lending partner: Working with the right lender is a key part of the process, so find one who can present a financial solution that works best for your unique needs and wants to build a true partnership with you. Ask what kind of credit check they perform. A hard credit pull is a formal request to check your credit report, which can affect your score. Find a lender that only conducts a soft credit inquiry, which won't impact your credit score. Inquire about their rate: Is it fixed or variable? Inquire about the repayment terms—a loan with a longer term gives you more time to pay it off so you can have more affordable monthly payments. All these details vary by lender, so be sure to perform your due diligence to understand their process and terms. A worthwhile strategy The bottom line is that a debt consolidation loan should—and can—work to your advantage. Finding the right partner who is willing to work with you and offer a loan that is best suited for your needs can be a key factor in your financial success. Today’s landscape is anything but predictable, and planning for the future can be especially challenging if debt is holding you back. Debt consolidation is in no way a “get-out-of-jail-free card,” but it’s a strategy that has helped many veterinary professionals manage their finances, relieve some pressure, and focus on what matters the most—caring for animals. Chris Panebianco is chief marketing officer for Bankers Healthcare Group (BHG), a provider of financial solutions for veterinarians. He is responsible for marketing initiatives to support BHG’s commercial working capital loans, personal financing, commercial and personal credit cards, Small Business Administration (SBA) loans, and collection management. Panebianco has more than 11 years’ experience in financing.

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