September 12, 2022

Debt – The Necessary Evil of Most Successful Dentists

By: Taylor Richardson, CRPS®, AIF, Financial Advisor

To become a dentist, you have to be okay with taking on a significant amount of debt. In fact, some people refer to dentistry as the “debt profession” because it has the highest cost of entry and practice ownership. According to the American Dental Education Association, the 2020 class of dental school graduates who took out student loans left owing $304,824. That’s about 50% more than the average medical school debt of $200,000, according to the Association of American Medical Colleges. But it’s not just student loan debt that dentists have to deal with. Physicians typically have very little cost associated with becoming a partner in a medical practice. MDs aren’t expected to borrow $500,000 to buy their own practice and become business owners.

One of the reasons it costs so much to have a career in dentistry is because of the high cost of equipment and facilities, which demands significant capital investment. Dentistry is also far more entrepreneurial than comparable professions. Over 70% of dentists opt to invest in buying their own practice because of the increased potential for income.

Given that dentists are required to assume debt, let’s look at how to differentiate between debt that advances your goals and debt that is a drain on resources.

Good Debt vs. Bad Debt

Generally speaking, good debt has the potential to increase your net worth or enhance your life in an important way. Student loan debt qualifies as good debt because of dentists’ high earnings potential. As of July, 2022, the average dentist salary in the United States is $176,151, but the range typically falls between $153,499 and $203,384. If student loans are the price of admission, those numbers suggest that the cost of becoming a dentist is worth it.

Taking on debt to buy a practice is also considered good because it should increase your overall earnings potential. Owners in dental practices make about $100,000 more than associate/employee dentists in private and corporate practices. The challenge is to find a healthy practice that meets your criteria and not overpay for it.

By contrast, bad debt involves borrowing money for the purpose of consumption or to purchase rapidly depreciating assets. Think new cars, luxury vacations, or anything else that falls under the category of “keeping up with the Jones.”

In the real world, the distinction between good and bad debt isn’t always crystal clear. There are some things we choose to spend money on because they substantially improve or enhance our quality of life, and these items may incur debt. This category is highly subjective, so it’s going to be different for everyone.

How to Decide 

The best practice is to wait until you’ve saved the money for something, but in reality, that’s not always possible. If the additional debt is affordable and doesn’t impose financial constraints that limit your ability to meet important goals, such as retiring student loans, saving for a practice, or building up your retirement fund, then it’s easier to justify.

The bottom line is that investing in your career is a good idea even when it means taking on substantial debt. If you have questions about how to navigate the financial challenges of building a successful career in dentistry schedule a call with our team at Engage Wealth Advisors. We help dentists retire debt and build the wealth necessary to have the retirement you want.