Some doctors enter practice ownership with student debt and continue to incur more loans for practice purchase, initial remodels, equipment upgrades, and other improvements — often from multiple lenders. It’s not only confusing to juggle multiple accounts with varying interest rates and different terms, it can be costly, too, especially if current rates are lower than when you first signed. One way to help ease your burden is to consolidate the business debt into one monthly payment.

Consolidating your debt saves you time by eliminating the need to write multiple checks (electronic or paper). More importantly, because you pay interest on one (albeit larger) loan, you may have more flexibility with cash flow, enabling you to reinvest in your business in ways that improve employee and patient satisfaction. Practice reinvestment may also keep you competitive and allow you to take advantage of IRS Section 179 tax credits. Your extra cash flow could even help you fund your retirement account.

Considering debt consolidation? Check out these tips first.

Understand the variables

Before you apply, carefully consider whether consolidating your existing debt is the right choice for you.

Consolidating multiple debts means you’ll have a single monthly payment, but it may not reduce or pay your debt off sooner. The payment reduction may come from a lower interest rate, a longer loan term, or a combination of both.

By extending the loan term, you may pay more in interest over the life of the loan. Ideally, you’ll want to look for opportunities to lower your interest rate and monthly payments without increasing the overall term of your obligations.

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Evaluate the benefits of both fixed and variable loans. A fixed-rate loan may help you balance cash flow because you’ll know what the payment will be each month. But consult your financial advisors to decide what’s right for you.

Check your (personal) credit

Do this well before approaching a lender. Even if your credit is good, any increase in credit activity (even on a personal level) may stall your debt consolidation process. Also avoid submitting multiple loan applications during the approval process. A lender who sees that your credit has been repeatedly reviewed over a short period might consider you as a credit risk, especially if you have taken on too much debt or been rejected by other lenders.

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Review your credit reports from all three national credit bureau agencies: Equifax, Experian, and TransUnion. Check for and correct errors or fraud so they won’t impact your credit score and loan options.

Seek a specialty lender

Ensure that your prospective lender understands healthcare business (dental, optometry, veterinary, etc.) and has loan options that can meet your unique needs. Depending on the amount, practice loan terms typically are seven to 10 years. Lenders who specialize in healthcare may also be able to offer additional services and network connections that can be helpful to your business overall. 

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To get debt-consolidation guidance specific to your situation, consult with your tax advisor and/or trusted financial planner. Also have your trusted financial consultant review any loan commitment before you sign.

Careful debt consolidation could help you unlock the vast potential of your practice in new and exciting ways, possibly enabling you to grow and save at the same time.

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