Invest or Pay Down Debt? 3 Questions Every Physician Should Ask First

You’ve worked hard to get to this point… after years of training, you’re finally earning a good income. But along with that income often comes the reality of significant student loans, a mortgage, and the pressure to catch up financially. It can feel overwhelming trying to decide the smartest next step.

So, what should you do first: pay off debt or invest?

It’s one of the most common questions I hear from doctors, and it’s not always a simple either/or answer. The truth is, both paying off debt and investing can be smart, the key is understanding your personal goals, your financial situation, and the tradeoffs involved.

In this post, let’s break it all down so you can make confident, intentional choices about your financial future.

The Case for Paying Off Debt First

Paying off debt, especially high-interest debt, has some compelling advantages:

• Guaranteed Return: Every dollar you use to pay down a 6% loan is like earning a 6% return—guaranteed and risk-free.
• Peace of Mind: Being debt-free can offer huge psychological relief and financial flexibility.
• Lower Fixed Expenses: Eliminating debt reduces your monthly obligations, which is especially helpful if you want to cut back hours, take a sabbatical, or transition careers.

That said, there are also downsides:

• Opportunity Cost: If your debt interest rate is relatively low (say, under 4-5%), you could potentially earn more by investing instead.
• Slower Wealth Building: Focusing exclusively on debt may delay your investing journey and reduce your long-term compounding potential.

The Case for Investing First

Investing early has major benefits, especially when you consider the power of compounding:

• Time in the Market: The earlier you start investing, the more your money can grow. Even a few years can make a huge difference over decades.
• Higher Potential Returns: Historically, broad-based investments like the S&P 500 & investing in real estate have returned 7-10% annually over the long term—higher than most student loan rates.
• Build Passive Income: Investing, especially in assets like real estate or dividend stocks, can create income streams outside of your clinical work.

But investing isn’t without its risks:

• Market Volatility: Returns aren’t guaranteed. Investing requires a long-term mindset and risk tolerance.
• Ongoing Debt Stress: Carrying debt while investing can feel uncomfortable for some people—especially if you’re risk-averse.

A Few Key Questions to Ask Yourself

To figure out the best strategy for your situation, start by answering these:

1. What’s the interest rate on your debt?
   • If it’s over 6-7%, paying it off faster may be a better bet.
   • If it’s under 4-5%, you may be better off investing excess cash.
2. Do you have an emergency fund?
   • Before investing or making extra debt payments, build 3-6 months of emergency savings.
3. Are you contributing enough to get your employer match?
   • If your hospital or group offers a 401(k) or 403(b) match, don’t leave free money on the table. Always invest enough to get the full match.
4. What’s your risk tolerance and stress level around debt?
   • Some people just sleep better without debt. That’s valid, and your peace of mind has value.
5. What are your short- and long-term goals?
   • Want to retire early, work part time, or start a side business? These may shift your strategy.

Why a Hybrid Strategy Often Works Best

For many physicians, the best approach is a balanced one:

• Make minimum payments on low-interest debt.
• Invest consistently in retirement accounts and passive income opportunities.
• Use extra cash to both accelerate debt payments and build your investment portfolio.

Think of it like a 70/30 or 60/40 split, based on your comfort level. This way, you make progress in both directions.

What I Did (And What I Recommend)

Personally, I started investing early, even while still paying off student loans. I’m fortunate that I came out of medical school at a time when you could consolidate your loans for a very low interest rate (under 2%). Because of that, I am in no rush to pay off the loan.

I contributed to my 401(k), invested in real estate, and launched side businesses. At the same time, I chipped away at debt with a plan that didn’t feel overwhelming.

Looking back, I’m glad I didn’t wait until I was debt-free to start investing. The investments I made early on have given me far more financial freedom today than I would have had if I focused on becoming debt-free first.But again, this is your journey. It’s okay if your approach looks different.

Final Thoughts

The “pay off debt vs. invest” debate doesn’t have to be all-or-nothing. What matters most is that you’re making intentional, informed decisions that align with your values and goals.

So whether you’re aggressively paying down loans, diving into index funds, exploring real estate, or doing a little of everything—you’re making progress.

Give yourself credit for that.

If you want to learn more about creating multiple streams of income as a physician, sign up for the newsletter to stay in the loop.

Because ultimately, it’s not just about money—it’s about freedom.

Ready to Take the First Step?

📄 Grab the Free “Pay Off Debt or Invest First 5-Minute Cheat Sheet for Doctors”
👥 Join the Passive Income Docs Facebook Group
🚀 Want to learn how to invest confidently? Check out the Passive Real Estate Academy to learn more.

Click Here to Download “Pay Off Debt or Invest First 5-Minute Cheat Sheet for Doctors“

Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.

Further Reading