Monitoring Financial Health: Debt Rate

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Debt rate

What is Debt Rate?

Debt Rate is a key indicator of your financial health. It’s the percentage of your annual gross income that goes to debt payments.

Total Annual Debt Payments / Total Personal Income = Debt Rate

Example: Assume your annual income is $300K. If you’re spending $3K/month on mortgage payments and $500/month on student loan payments, your Debt Rate is 14.0%. ($3,000 + $500) * 12 / $300K = 14.0%.

Debts include payments toward:

  • Personal real estate (primary mortgage, HELOC, etc.)
  • Student loans
  • Business debt
  • Commercial real estate
  • Other (auto loan, personal loan, etc.)

Extra debt payments are also included in your Debt Rate. It’s important to weigh extra debt payments with increasing your Savings Rate.

Why is Debt Rate Important?

Debt levels have risen over the past 30 years. Student loan and total debt-to-income ratios are very high, especially for those who have gone through medical school. It’s not uncommon to see a physician graduate medical school with $300K, $400K, or $500K+ of student loan debt!

By tracking Debt Rate, you monitor how much of your income is going toward debt payments. Assessing how your Debt Rate changes over time can help you identify patterns, make smarter decisions about financing, increase flexibility, and reduce stress.

Debt Rate Ranges

Average Debt Rate scores depend on a variety of factors, the most prominent being your chosen career path and your aversion to debt. Average Debt Rates can range from under 10% to over 30%.

Correlating Factors

Understanding the correlation between these factors and your Debt Rate will help you determine if your Debt Rate is appropriate or not.

Savings Rate

High Debt Rate = Low Savings Rate

Low Debt Rate = High Savings Rate

If you’re spending more of your income on required debt payments, you’ll have less cash flow available to save.

Debt Aversion

High Debt Aversion = Low Debt Rate

Low Debt Aversion = High Debt Rate

Some people are just more comfortable carrying debt than others.


High Income = High Tax Rate

With a higher Tax Rate, you have a lower percentage of your income to pay toward debt, if your Savings Rate and Burn Rate stay the same.


Younger = High Debt Rate

Older = Low Debt Rate

Eventually, the student loans and mortgage get paid off.


Different careers mean different debt levels. A career as an emergency physician requires much higher levels of debt (and income) than a career as a nurse.

Improving Your Debt Rate

Paying off debt without a strategy is one of the 5 biggest financial mistakes ER doctors make. Below are some strategies to pay off debt and improve your Debt Rate.

Pay off high-interest credit card debt first. No shame if you have credit card debt! We see it a lot, especially right out of residency.

Next, commit to a debt avalanche or debt snowball. Pay the minimum on all other debts except the one you want to eliminate first.

  • Avalanche = Pay extra on the loan with the highest interest rate. Rinse and repeat until debt free!
  • Snowball = Pay extra on the loan with the smallest balance. Rinse and repeat! With the snowball, you pay a bit more interest, but you get the psychological boost of seeing individual loans paid off quicker.

Consider allocating bonuses to debt.

Lastly, don’t skip investing for retirement and only pay down debt. You can afford to do both (really!).

Do you have a healthy Debt Rate? Are you tracking and monitoring your Debt Rate over time? That’s where we come in. Schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.

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