Debt can either be a tool that helps your dental practice grow or a burden that holds you back. The difference comes down to having a clear strategy.
Managing debt isn’t just about making payments – it’s about knowing when to borrow, how much to borrow, and how to pay it off in a way that keeps your practice financially stable.
Think of it like running your practice. You wouldn’t invest in new equipment or expand your office without a plan in place, and the same approach should apply to debt. The goal isn’t to avoid debt entirely but to use it wisely to strengthen your practice over time.
In this guide, we’ll walk through practical strategies to help you consolidate, manage, and plan debt in a way that supports your long-term financial success.
1) Establish a paydown strategy
A pay down strategy is a plan to reduce your debt. It often focuses on specific debts to pay off with extra payments first. The goal is to significantly reduce the amount of debt or eliminate it altogether in a shorter amount of time.
Look at which loans it makes sense to pay down first. The obvious is not always the best option. There are different methods to prioritising which loans to pay off first.
- Debt snowball – a popular repayment method that prioritizes your loans from the smallest to the largest balance amount. You start by paying off the smallest debts while making minimum payments on the others. As your pay downs snowball, you’ll build momentum each time a loan is paid off. This keeps you motivated as you work towards your goal of being debt-free.
- Debt avalanche – this method prioritizes where periodic large lump sum payments will be made. You would focus on paying off as many loans as possible with each large payment made. This ensures that you end up reducing the amount you pay in interest over time, as well as reducing required payments.
Whichever method you choose, the key thing is having a plan in place to pay down your debt in a shorter time.
2) Use Credit Cards Wisely
Credit cards can be helpful for managing expenses, but they should never be your primary way of financing large purchases. The best way to use a credit card in your practice is to treat it like a cash flow tool, not a loan.
- Only use credit cards for purchases you already have the cash to cover in your bank account.
- Always pay your balance in full each month to avoid high interest charges.
- Take advantage of rewards and cashback programs for practice-related purchases, but don’t let perks encourage unnecessary spending.
If used responsibly, credit cards can be a great way to keep cash in your business longer while still covering necessary expenses. Just make sure they don’t turn into another source of mounting debt.
3) Create a Budget That Allocates Debt Payments First
Without a clear budget, it’s easy to let debt payments become an afterthought. But if you want to stay in control of your finances, debt repayment should be a fixed part of your budget – just like rent, payroll, and supplies.
A strong budget helps you avoid cash flow problems and ensures that debt doesn’t accumulate faster than you can pay it down. Here’s how to approach it:
- Start with a percentage-based approach. Set aside a percentage of monthly revenue for debt repayment before allocating funds elsewhere. This ensures that you’re consistently paying down debt without it becoming a financial strain.
- Categorize and prioritize your debt. Rank debts by interest rate and impact on cash flow. High-interest debt (like credit cards) should be paid off aggressively, while low-interest, long-term debt (like some business loans) can be paid more gradually.
- Plan ahead for large expenses. If you know you’ll need to finance new equipment or renovations, factor it into your budget in advance rather than taking on debt reactively.
- Keep emergency reserves. No matter how well you budget, unexpected costs will come up. Having a cash reserve helps prevent situations where you have to take on more debt just to cover a shortfall.
A well-structured budget isn’t just about numbers – it’s about creating financial stability so you can make informed decisions and avoid unnecessary stress.
4) Acquire Debt Strategically, Not Impulsively
Not all debt is bad, but taking on the wrong debt at the wrong time can put your practice in a tough financial spot.
Before signing any loan agreement, ask yourself:
- Will this debt generate a return on investment? Financing state-of-the-art dental equipment or an additional office location could make sense if it increases profitability. But taking out a loan for unnecessary office renovations that don’t add value could strain your cash flow.
- Are the repayment terms reasonable? Low-interest, long-term loans can be more manageable than short-term loans with high interest rates. Compare lenders and always negotiate interest rates when possible.
- Does my practice’s cash flow support this loan? A new loan shouldn’t create financial stress. Assess your monthly revenue and expenses to ensure you can afford new debt without disrupting daily operations.
- Is this the best time to borrow? Borrowing when your credit score is strong and your practice is financially stable gives you access to better terms and lower interest rates. If you’re in a tight cash flow situation, it might be worth waiting.
Strategic borrowing isn’t just about qualifying for a loan – it’s about making sure the debt serves your long-term business goals rather than creating unnecessary financial strain.
5) Align Your Debt Strategy for Dentists with Long-Term Goals
Every financial decision in your practice should support your long-term goals. This means ensuring that debt helps you build toward the future, rather than limiting your flexibility down the line.
Here are a few ways to align debt with your long-term goals:
- Consider the bigger picture. Are you borrowing just to cover short-term gaps, or does this debt support business growth?
- Balance debt repayment with reinvestment. Paying off debt aggressively is great, but not if it prevents you from reinvesting in your practice’s growth or retirement savings.
- Plan for practice transitions. If you plan to sell your practice in the future, managing debt properly now can improve its valuation and make it more attractive to buyers.
- Avoid taking on debt that delays retirement. Large debt obligations late in your career could force you to work longer than you planned. Make sure your borrowing decisions align with your exit strategy.
For example, investing in high-tech dental equipment might be expensive, but if it helps you increase patient volume and profitability, it can pay off. On the other hand, taking on a loan for unnecessary office renovations that don’t drive revenue could put unnecessary strain on your finances.
By keeping long-term objectives in focus, you ensure that every dollar borrowed contributes to the growth and resilience of your practice instead of becoming a financial burden.
Need Extra Help Managing Your Dental Debt?
Managing debt isn’t just about making payments – it’s about making sure your loans work for you, not against you. Whether you’re paying off student loans, financing new equipment, or thinking about expanding your practice, your debt strategy should support both your practice growth and personal financial goals.
Here’s a Recap: How to Take Control of Your Debt
✅ Establish a pay down strategy. If you have multiple loans with different interest rates and balance amounts, creating a pay down strategy will help you prioritize which loans get extra payments, and which get the minimum. Ultimately, it will help you reduce the amount you pay in interest and get you debt-free sooner rather than later.
✅ Use credit cards as a cash flow tool, not a safety net. Credit cards can be useful for business purchases if paid off in full each month. But relying on them for large expenses can lead to high-interest debt that quickly gets out of control.
✅ Build a budget that prioritizes debt payments. Setting aside a portion of your monthly revenue for loan payments ensures you stay on track while keeping your practice running smoothly. Unexpected expenses happen, so having an emergency fund can keep you from leaning too much on credit when cash flow is tight.
✅ Borrow with a plan. Not all debt is bad – taking out a loan to invest in new equipment or an expansion can be a great move if it increases your profitability. But before taking on new debt, make sure the numbers work, the interest rate is reasonable, and the repayment terms fit within your budget.
✅ Align debt with both your personal and practice goals. Too often, dentists focus only on the business side of debt and forget to consider how it affects their personal finances. If you’re planning for retirement, saving for a home, or working toward financial independence, your debt strategy should support those goals – not delay them.
A Debt Strategy That Works for You
At Core Advisors, we work with dentists every day to manage both personal wealth and practice finances. Your debt strategy isn’t just about keeping up with payments – it should help you build financial security and create more growth opportunities, both in your practice and in your personal life.
We’ll help you structure your debt in a way that supports your long-term goals, whether that’s expanding your practice, improving cash flow, or making sure your financial future is secure.
If you need guidance on building a debt plan that works for both your practice and personal finances, let’s talk.
You can schedule a quick discovery call today by heading over to our Getting Started page, and we’ll help you create a strategy that makes sense for you.
Until next time!
