Should A Resident Physician Apply For A Credit Card When Already In Significant Debt?
Credit is a very touchy subject with resident physicians in all specialties lately. And, it makes sense. Student debt seems to be increasing exponentially over the years. When I graduated I thought I had a lot of debt from student loans. But in fact, that number pales in comparison to the amount of debt that most current medical residents hold. Confirming this suspicion, I did a miniature survey of almost 100 medical students at my current hospital. Student debt sums were as high as 600,000 dollars. And, these medical students had not even completed their four years of training yet. So, the amounts were even scheduled to be higher than that. These sums of money are not insignificant. But rather, the debt will be life altering for many of these future physicians for years to come. This all brings me to the next question. Does it really make sense for a resident to apply for a credit card after accruing so much debt? This question came up in the past year with a resident who had not started to get credit in his name. It caused all sorts of issues for him at the time it was needed. And, it will probably continue to cause issues for years to come until a good credit record is established. So, the simple answer is yes. But in this post, I will explain the reasons why establishing a few credit card accounts makes some sense even with significant debt. And, I will briefly discuss how residents should establish credit.
Why Do Resident Physicians Need A Credit Card?
Laying out Money
There are many times when a radiology resident needs to lay out a significant amount of funds for travel or a large purchase such as a car. What do you do if you do not have a credit card or do not have a credit card with enough credit? Nowadays, most travel is booked online with credit cards. For many websites, the only form of payment is the credit card. You are now stuck with either relying on others to book your flight or not going on the flight. Once you get to the level of a resident, these issues arise much more often.
Establishing a Track Record For Large Future Expenses (Mortgages, Car Loans, Etc.)
In order to purchase large items such as a house or a car without cash (and most residents don’t have lots of cash on hand!!!), you need to obtain a mortgage or a loan. How is some company going to provide you with a loan if you do not have a long tack record of making payments? Sure, you have your student loan as some background. But, that is not enough. You also have to have at least one revolving credit account (a credit card) in order to increase your credit score to obtain these large loans. A credit card is a great way of establishing this background.
Finally, many credit cards offer incentives in the form of airplane miles, gifts, and cash. I find that cash has the most value out of any of these rewards. When you make a purchase, you can get a certain amount refunded on every purchase. Some cards give you 5% on certain items or 2% on all items that you purchase. So, it really can add up over time. If credit is used wisely, it can really pay back dividends!
How To Establish Credit Without Breaking The Bank
If you have a poor or no credit history, it can be challenging to find a good credit card company willing to give you a credit card. Even with these issues, there are a couple of ways to establish credit. You can apply for cards that are backed by your own personal savings or find cards that have very low maximum balances. Either of these sorts of cards will allow you to occasionally use the card to make small purchases such that you can begin to establish a credit history. And, remember to use personal credit hygiene: Pay your balances off entirely every month and try to use a small percentage of the credit allotted. These small steps will allow you to establish a good history without spending too much.
Even though resident physicians already have huge amounts of debt, establishing a credit card account becomes very important from both a practicality and utility standpoint. And, it can be done in a way that does not cause undo additional debt burdens or hardship. Bottom line: Make sure to establish credit now rather than later when you really need the credit!