Quick Tips to Help You Ditch Your Student Debt
Article revised on 27 July 2017
Radio-Canada recently revealed the staggering results of a survey on student debt. Not only will half of all students need to go into debt for their post-secondary education, 73% expect to accumulate a debt of $10,000 and 40% expect to enter the workforce owing over $25,000. That’s not even counting interest!
Do you have an outstanding student loan? Here are a few tips to help make ditching your student debt a breeze!
1. Earn interest
Since your loans are interest-free while you’re still in school, make a habit of putting a portion into an online high-interest TFSA savings account. This way, the money will have a few years to grow tax-free at a very good rate. But remember… once you graduate, the amount you’ve accumulated must be used to pay off your loans!
2. Make lump sum payments
Any time you receive a large sum of money, such as a tax return, inheritance, bonus or gift, put it toward your loan. The faster you pay it off, the less it will cost you in the end.
3. Pay more each month
Even paying a little more each month can make a big difference. According to canlearn.ca, for a $25,000 loan with an interest rate of 5.5%, you’ll pay $7,555.88 in interest over the 9.5-year repayment period. If you pay $50 more a month, the total interest drops to $5,976.23. Paying $100 more a month brings the interest down to $4,938.04, which is a whopping $2,617.84 less than the original amount. That’s nothing to sneeze at!
4. Take advantage of tax credits
5. Make bi-weekly payments
Consider putting a portion of each pay cheque toward paying off your loan. That means making bi-weekly or even weekly payments. This will not only reduce the total amount of interest you have to pay, it will also shorten the payment period.
6. Prioritize debts with a high interest rate
Keep in mind that student loans have a very low interest rate and that a portion of the interest paid on these loans is tax-deductible. As a result, debts with a higher interest rate such as credit cards, furniture, etc. should be paid off first.
If, in spite of these tips and reasonable spending habits, you’re still finding it hard to get a handle on your debt, don’t hesitate to contact a financial security advisor, who can provide professional, clear advice to help you find an affordable solution.
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