You may or may not be surprised to read that Canadians are now graduating with an average of $28,000 of student loan debt.
With tuition costs going up every year, as well as the cost of living in most cities, it’s not at all shocking to us that students need more money to get through college or university these days. What’s unfortunate, however, is that the system is set up so students can spend the first 10 years after graduation paying off their debt and a lot can happen in those 10 years. You may want to travel, move to a new city, get a mortgage in order to buy a home, get married, have kids – the list goes on and on. Being weighed down by student loan debt can not only hold you back from being able to do some of those things, it can also hinder your ability to save for the future.
Fortunately, there are ways to pay off your student loan faster, which can help you become debt-free sooner and potentially save you from having to pay thousands of dollars in interest. Whether you’re just getting ready to graduate, or still carrying some old student loan debt, here are a few tips.
1. Start making payments while you’re still in school.
When you start taking on student loan debt, you might like the idea that you don’t have to start making payments until six months after you’ve completed your studies, but waiting that long could do more damage than good. If you’re a full-time student, any payment you make on your student loan while you’re in school goes directly towards the principal – that means you were able to borrow the money interest-free! We know this won’t be possible for everyone, but if you could even reduce your student loan debt by a few thousand dollars while you’re in school, it would reduce your overall debt load (and future interest costs) when you graduate.
2. Look at your province’s tuition credits and rebates.
If you live in Saskatchewan, Manitoba, New Brunswick, or Nova Scotia, your province has a student loan rebate program that might be able to help you out. For example, if you study in Saskatchewan, and stay there to work after you graduate, the province may pay off up to $20,000 of your student loan debt. That’s a huge incentive when you’re starting a life for yourself!
3. Increase the frequency (and the amount) of your payments.
Perhaps the biggest problem with the system is that it’s set up for you to make one monthly payment, or 12 payments per year. If you only make that minimum payment each month, it’s going to take you a full 10 years to pay off the balance of your student loan debt.
There are two things you can do to speed up the process. First, increase the frequency of your payments right away, so you make bi-weekly payments (every 2 weeks, 26 payments per year) instead of monthly payments. Second, increase the amount of your payments. For example, if your minimum bi-weekly payment is $170, increase it to $200 – doing this will shave off both time and interest, as any amount you pay over and above the minimum is applied directly to your principal.
4. Make lump-sum payments, whenever possible.
Finally, any time you have extra money available, use it to make a lump-sum payment on your student loans. For the first few years that follow your graduation, you’ll likely receive large tax refunds from the Canada Revenue Agency. Rather than blow it on something, apply it to your debt and consider it an investment in your future. Remember that these extra payments will be applied directly to the principal, so you’ll save even more on interest costs.
While you could save money in a high-interest savings account, the interest rate will likely be lower than the interest rate on your loan. Therefore, you’ll get a better return on your money by putting it towards debt.
There are other things you can do to pay off your student loans faster, like get a second job, find ways to make money online, save on rent by getting a roommate, etc. But if you’re looking for simple solutions, these are some of the best. And while you’re paying down any debt, know that it won’t last forever. Stay positive and stick to your plan, and you’ll see a $0 student loan balance sooner than you think!
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