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Graduating from debt


If only Frosh Week came with a crash course in debt consolidation.

Currently in Canada, there are more people over the age of 65 than under 15. That means there’s a growing need for franchises that cater to this demographic, including:

According to a 2015 survey of graduating students by the Canadian University Survey Consortium, approximately 50% of students report having student debt, most often from government student loans (40%).

A student loan is one of the most common ways to finance an education. However, failing to pay it back in a timely fashion can have a disastrous impact on your long-term financial health. In fact, a survey by Hoyes, Michalos, and Associates, a Kitchener, Ont.-based licensed insolvency trustee firm, reveals that in Ontario, those under the age of 30 now make up 14% of insolvent debtors in the province. Student loans can greatly contribute to this debt.

Fortunately, there are steps Canadians can take to cut their university or college debt sooner than later. Kyle Prevost, a self-proclaimed “millennial money expert” and co-creator of the personal finance site Young and Thrifty, offers these four tips for living debt-free in a post-grad world.

1. Create a budget.

If you want to start clawing your way out of debt while still in school, you first have to get an idea of what money is coming in and where it is going out – in other words, create a budget,” recommends Prevost. Once you have a better idea of how much money you need for essentials, the remainder can be set aside for debt repayments. Next, open an Automatic Savings Plan account that automatically deposits a set amount of money from a chequing or savings account into a destination account on a weekly or monthly basis.

2. Get help from an expert.

Facing student debt head-on can be a daunting prospect. How much money should you contribute each month? What financial instruments are available for debt consolidation? Fortunately, meeting with a financial advisor, or a bank branch manager, can help you ascertain your goals and clear up any confusion. Says Prevost: “A financial advisor can help keep you on track like a personal trainer does for fitness.”

3. Review (and revise) your loan installment plan.

Your loan installment plan should change over time as your earnings and expenses fluctuate. The good news is, “changing your installment plan is as simple as getting in touch with student loan administrators,” says Prevost. Better yet, he adds, “Rather than worrying about installments, simply collect your extra money each month, and then make a lump sum payment. Unlike mortgages, there are no penalties to paying down your student debt early.” Note: A high-interest bearing savings account can help you maximize the amount you’re able to contribute each month.

4. Set your priorities.

Your repayment priorities are likely to shift as home mortgages, car loans, and retirement savings enter your post-university lexicon. So should you pay down your student loan or contribute to a retirement savings accounts? It depends, according to Prevost. “If you’re the type of person that likes to keep things super simple and is motivated by clear, straightforward goals, then paying down student debt is more important,” he says. “If you are a little more nuanced in your understanding of personal finance, understand how to invest for the long haul, and are motivated by building wealth as fast as possible, then I would argue that you should be able to get better long-term returns in your TFSA or RRSP than you will paying offer your student debt.”

In the end, it’s up to you to decide how much debt you’re comfortable carrying and what makes the most sense for your financial future.

The opinions and views expressed in this article are solely those of Kyle Provost, and do not necessarily represent those of Meridian Credit Union Limited. The article aims to provide general information and opinion that may or may not be applicable to the specific circumstances of each member. The Credit Union urges readers to contact a qualified financial advisor for advice tailored to their specific circumstances.

 

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