According to a 2017 poll by independent market research company, Ipsos, two out of three postsecondary graduates in Canada will graduate with a debt level averaging $22,084. This burden of lingering student debt creates a number of obstacles as you embark on the next phase of your life.
Ipsos’ research suggests that nearly half of students who graduated with debt were forced to defer the purchase of their first home, while others had to make the decision to delay getting married, have children, or pursue a career in their chosen field.
Luckily, there are several ways to break the cycle.
Here are 5 effective ways to pay down school debt:
1. Map out a realistic plan with a defined end goal
Developing a realistic debt repayment plan allows you to establish an end goal. And seeing the light at the end of the debt tunnel will make it easier to stick to the plan.
Find out when you are required to start making payments on your loan. There may be a grace period for repayment that you can use to build up your savings and get ahead of the curve. Contact your loan provider to confirm your repayment conditions to avoid incurring any possible penalties for missed payments.
Write out a detailed list of your living expenses and establish an achievable benchmark loan payment. From here you’ll be able to sketch out your long-term plan and put it into action.
2. Focus your spending on needs vs. wants
Gaining financial independence is one of the most celebrated achievements as a postsecondary graduate with a new career. The freedom to make choices about finances can be liberating, but it comes with responsibility – especially with a looming debt load.
Curbing the insatiable appetite to buy “stuff” and avoiding instant gratification purchases will pay off and contribute to meeting your debt free-goals. Taking on unnecessary consumer debt can put you far behind on repayment which means more time carrying your principal debt and more money paid toward accrued interest.
The best practice is to work on deferring your wants and focusing on your current financial needs.
3. Take advantage of opportunities to make large payments
The greater your principal loan amount is, the more interest you’ll pay.
When possible, take the opportunity to make lump-sum payments on your debt to decrease the principal.
Leveraging larger reimbursements like income tax returns is also an effective strategy.
Increasing your payment now can protect you from paying thousands in interest over the term of the loan. Learn how much you could save by changing your payment frequency or making extra payments using our loan payment calculator.
4. Cut your costs to increase your payments
Revisit your list of living expenses often and find creative ways to cut costs so you can allocate more money to paying down your principal.
Some effective ways to cut expenses are:
- Shopping around for the best home and auto insurance rates
- Finding the most competitive prices for your internet, cable, and cell phone
- Scaling back on dining out
- Carpooling or commuting to work by bike
5. Accounts and automatic payments
Meet your goal of becoming student debt free by setting up a pre-authorized plan to pay bills and school loan payments conveniently and on schedule. You can also find new ways to save by making your credit union work for you. For example, enjoy unlimited self-serve (online) transactions with no monthly fee with Meridian’s Student Package.
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A version of this article was originally published August 23, 2018