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5 Tips for Paying Down Your Student Loan

By Debt.ca on December 11, 2013 No Comments

If you’re looking to get started in a well-paying career, chances are you’ll need post-secondary education. College and university have become the new high school of our parent’s generation – no longer can you work your way from the mail-room to the boardroom. Student debt can put a serious damper on your dreams of home ownership. With the average student graduating $27,000 in debt, it’s crucial to get your student debt under control. Here are some tips for to get your student debt under control.

Live Frugally in University

Your student loan may seem like “free money,” but the second you graduate you’ll start accruing interest. From credit cards to pub nights, with temptation everywhere it can be challenging to keep your spending in check. Don’t lose sight of the reason you’re attending university – to get an education and land a well-paying job. Create a budget and stick to it. Instead of buying a car, take the transit or cycle to school. Studying every night isn’t realistic, so choose one night a week to go out and enjoy yourself, but set a spending limit so you don’t end up blowing your entire budget.

Part-Time and Full-Time Employment

Why graduate with massive student debt when you don’t have to? Part-time employment during the school year is an excellent way to pay for your education and gain valuable work experience (as long as it doesn’t interfere with your studies). It can be difficult to find a job if you graduate with no practical work experience. By enrolling in your school’s internship program, not only will you gain relevant work experience in your field, you’ll build relationships that could lead to a full-time job upon graduation.

Understand Your Student Loan

Although your student loan may come with a 6-month grace period, you’ll start accruing interest the second you graduate from university. Instead of waiting until the six months are up to start repaying your student loan, you should start repaying it right away. Although your final semester can be very hectic, take the time to attend career fairs on campus and apply for jobs. Having five-figures of debt upon graduation can be intimidating – instead of waiting until after you’ve donned the cap and gown, start repaying your student while you’re still in school. It will make it more manageable when you eventually enter the workforce.

Fixed versus Variable Interest Rate

Similar to your mortgage, students are faced with the important choice of a fixed or variable (floating) interest rate on their student debt. At prime plus 2.5 per cent, variable rate can save you money up front. If you plan to have your loan paid off in less than five years, variable probably makes the most sense. At prime plus 5 per cent, you pay a 2.5 per cent premium with fixed versus variable. If you graduate with massive student debt and you believe interest rates will increase in the near future, going with the certainty of fixed rate can make the most sense. At prime plus 1 per cent, sometimes it can even make sense to use a secured line of credit to pay off your student loan.

Make a Repayment Plan

Similar to your credit card, if you just pay the minimum, not only could you incur hundreds of dollars in interest, it could take you years to pay off. Getting your debt under control is all about goal setting. If you want to own a house in five years, figure out how much you need to pay each month to be debt-free. Also, pay yourself first: have your student loan debited from your bank account before you’re tempted to spend any money you may have left over.

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