Bridget Casey and Robb Engen are two of Canada’s best-known money bloggers — and, like at least half of university graduates in Canada, they had student loans.
Burning that student debt: Casey’s story
In just 22 months, at age 27, she had managed to repay the government in full, a feat that helped propel her to the top echelons of Canada’s money blogosphere. To turbo-charge her income, Casey lined up a chemistry tutoring gig on top of a full-time job. In addition, she’d work as a freelance writer in the evenings and take up odd jobs she’d find on Kijiji during the weekend. With money coming in from multiple sources, Casey was able to throw as much as $1,000 at her debt pile every month.
But when she signed up for an MBA in Finance from the University of Calgary she discovered her debt-slashing exploit had one big drawback. When she applied again for student loans, the government «looked at my great income and like, ‘oh, you should have tons of money saved’, she said. But I had used all my money to pay off my student loans, so it put me in a really tight bind that first year. Casey had to resort to borrowing from a financial institution through a line of credit instead.
I just didn’t suffer, she said.
The slow-cooker method: Engen’s story
When Engen wrapped up his own degree, he was in no rush to extinguish the $55,000 that his wife had in student debt. Rather than completely paying off my student loans and starting over at zero, I paid off some of the debt and used the remainder for a down payment on a new house, Engen recalled in a blog post. Even when the couple had just $3,500 left to repay, they stuck to a monthly payment of just $145, channeling the bulk of their savings toward their mortgage and registered retirement savings plans and tax-free savings accounts.
How to get student-debt repayment just right
For those who are just starting to poke at their heap of student loans, Casey and Engen have the same tip: take a medium-heat approach, if you can.
Student loans are pretty cheap debt
Turning the flame as high as you can under your student debt pot doesn’t always make sense, both Casey and Engen said, because government student loans have relatively low interest rates. As Nov. 1, interest will no longer accumulate on Canada student loans and Canada Apprentice Loans during the non-repayment period, and interest rates will be reset lower. I tend to want to tackle the highest interest rate first, Engen said. If you have more expensive debt, focus on that, while still making minimum payments on your student loans, he added.
Engen also advised sticking with a monthly payment you can comfortably afford at first. That’s why Engen recommends road-testing your budget for two to three years after graduation before committing to ramped-up loan repayments.
Build an emergency fund first
I usually tell people to aim for $3,000, which is enough to pay for one month of rent, plus a few little extra expenses, she said. You can always move money from your savings to pay off your dent, but you can’t go the other way.
Even small debt-payment boost can make a big difference
A lot of people are tempted to just take the repayment plan that the government sets up for them, which is the normal term of 10 years, she said. Over several years, that could save you a lot in interest, she added. I’m a big believer in working on both sides of the ledger.
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