Tips for Paying off Student Loans
Student loans are often necessary for those taking postsecondary education. University and college programs are increasingly becoming very expensive, which means that more and more people are taking out student loans in order to pay for school. However, once you graduate, paying off student loans can be difficult.
When you first leave school and enter the working world, you could find it difficult to get a job in your field. In Canada, the unemployment rate for those between 15 and 24 years of age is 13.3%, which is about double the overall Canadian rate of 6.6%. This means that many new graduates have difficulty paying off student loans, since you are expected to start paying them six months after you graduate. A lot of people simply don’t have jobs at this point. A plan by the new Liberal government could make it so that you’re not expected to repay student loans until you are making at least $25,000 a year, but this has not come into effect as of yet.
Even graduates who are able to get jobs can find paying off student loans to be tough. The starting salary in many entry level jobs typically isn’t very high, especially when you take into consideration all of the other expenses that a recent graduate will likely need to pay for. Rent and or mortgage payments, work clothing, a car, vacations, weddings, child care costs and many other expenses really add up, making it incredibly tough to also afford student loan payments.
If you are finding it difficult to pay off your student loans, here are a few tips that may help you.
Paying off Student Loans
If you want to pay off your student loans, you will need a plan. This means you’ll need to sit down and prepare a budget. Write down all of your expenses, from food and clothing to transportation and rent/mortgage payments. Then write down all of your debts. Include student loan debts but don’t forget about other debts such a credit cards, lines of credit, personal loans, automobile loans, etc.
Then add up all of these numbers and compare it to your salary after tax. Do you have enough money to afford all of your monthly expenses as well as your debt payments? If not, you’ll need to make cuts. Look for areas in your budget where you can reduce expenses. You probably can’t reduce your mortgage or your rent payments, but you can likely spend less money on food, clothing, entertainment and transportation.
A good way to control your spending is to use cash. It’s often tempting (and convenient) to pay for all of your purchases with a credit card. However, this allows you to lose track of spending quite easily and end up going deeper into debt. Instead, create a budget and come up with a plan that allows you to pay for all of your purchases in cash. This may be a bit less convenient, but it will help you control your spending.
If you can’t manage to fit all of your expenses and debt repayment costs into your budget without going deeper in debt, there are options available to you. One of these options is the student loan Repayment Assistance Plan. You need to apply for this plan and reapply every six months. The plan will reduce your student loan payments based on your current income. In some cases, you won’t need to make any payments at all.
You can apply for the Repayment Assistance Plan through your National Student Loans Service Centre.
A Word About Student Loans, Bankruptcy and Consumer Proposal
Consumer proposal and bankruptcy are both legal processes that make it possible to reduce or eliminate unsecured debts. Some people who have having difficulty paying off student loans look to these processes for help.
However, you can only include student loans in a bankruptcy or consumer proposal situation if you have been out of school completely for at least seven years. Otherwise, these loans cannot be included.
Some people end up having to take out other loans (such as lines of credit or credit card debts) in order to manage day-to-day expenses while still paying off student loans. If you have done so and are now finding it tough to pay off these debts, speaking with a licensed trustee in bankruptcy may be helpful for you.