What Every Grad Should Know About Debt: You Need a PlanJun 18, 2018
Student debt. Those two words can send shivers down the spines of new graduates, which is no surprise really. Many graduates expect to be carrying tens of thousands of dollars of debt after their program. It’s no wonder that three-quarters of grads end up with debt regrets in their 20s and 30s.
In this podcast episode, we talk about the four things every grad should know about debt.
Our Licensed Insolvency Trustees (LITs) cover it all — planning your debt repayment plan, prioritizing your plan, strategies for seeing it through and knowing your options if you can’t see it through.
Let’s expand a bit on what Paul Ihnatiuk (LIT from our Hamilton office) discussed in the podcast: the importance of setting up a debt repayment plan.
Don’t avoid looking at your debt. If you dread looking your student debt in the face, you aren’t alone.
But you really can’t set up a plan to manage and eliminate your debt load if you don’t evaluate it first. Review your debt right away — it’s important to understand your repayment responsibilities.
Know your lenders. Did you borrow through a provincial and/or federal program? Or a bank?
Take note of when you need to start repaying your debt. Some programs have a grace period where interest accumulates but you don’t have to make payments, while others want full payments immediately after graduation. Making a mistake and missing a payment can affect your financial health, and set you back on your repayment schedule.
The Financial Consumer Agency of Canada is a good online resource if you have questions or need more information about paying back your student debt.
Take stock of your circumstances. Your lifestyle will have a big impact on your debt repayment.
Ask yourself some key questions to determine how ready you are to make payments, or to help you decide how accelerated your plan should be.
Do you live alone, or with roommates who share the financial burden of bills?
Do you live at home with family who reduce or eliminate your living costs?
Do you have transportation costs, or vehicle loans — or, will you have these expenses when you get your first job?
Are you currently employed?
What are your existing expenses — cell phone, subscriptions (magazines, streaming services, etc.), health costs, credit card or other loan debts?
Consider future costs. There will be expenses that you can anticipate in the near future, so be sure to leave yourself room to afford them without having to take on more debt.
On the flip side, there may opportunities to reduce costs. For example, consider cutting back or eliminating some services or subscriptions. Be careful about taking on any consumer debt that will take money from your savings or slow down your student debt repayment.
Looking for inspiration? Christine Drummond of The Wallet Diet lays out her simple debt repayment plan. It’s all based on what she calls “lifestyle design” in her post How I Paid Off My Student Debt Using the Latte Factor.
The Debt Snowflake Method as described by Bridget Casey on her website Money After Graduation can also be motivating. It’s about making small contributions for big impact in the end.
Creating a student debt repayment plan can help you take control of your finances. Instead of feeling fearful when you graduate, you can feel empowered — and ready to take on the next big step in your life.