Yay! You graduated! Congrats! You've worked very hard to complete your degree and that is a huge accomplishment. I just recently witnessed my sister's convocation and I couldn't be more proud.
For many of us, the transition from school to the workplace full time will be a scary change! But rest assure: it is a new chapter you'll learn a lot from.
Now that you're looking for or have found a job, you'll be making some money! Time to splurge and enjoy that pay cheque, right?
Not so fast: you still got that OSAP money to pay back, remember?
Don't wait to start paying it off.
You remember how you have that "six month grace period" after graduation? Who cares: you still owe money. If you can start paying off some of your loan now or even before graduation, you'll be ahead of the game!
Interest accrues daily on each dollar owed even during the six month grace period. Those dollars will add up. Instead of leaving that money in the bank to make zero interest (unless you read my previous post here), put it towards paying down your loan. Those summer job earnings you saved could be put to work right now. This way, you will reduce the original loan amount, meaning, you will owe less interest moving forward.
Make extra payments (no matter how little) and pay a little more than the minimum.
Every bit counts.
With OSAP loans, there are no penalties to paying down your loan more than the monthly stated amount.
After six months, the National Student Loans Service Centre will send you a statement with the principal owing, accrued interest, and estimated monthly payment plan to pay off your student debt.
When you get this, you know it's time to keep up with those monthly payments. But if you can, why not double or triple the monthly payment? Or make that minimum payment, but twice a month on the 15th and 30th, or on each pay day?
With online banking, you can set up recurring bill payments. You can set up a system where $20 every week is paid to your OSAP loan, on top of your monthly minimum.
Whether it's weekly, biweekly or monthly, the point is to try to make a few extra payments when you can to pay your debt off sooner. The faster you are to pay it down, the less you'll owe in interest later.
Use your tax refund to pay down your OSAP loan.
Since you paid tuition over the past years, you've most likely accumulated quite a bit of tuition tax credits. The Government of Canada allows you to refund some of your taxes already paid with tuition tax credits.
For every dollar you spent on tuition, you'll be able to recover $0.15 of the taxes you already paid for that year. So when you get your first job after college/university, get ready: our team at Aryandale Financial will be making you smile come tax season, letting you know to expect a nice, juicy tax refund.
When you get that refund, pay down some more of that debt, okay? You'll be happy to see those hundreds or even thousands come back into your bank account come tax season, but sad to see it go to pay off your OSAP... But in the long run, you'll thank yourself.
There are no magic tricks when it comes down to paying off student debt.
Honestly, you just gotta pay them down fast.
Time is everything. Starting sooner rather than later for paying off debts will hurt less in the long run. It's about using time and money effectively and efficiently.
Pay sooner, pay often. Don't let time and interest grow that balance to a beast you cannot tame. Student loans don't disappear from bankruptcy in most cases, too... They are with you for life. So tame the beast and pay it off.
You can do it.
What a week! To recap on the series, I wanted to provide you with a quick 2 minute guide on what these investments are!
And there you have it! Hope you check out the posts in full.
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Bonds! What are they you ask?
Well, by definition, a bond is:
So when you look at it like this, when talking about investments, a bond is a debt instrument that allows one party to borrow money from another. This is a legally binding agreement that allow borrowers to raise money for their businesses. Bonds can be from the government, municipalities and even corporations.
So why would I buy a bond?
With bonds, you are promised to be paid back for the money you lend out, plus interest.
Think about your investment like this: I give you $10,000 of my money. You promise me a 5% interest rate paid yearly for 5 years. You will pay me this $500 interest per year for 5 years, and when it is done, you must pay me back the original $10,000 you borrowed from me.
I just turned my $10,000 into $12,500 after 5 years. Not bad!
Buying bonds are a great way to secure your hard earned money while earning a great return in the form of interest income.
What are the risks of buying a bond?
So credit cards... They're like your frienemy: they are great to you if you treat them right but if you don't play nice for one moment, they can back stab you and cause you harm.
Now I personally LOVE credit cards. I think the reason why others tend to shy away from them is because we were never taught in school or anywhere else on HOW to use them PROPERLY. They say all debt is bad, but really, they're not. Debt is bad when you don't know how to effectively and properly use it. Let me share with you what I've learned.
Credit cards provide you with convenience, fraud protection, rewards, help build your credit score, save you in financial emergencies and more. But the ugly side comes out when you hold a balance on your card for too long. In other words, you've spent more than you can afford...
I had a friend reach out to me a while back in need of some financial advice. She was a couple thousand dollars in debt on her credit card and had no idea how to get rid of it. She kept paying as much as she could but the balance seemed to get larger and larger each statement. We sat down together, went through it together and found a few things out.
With Canadians facing all time highs in consumer debt, understanding what it means to have a solid financial foundation is critical to long term financial stability. You see, many companies try to provide you with certain services and products that only benefit the company and are not always the best solution for you and your family. When you have someone trying to sell you on locking in your savings into a low interest rate GIC (guaranteed investment certificate) that can't even cover inflation (we'll discuss that in another post) or someone advising you to invest into mutual funds when you have a lot of credit card debt, these companies are not putting your best interests at heart. They are not taking care of all aspects of your financial situation in an effective order.
We need to grasp the fact that a solid financial foundation comes from an understanding of how to arrange our financial priorities. It can be broken down into four different levels of needs: protecting yourself and your family, managing your debt, developing an emergency fund, and investing in growing assets.
Let's start with "Protect yourself and your family":
Protection comes in the form of insurance. Now, think about it like this: if you became disabled and couldn't work, you would lose income that would help support you and your family. What if you passed away suddenly and your family was left with the burden of paying the mortgage, car payments, utility bills, groceries and more, and that pay cheque they relied on no longer comes in every two weeks? With insurance, you can protect your family from such risks of financial hardship should that unfortunate event happen too soon. The small cost you pay each year is worth the peace of mind for life.
This leads me to "Manage your debt":
Now that your family is protected, you can start focusing on paying off the car payments, the credit card debt, etc: the debt with high interest rates. You want to focus on this step next because not paying off debts high in interest could end up being very costly in the long run. Who wants to pay 22.95% interest on their credit card purchases? Not me! Pay off the highest interest debt ASAP. If you can't pay off the bill each month, changes need to be made on your spending and you may even have to consider consolidating your debt at a lower interest rate, but we'll talk about those things another time.
Once you have your debt managed and in control, this is the time to "Develop an emergency fund":
Some of us work for ourselves and some of us are employed with job stability. No matter the situation, sometimes life happens and we end up in a position where the money coming in isn't covering the bills going out. Setting up an emergency cash savings fund you can access in a heartbeat will help secure your family in such a position.
Lastly, we can then look to "Invest in growing assets":
Now that we've built a financial foundation, we can top it off with our investing needs. Money doesn't hold its value over long periods of time. Thanks inflation! Because of this, investing our extra funds into growing assets like stocks, bonds, real estate and more, can help beat inflation, grow our wealth and fund our retirement (and if we're tackling it right, even early retirement)!
You see, with these four principles, we can organize our behaviour and choices with how we manage our money. We should focus on building the base before tackling the top. Just like a house, you don't build the roof first! You lay the concrete foundation, build the walls and cover it with the roof. Setting up a solid financial foundation is important because it organizes how we prioritize our cash flow and its overall effectiveness in wealth creation. Tackling these principles in the proper order allows for a better chance of achieving financial freedom sooner. It is possible and the knowledge is out there for you to learn how to take control of it yourself. Join one of our free workshops to learn more.