Paying off my student loans

According to Statistics Canada, over half of Canadian students graduate from post secondary education with an outstanding government student loan. As you know, CF graduated with a large student loan, while I owed less to the government but more to my parents. On average, we had as much debt as everyone else.  Not very appetizing for a couple who prides themselves on being different!


Photo Credit: Images_of_Money (http://www.flickr.com/photos/59937401@N07/5474168441/)

A plan is hatched

As soon as I graduated, paying down my student loans became a priority. With my combined provincial and federal loans totaling less than $20,000, I decided that I would pay off my loans within five years. Thanks to an academic bursary I received in my final term of study, my provincial loans totaled a mere $4,000 upon graduation. Compared to over $10,000 in federal loans, this seemed a logical place to start my debt snowball. Phase 1 – nuke the provincial loan.

Within the first four months at my new job, I successfully eliminated my provincial loan. To do this, I prioritized my the loan over my desire to own a car. Before saving anything to buy a car, I made sure that the loan was paid off first. Even before realizing I didn’t need a car, I had my priorities straight!


Phase 2 – Increase minimum payments

Getting down to just one federal loan was great – but I still owed roughly $10,000. By making the minimum $125 monthly payments, I would be rid of the loan in 8.4 years. Not good enough.

Since I was used to saving over $500 per month towards my loans, I decided to increase my payments to $200 . This allowed me to spend money on my car, accelerate my payment schedule and not cramp my style! In a true testament to compound interest, increasing my payments by 37% resulted in a reduction of over 50% on my original term. If I continued paying $200 per month, my loan would be gone  in just 4 years.


Phase 3 – A new opportunity

This past October, I started a new job. Starting a new job is always exciting because it represents a chance to re-do my budget from scratch. There are two times that I reassess my financial goals and budget: at the start of a new year and when I start a new job. Even though my pay was not going to significantly increase, I realized that I was spreading myself too thin. In making equal payments on my federal loan and my family loan, I was making little headway on either.

In October, I had $6,000 left on my loan. Thanks to my stellar math skills, I deduced that if I increased my payments back to $500, my loan would be gone before the end of 2011, although I would need to halt payments on my family loan. I approached my parents with my plan, and they graciously agreed to allow me to suspend payments interest free until my student loan is gone.


With just over $3,000 left on my student loan, I am on track to pay it off by November 2011. I truly believe that paying the loan off now is worth the short term “sacrifices”. Contributing over 20% of your paycheque to a single debt may seem extreme to some, but I only need to look at CF’s $1,000 back to school budget to know I have nothing to complain about. When I do finally pay off the federal loan, I do not plan on increasing my spending but rather re-distributing it to my family loan and my investments. All part of the Master Plan!

Posted in: Credit and Debt, Money

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