Ever find yourself financially challenged in one way or another? It happens to the best of us, and it’s also a sign. A sign that you may need a plan. Once you’ve graduated, you’ll soon discover there can be more than student debt to deal with.
Even if things seem overwhelming at times, know that others have been here before and that you will get through. With over 1.7 million Canadian borrowers carrying a student loan, that’s a lot of cheddar. About 75% of these are government-backed, with the remainder being privately funded bank loans.
The typical student loan interest is usually charged upon graduating, so once you retire the cap and gown it’s time to get to work, or at least find a job. Welcome to adulthood and bills, now you just need a plan to help manage your finances.
Dealing with Debt 101
In addition to any student debt you may have there’s a good chance many recent graduates carry other debt as well. From car loans and credit cards to personal loans and other types, it’s likely some will have one or more of these types of debt.
Paying off your debt is almost like saving money. And the sooner you do, the less interest to pay. In its most basic form, the way to deal with debt is this. Make a list of debt you owe, and make note of the amount, length of term, interest rates or APR, and any other relevant details. You might also note the amount of your monthly payment as this can also be helpful.
You want to determine a way to prioritize where to focus your efforts for paying down your debt. In doing so, it is a case of looking at a few things. Payment amount, amount owed, and interest rates will probably be a place to focus.
Paying off debt as quickly as possible is usually in your best interest. The exception to this can be if any loans include early payment penalties. But it’s still worth running the numbers, and sometimes it’s still to your advantage to pay off a loan early, even with a penalty.
If you have ever thought debt consolidation might be how to pay off your debt, when it comes to student loans it probably is not. Those with government-backed student loans would likely have interest rates that are far lower than most (or any) debt consolidation loans might offer. An alternative might be to look at a debt consolidation loan for all but not include your student loan.
Better Budgeting Habits
Your ability to handle your money and make use of a budget can help you to pay down your debt faster. If you manage your money well, you could have more to use towards any outstanding debt. Only about half of Canadians use a budget, and yet studies show that people who use a budget have more awareness of their finances since they monitor more closely and that people using a budget are less likely to find themselves short on cash and need a loan for any unexpected expenses.
They’re also more likely to have an emergency fund for this type of situation as well. There are must-haves and wants when it comes to finances. Paying for rent or a mortgage is a must-have or necessity. Food as well, but you can overspend in this area.
When trying to be frugal so you can save more or put towards paying off debt, groceries and entertainment are a few areas that many can find ways to cut back and save more. Do you have more streaming services than you need? Do you dine out often? Do you have memberships that are hardly used? Looking for ways to cut costs isn’t hard once you start looking.
Build Your Creditworthiness
Credit is something that the majority will make use of more than once in their lifetime. From credit cards to different types of loans for cars or even homes will have a big impact on what life can allow you to afford. If you had to pay the full amount of any purchase and there were no credit options, this would affect what you can afford, since you would have to save up first.
Managing your credit profile and score is important so they are healthy when you need them. Things to avoid that would have a negative impact include being late with payments, defaulting, collections, bankruptcy and more.
You also want to keep your debt-to-income ratio (DTI) and credit utilization lower than 30% so that if you ever choose to apply for an installment loan or personal loan in the future you might have a better chance of being approved. Read more on how your credit utilization matters here and how you can manage it more effectively.
Your credit profile can determine a lot when it comes to eligibility, from credit card offers to the type of loans and interest rates you might be approved for. Maintaining your creditworthiness for when that day comes often starts with getting your debt under control, developing finance and budgeting habits, and always improving your credit score.
Megan Kelly writes on personal finances, debt and more at GoodCheddar and is a Financial Advisor / Communications Director explaining all things money.