How to pay off student loans fast
Hey graduate – congratulations! School is behind you and it’s time to start your career. If you’re reading this, it sounds like it’s also time for you to start paying back student loans. Lucky for you, we compiled advice on paying off student loans from recent Canadian graduates.
Follow these 6 steps to pay off your student loan fast:
Step 1: Take advantage of tax benefits and put any refunds towards your student loan
Depending on the type of student loan you have, you may be eligible to claim interest charges on your tax return, which can help you qualify for a refund. Plus, make sure you take advantage of any tax claims like tuition and book expenses. Then, use your tax refund to put extra money towards your student loan balance – every bit of extra money makes a difference in helping you pay down debt faster and reduce interest charges.
Step 2: Reject the grace period and start making loan payments as soon as you graduate
Some student loans offer a grace period between the time you graduate and the time you have to start paying back your student loan. Typically, the grace period is around 6 months. Grace periods can be helpful for graduates experiencing financial hardship or looking for a job in their field. However, interest still accrues during the grace period, which increases the amount of debt you’ll pay back over time. If you can afford to, start making payments right away (you’ll thank yourself later).
Step 3: Move back in with your parents
Not surprisingly, some of the graduates we interviewed moved back in with their parents after graduating school. Moving back home after graduation is a growing trend among young Canadians – it’s a simple way to create more room in your budget to pay down student debt, especially while you’re job-hunting or taking contract jobs to gain work experience.
Step 4: Take a job that offers loan forgiveness
In Canada, some health care jobs in remote communities offer loan forgiveness. Not in the healthcare field? More companies are beginning to offer loan forgiveness as a part of their benefits package (essentially, they’ll pay you a portion of your student debt for accepting the job).
Step 5: Avoid late or missed loan payments
Late or missed payments cause interest to accrue and your loan balance to increase. A well-rounded budget and good money management habits should help you stay on track with student loan payments. But if money is tight one month, reach out to your lender and let them know about a potential late or missed payment as soon as possible. It may feel nerve-racking, but most of the time they can find a solution and may be able to defer your payment without penalty (as long as it’s not a common occurrence).
Another reason to stay on top of payments? You’ll likely need access to credit when you purchase a car or house one day. It’s critical to make loan payments on time, as this will help you build your credit and access the best possible interest rates when you apply for a mortgage or other loans.
Step 6: Set up automated loan payments
Automated payments can help you avoid forgetting to repay your student loan, keeping you on track. If your student loan is a line of credit (a type of revolving debt), you won’t have a set payment schedule and will only be required to make minimum payments. While making minimum payments will keep your credit healthy, it will take a very long time for you to pay back the loan. Your lender can help set you up with automated payments that fit in your budget and will have your loan paid off in a timeframe you’re comfortable with.
Student loans: Canada
If you have student debt, you’re not alone. Here are some statistics about student debt in Canada:
- 43% of college graduates finish school with debt
- On average, college graduates finish school with $14,900 of debt at the time of graduation
- 50% of bachelor graduates finish school with debt
- On average, bachelor graduates finish school with $26,300 of debt at the time of graduation
Visit Statistics Canada for more information on student debt in Canada.
Repaying student loans after graduation can feel daunting, especially when you’re trying to get a head start on your career. But, there’s a silver lining – staying on top of student loan payments will help you build a positive credit history and prepare you for future needs like a car loan or a mortgage. Plus, paying off your student debt is great opportunity to learn money management habits early in adulthood, setting you up for financial wellbeing in the future.
Looking for more?
- We have even more tips to help you get out of debt in this article.
- Are you or someone you know a current or soon-to-be post-secondary student? Check out our 5 tips for managing money as a student.
- Wondering how paying off your student loan will impact your credit score? Learn how your credit report works here.