By the Sun Life team
Finished studies? It’s time to start your career and pay off your student loan. Here are three tips for doing it the right way.
With your degree in hand, you’ve landed a job in your field. Congratulation!
With your new salary, you would like to:
repay your student debt;
saving for retirement;
spoil you.
Is it possible? Yes. Andrew Thibeault, the financial security advisor, gives three tips for getting there.
Make a budget
To get the most out of your pay, it’s best to establish a realistic budget from the start. Even though the exercise may not seem much fun, it is beneficial. Use this online tool to budget without forgetting anything to make it all easier.
A budget helps you determine how much it costs to live. Then it tells you precisely how much you can spend on paying off your debts and how much you can save. You also know what you can spend to indulge yourself.
Pay off your student debt slowly.
You have six months of respite between the end of your studies and the start of your repayments. Should you pay off your debts quickly or save for your retirement?
What does Mr Thibeault think of debt repayment? “We start by paying off credit cards which have a much higher interest rate than a loan or a student line. »
“As for the margin and the student loan, they have the advantage of having a low-interest rate. You may be entitled to a non-refundable tax credit for the interest you pay on a loan in the year. Of course, continues Mr Thibeault, you never want to keep a debt forever. It is, therefore, necessary to consider reimbursing it in full. I recommend prioritizing savings while making minimum payments to reduce student debt. »
To know: COVID-19 has changed the game for a while. As of April 1, 2021, no interest is charged on Canada Student Loans. In Quebec, too, similar measures have been taken. Check your local government site for more information.
Save and repay your student loan.
According to Mr Thibeault, it is quite possible to save, even by repaying a student loan. It offers two ways. :
1. Save in your account
According to Andrew Thibeault, it is best to establish a compound interest savings system from your first paychecks.
“Often the most challenging thing is not to generate money, but to manage it, he explains. I therefore always suggest that young people who are starting their careers set up an automatic withdrawal system. A transfer from the current account to a compound interest savings account is scheduled as soon as the paycheck is deposited. With this technique, we learn to live with our money while saving.
Andrew Thibeault strongly recommends the Tax-Free Savings Account (TFSA). This account generates compound interest. In other words, you make interest on interest. In addition, the TFSA gives a net return of tax. Indeed, the claim is not taxable, whereas it is for other types of savings.
2. Save at work
“The idea behind the Registered Retirement Savings Plan (RRSP) is to reduce taxes payable. The RRSP contribution allows you to position yourself in lower tax brackets. It also guarantees you an income once you retire,” explains Andrew Thibeault.
Maximizing this opportunity if you are lucky enough to have an employer that offers a defined contribution pension plan (DCPP) or a group retirement savings plan. “For maximum return, I recommend investing the same percentage as the employer. The rest of the money to be set aside can be placed in another type of savings. The earlier you start contributing, the more it pays off in the long run,” he adds.
In summary
Make a budget.
Pay off your line of credit or your student loan with ease by promoting savings in a compound interest product.
Take advantage of the employer contribution to invest in an RRSP.
Make a clear plan that matches your needs and priorities. To do this, make an appointment with a financial security advisor. Find an advisor near you now.
