When you think of making investments you probably imagine putting away money in an RRSP, or buying real estate or fine art.
But according to Lawyers Financial, paying down your debt is one of the best investments you can make.
“For example, if you are in the 35 per cent tax bracket, paying off debt with an interest rate of 5 per cent is equivalent to earning 8 per cent (before-tax) without risk in a GIC; considering GICs currently earn only 1 to 2 per cent, that’s an incredible return.”
A high debt load is a fact of life for all but a lucky few law school graduates – only a medical degree is more expensive. The trick to dealing with that load is to deal with it. And the secret to not being overwhelmed by the bottom line is to take a strategic approach, and work out a debt repayment schedule that works for you.
“Focus on paying off your highest interest debts first. And, to make things more manageable, consider consolidating debts and trying to negotiate lower interest rates or lower monthly payments,” says Lawyers Financial.
Stories abound of law grads “crushing” their debt with superhuman feats of self-denial and extreme saving – or equally impressive shows of financial derring-do. But that doesn’t mean ordinary mortals who like to treat themselves every so often can’t make a significant dent with a few smart steps. For example, if you can, pay more than your monthly loan payment. It doesn’t have to be a lot to add up, and the overpayment goes directly to the principal.
Some tips:
1. Understand your debt – Know how much of your debt is public, how much is private, what the different interest rates are and how and when you’ll be expected to repay. Keep careful track if you’re working with lines of credit.
2. Understand where your money goes – And once you know where it’s been going, you can figure out how to cut off certain routes and open other channels. For example, you might spend $200 a month on lunch (that’s based on a fairly conservative estimate of $10 a day). That means you could save significant cash by taking lunch. It takes planning and discipline, but it’s doable.
3. Start spending as you’ll need to continue – You have a six-month grace period between graduation and when you have to start paying back your student loans. Insofar as you can in that period, spend as though you’re already paying it back, so it won’t be as much of a shock when it happens.
4. Don’t be afraid to get help – There are a lot of books out there to help you deal with your financial situation, keep looking until you find one that speaks to you. There are also financial planners, coaches, and credit counselling services that can help you put together a plan that you can live with.