Money & Career

How to pay off your student debt

If you work on paying off your student loans as soon as you're out of school, you can get them out of the way much more quickly than you'd expect. Find out how to tackle that debt the right way.

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You can be pretty sure Dustin Hoffman’s character in The Graduate didn’t come home from college loaded with student debt. If he had, he might have spent the summer doing something other than floating around his parents’ pool and getting to know Mrs. Robinson. Instead he would done what you’re doing — applied for as many jobs as possible so he could start paying off that intimidating pile of debt. The thing is, paying off your student debt doesn’t have to take decades — in fact, if you focus on paying it down the day you leave school you’ll have the best chance of getting rid of it in just a year or two.

Here are a few things to do:

1. Keep living like a student: They say the more money you earn, the more you spend — this is your chance to reverse the trend! You are already used to living like a student and making ends meet on as little money as possible — you should make this last for as long as possible, even when you’re earning money at your job. Hang on to your cheap student apartment, don’t eat out, and head for the cheap seats when you go to concerts or the theatre. You can use anything you save to pay off your loan.

2. Think about retirement: Yes, you’re young and retirement seems really far off. But the sooner you start saving the less you will actually have to put away over time thanks to the wonders of compound interest. And of course saving through a registered retirement savings plan (RRSP) can help you pay down your student debt — that’s because your contributions are tax deductible. Open an RRSP and use your tax refund to pay down your loan.

3. Don’t just pay the interest: Focus on making the biggest payments you can rather than just paying off the interest. The faster you reduce the principle, the less money you will owe over time because you won’t give the interest enough time to add up.

4. Don’t buy a car: If you didn’t have car during university and you don’t need one to get to work, then avoid buying one. They’re expensive to buy and to run and hanging on to your bus pass means you will save even more money to pay off your debt. Same goes for all the other stuff you might be tempted to buy now that you have a job — things like a new stereo, expensive clothes, technology, etc.

5. Follow your dream: Yes, you have debt; yes, you need a job. And chances are you won’t be working at the top of the ladder — or even in your chosen field. Even though it’s your day job that pays the bills, you should make time to pursue your passion and work towards your dream job. Whether it’s networking on the path to your ideal field or starting a small company in your spare time, there are a lot of ways to help your dream turn into your eventual job — and probably a better paycheque down the road. And of course, you can use that to pay off your debt and stay focused on the future.

Caroline Cakebread is a Toronto-based financial writer and editor. She’s also a recovering academic and the mother of two kids. Check out her personal finance blog for Chatelaine Your Money.

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