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Sarah Bugeja, who moved to live with her parents to pay her student debt photographed at home on Maplewood Dr., Toronto December 22, 2011.

Fernando Morales/Globe & Mail

After a holiday break at home, many university and college students are heading back to school and into the home stretch of their postsecondary careers. But as the excitement of getting the degree and pursuing the career of their dreams gets closer, so does the one thing they may have stuffed to the back of their minds: debt, debt and more debt.

For many, it's a five-figure sum. Statistics Canada says the average debt for university and college graduates in 2005 ranged from $13,600 to $25,600. And about one in four graduates with government debt said they had difficulty repaying their loans.

"It's a very daunting task when you have to look into how you're going to get money to put away when you don't have money to begin with," says Sarah Bugeja, 22, who graduated with a media studies degree from the University of Western Ontario last year.

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With a hefty debt load of about $12,000 after putting herself through school, Ms. Bugeja is working full-time in Toronto as a marketing specialist and living at home with her parents to save money and pay down her debt.

But since the interest rate on her debt is 5.5 per cent, which is higher than what she can earn on her savings account, "it makes saving very difficult," she said. "It's a race to put yourself back on a level playing field."

Graduates may have provincial loans, federal loans and lines of credit. Then they may have ongoing debts on their credit card. Figuring out how much to pay each month, and which is the best to pay off first, can be a challenge.

"That feeling of being overwhelmed is extremely normal," says Calgary-based author Lesley Scorgie, who wrote Rich by Thirty and Rich by Forty. "My first recommendation is to chill out ... . The second thing is to get organized."

To do that, Ms. Scorgie suggests gathering up any statements dealing with debts and costs and laying them on the kitchen table. "For most students, likely the whole kitchen table will be full of pieces of paper," she stresses.

Use a spreadsheet to write everything down, such as: To whom do you owe money? How much? What is the monthly payment? What's the interest rate? Then figure out how much your debt is costing you on a monthly basis.

Then, write down on your spreadsheet your monthly pay and any other assets, such as savings. At the end of this step you'll know your cash floweach month.

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"The act of getting organized is actually quite empowering," Ms. Scorgie says, who recommends using one bank account so that your pay comes in and all your payments come out of one place.

The next step is figuring out your budget, where you'll include all your debt payments and other costs such as transportation, rent, food, utilities and anything else you spend money on.

Students and recent graduates often get bogged down by the big numbers, like loans and rent, and pay little attention to their pocket change, says Ms. Scorgie. "It's very easy … to spend $20 a day on coffee, a drink out with friends, renting a movie."

Aim to find an extra $5, $10 or more a month by "diving into the couch cushions … cutting back on tiny things, even if it means dropping a loonie into a jar every day so you can find $30 extra every month."

Then you put that cash toward your debt with the highest interest rate until it is paid off, then toward the debt with the second-highest interest rate, and so on. Increase it as time goes on.

The first year out of school can be difficult for recent graduates as they look for work, says Ms. Scorgie. If students are finding it hard to afford their student-loan debt payments, they can apply to their federal and provincial loan programs for some interest relief, she adds, but they have to have their financial affairs in order first.

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The federal government's Repayment Assistance Plan, limits the repayment period to 15 years, bases loan payments on the borrower's family income and family size, and ensures borrowers' payments are affordable by not exceeding 20 per cent of family income. In some cases, the government will cover the interest amount owing that goes beyond what's determined to be the borrower's affordable payment amount.

Each province also has similar plans for borrowers of their student loans. But you have to apply to both programs, and you can start by contacting the National Student Loans Service Centre by phone or online.

Recent graduates also have some big tax credits in their first years out of school, Ms. Scorgie says, and should make sure they take full advantage of them.

Cleo Hamel, a senior tax analyst with H&R Block, says recent students and recent graduates get tuition, textbook, education and loan-interest credits and it may help to get some professional advice to make best of use of those tax credits depending on their income once they've left school. If you don't have much income as a student or your income level isn't that high once you've graduated, you may be able to carry forward some tax credits to use in other years once your income has jumped.

"I would say the majority of students use those credits up in the first two years," she said. In addition, if recent graduates moved to get their first job, they can claim moving expenses as well, Ms. Hamel said.

If you do get a tax refund, don't just blow it, says Ms. Scorgie. Put at least half toward debt repayment, and then treat yourself.

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"It's a crying shame to see these students blow these tax refunds. Use them. They're a gift, like manna from the heavens."

Next Steps

Once your debt is under control you can plan ahead:

– build up an emergency fund – sign up for your work pension; ask about RRSP matching programs – sign up to buy Canada Savings Bonds straight from your paycheque; it's a forced savings program – talk to a financial planner to figure out your goals and how to reach them

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