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debt diary


In 2009, Jacqueline Koos and her husband graduated with about $52,000 in student loans. They borrowed another $11,000 soon after for a rushed car purchase. But through a mixture of perseverance and frugal living, the couple managed to erase their debt load in just five years.

"We worked hard at it," said 27-year-old Ms. Koos, who rents a house in Toronto's east side with her husband and their dog.

A month before graduating from Ryerson University with an architectural science degree, Ms. Koos requested time off work to focus on her thesis. When she was ready to return, the company she worked for in the summer and part-time during the school year downsized her.

That was the start of "a rough year" for the couple, with her partner freelancing while Ms. Koos spent nine months job hunting. "All my savings then got depleted," she said of the three-month financial cushion she had built up through her part-time work.

In order to keep their expenses low, the recent grads continued to live like students. They scoured their budget for places to cut costs but as non-smokers who neither drink coffee nor have cable, Ms. Koos joked they had to look outside of the box to save money.

They started cooking more at home – eating lots of Ramen noodles and Kraft dinner – and slashed their entertainment expenses by going out once every two weeks. They rebuffed brand names while shopping and used no-fee bank accounts.

At the end of the six-month grace period for repaying her student loans, Ms. Koos was still unemployed. So she applied for the federal government's repayment assistance plan.

It's key for graduates to be organized and know their options when it comes to student debt, said Jeffrey Schwartz, the executive director of Consolidated Credit Counseling Services of Canada.

"The government offers some fantastic programs if you're experiencing some hardship, and – truthfully – not enough Canadians are taking advantage of them," he said.

Anyone whose financial situation qualifies can apply to have their minimum monthly student debt payments reduced or waived for six months at a time, while the government covers the interest charges. Under the plan, the government extended Ms. Koos's grace period for another four months.

When she landed a job in 2010, Ms. Koos started making the minimum $260 monthly payments toward her debt, increasing that amount slightly each month.

Things picked up, and the newly-engaged couple made $64,000 that year. In addition to whittling down their student debts, they started setting aside money for a wedding, a house down payment and an emergency fund.

"The emergency accounts were important to us because we had been stretched thin before with nothing to draw on," Ms. Koos said.

Laurie Campbell, CEO of Credit Canada Debt Solution, says it makes good financial sense to get in the habit of setting money aside for emergencies and future expenses – even for those focused on repaying long-term, low-interest debt like student loans.

"Things can happen. You can lose your job. Your car breaks down..." she said. "You should be able to pay cash for them rather than having to dip into using that credit card and paying high interest."

For the Toronto couple, those "things" included paying $12,500 cash for half of their 2011 wedding costs – Ms. Koos's parents gifted them the remainder.

They also bought a used car, in order to visit their out-of-town parents on weekends. "That was a learning experience," she said, explaining how they decided they should buy a car one day and purchased it the next.

The couple put down a $3,000 down payment and financed the remaining $11,000 in a brokered car loan through one of the big banks, signing a seven per cent interest finance agreement. With a $1,000 brokerage fee, $1,100 loan insurance for a five-year term, plus taxes, the car's original sticker price added up to a little more than they expected.

People who borrow money for a car purchase should make sure they understand all of the extra costs built into the loan agreement, said Mr. Schwartz. Another good thing to check is if there's a penalty associated with paying it off before the term is over.

Before they even step on to a car lot, consumers should also research things like reliability and consider not just the purchase price of the vehicle but also the cost of maintenance, he added.

Dismayed by the high interest, the couple focused on getting rid of their car debt – minimizing their student loan payments for the next year and a half, until the car was paid off.

"I think [the] next time we buy a car we're going to save up and buy it outright, so we can negotiate a bit better," said Ms. Koos.

Since becoming debt-free last fall, they've loosened the purse strings a bit. That first month, they took the money that would have gone towards debt and celebrated with a fancy dinner and a small shopping spree.

They still mostly cook at home, but admit to buying better groceries now because they have more wiggle room in their budget.

Both are still saving aggressively. They contribute to their RRSPs and have three months of household expenses set aside in an emergency fund, as well as money for car repairs and veterinarian bills. They're also continuing to save for a down payment and hope to be able to start house hunting in a few years.

Stories like theirs show it's possible to pay off student loans faster than the 10-year term the government allows, said Mr. Schwartz.

"The idea here is not necessarily to live like you've won the lottery because you have an income all of a sudden, but to continue to live lean and try and cut back on your expenses so you can get rid of that debt as soon as possible."

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