Paying your student loan is no fun. Every month, money that could’ve been used towards regular expenses, investments or feel-good purchases is pulled away from your account.
But is there a right amount of money to allocate towards your loans? Is it best to pay them off as quickly as possible?
Two years ago, I wrote about how some younger folks were using low interest rates as an opportunity to divert more of their money to investing, rather than paying off their government student loans quickly.
Higher interest rates have made many people prioritize debt payments, but Evan Parubets, investor specialist at Steadyhand Investments, says the situation could be different for student loans.
That’s because the federal portion of student loans are staying interest-free.
In my scenario, the Ontario portion of my loan - which currently has a 7.45 per cent interest rate - makes up less than 14 per cent of my overall balance, and so the vast majority of the loan is indeed interest free.
If your situation is similar to mine, then Mr. Parubets says you might want to focus on building your investment portfolio through a TFSA, or through an RRSP for the tax incentives.
Investing while young is about building discipline, according to Mr. Parubets. So if you were putting $500 per month towards your loan payments and want to drop your payment to $200, don’t spend the leftover willy-nilly. Put that $300 into long-term investments and you’ll be setting good habits for yourself.
However, if a large portion of your loan was given by your province, Mr. Parubets says it’s worth tackling your debt first. The Ontario interest rate of 7.45 per cent is a hard target to outperform through investments.
Lastly, consider paying off the provincial portion of your loan in lump sums to avoid interest altogether. One Reddit user found that this was only possible by mailing in cheques with a letter explaining his plan. For them, the extra effort was worth it, and Mr. Parubets says it’s worth inquiring with the National Student Loans Service Centre about similar action.
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Salmaan’s personal finance reading list
Could a ‘no-buy challenge’ be the financial reset you need?
Social media influencers are pushing a “no-buy” trend akin to a crash diet or six-week workout plan. Essentially, participants commit to spending only on essential purchases for a month. But personal finance experts say it could be as ineffective as a short-term diet unless you go in with the right goals and mindset.
How egg prices soared in the US
Avian flu outbreaks have been wreaking havoc for U.S. chicken farmers. This article by The Guardian describes how Americans ended up with a 60 per cent year-over-year increase for the price of eggs.
How to use every dollar of your job benefits
This VICE article may be a couple years old, but maxing out your benefits is always a relevant topic. And hey, what better time to think about it than in the new year when your benefits renew?
Tips to save at the grocery store
Grocery shopping is one part of life where inflation feels unavoidable. While shopping at your grocery store is better for your finances than eating out, you won’t get the maximum benefit without planning properly. Here are some tips to make grocery shopping a bit more affordable.
This week’s poll
Question: Has your household spending returned to pre-pandemic levels?
- I am 100% back to normal spending levels
- I am mostly back to normal; spending a little more
- I am mostly back to normal; spending a little less
- I am still saving a bunch
Vote here. Watch for the results in an upcoming newsletter.
Are you a short-term contract worker who learned financial lessons the hard way?
I’m writing about the financial lives of people who take lucrative contract jobs such as those on oil rigs or pipeline building. How did you create a solid financial future for yourself when paycheques come infrequently but in large sums? Did you make mistakes along the way, such as overspending on big ticket items? Email me at sfarooqui@globeandmail.com if you have insight to share.
Today’s financial tool
Should you pay down debt now or build your investment portfolio? This tool can help pinpoint the best path for you.
The money-free zone
In the winter, when I’m not thinking about work or money, I’m thinking about snowboarding. Take a look at this short video of pro snowboarders practicing on the big air jump ahead of the X Games in Colorado this week. As a photographer, I’m most in awe of the cameraperson flying just centimetres away from some of the pros to get the best video angle.
ICYMI
What I’ve been writing about
- You may have noticed an influx of headlines around real estate fraud where a fake homeowner sells a home out from underneath the real owner. I’m currently writing about how that form of crime has become much more common since the pandemic. Has this sort of fraud ever impacted you? Get in touch at sfarooqui@globeandmail.com if so.
- It’s easy to daydream about buying undeveloped land and building a perfect custom home. If that could be in your future, here are some tips to keep that dream from becoming a nightmare.
- Crypto is experiencing a bump in the new year, with some assets up around 30 per cent. Last years dismal performances by Bitcoin and Ether may have made traditional investors smug, but those backing cryptocurrencies are still believers.
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension
Salmaan Farooqui