Pattie's Blog: Tips to stay on top of student debt
Published Tuesday, August 21, 2012 9:57AM EDT
The word “debt” alone has such negative connotations that it isn’t all that surprising that students heading off to school are worried more about what they will owe when they graduate than they are about finding a job or even achieving good grades, this is according to a recent a poll conducted by BMO.
I think we can all appreciate why. The report clearly states, citing Statistics Canada, that the average undergraduate tuition in Canada is $5,366. The total cost for post-secondary education -- according to research from the federal government -- including tuition, supplies, housing and other expenses is approximately $14,500 per year and nearly $60,000 for a four-year program.
And students believe that it will take them five years to pay it off.
In the meantime, we have all heard that we are taking on too much debt and spending roughly $1.50 for every dollar we have coming in, and this is forcing us to wonder how much debt is too much? To answer this, ask yourself some tough questions: am I paying off my credit card balance in full every month? Am I using credit for things such as food, vacations and entertainment and when it comes time to make a payment am I using one card to pay off another card? This kind of activity and anxiety plays out in a negative way, not only on your credit rating but also your health.
Debt for many is inevitable and good debt -- such as education debt -- if managed properly makes all kinds of sense. Before you head off to school check your credit rating to see where you stand today and ensure it is accurate. We have a son with a very common and popular name who has had credit agencies calling more than once for someone else, and it was up to him to prove that he in fact wasn’t “that person” they were after for delinquent payments.
Your credit reputation IS your reputation and says a great deal about your sense of obligation and your willingness to pay, and a bad score can even hinder your employment opportunities, renting an apartment, or even trying to get a loan. You can go to TransUnion Canada and Equifax to find out where you stand -- look for a high score. The higher the better -- a 900 vs 300. And when it comes to ratings, R1 is the gold standard verses R9 which suggests you are a bad risk and may have declared bankruptcy.
If you have come on hard times, and it can happen to anyone, advise your creditors what is going on and try to come to some sort of solution. You may have to explore a consumer proposal where payment terms are agreed to and the interest clock may stop. Don’t hide, it is never effective. If you have run into trouble and are looking for ways to improve your rating, understand that it will take time. And I wouldn’t hire a third-party agency to help you improve the situation. The fees don’t make sense as they really can’t do anything that you can’t do. It is up to you to take control and methodically work through the situation.
Pay your bills on time and if possible, in full, don’t have more credit than you need, especially store credit cards. Close out cards you never use and may have even forgotten about and create a good credit history.
Final thought….once you actually pay off that debt you can begin to pay yourself 10 per cent per pay. If you make $3,000 every two weeks $300.00 goes towards your savings and your financial goals. It is tough and requires discipline, but the end result is that you are no paying interest on outstanding debt to someone else to make them wealthier - you are paying to make yourself wealthier.