You go to university or college to help you to get a good job. But for most of us, we need to get a student loan to be able to do this. It seems easy enough, but we soon realize that we have taken on a small mortgage which is hard to pay off once we leave school. It is like having a huge, heavy stone around our necks and we do not know how to take it off. You know you need to pay off your student loan debt, but how?
Step 1: Assess Your Student Loans
The first thing you need to do is figure how much you have in student loans and from what sources. In the Canada student loan program, you can have a federal loan and/or one or more provincial loans. Once you have done this, you can then rank your loans from largest to smallest. For example, you might have a federal loan of $15000, a Manitoba loan of $10000 and an Ontario loan of $5000. Once you have created this list, you move on to Step 2.
Step 2: Figure Out Minimum Payment
The next step is to figure out the minimum monthly payment to cover the accrued interest on each loan. In our example above, we figure this out to be $150 for our federal loan, $100 for our Manitoba loan and $75 for the lst one – our Ontario student loan. Once we have done this, we can move on to step 3.
Step 3: Target Smallest Loan
Now we need to look at our smallest loan and see how much we can pay over and above just the interest payment to pay down this loan. In our example above, our smallest loan is the Ontario loan at $75 per month to keep the interest off our principle amount. Suppose we can add another $75 from our household budget and pay $150 per month on this student loan. Then: just keep doing this until the loan is gone! That is the goal of course – getting each of these burdensome loans GONE. And then we are ready to move on to step 4.
Step 4: Rolling Payment to Next Loan
Rolling payment means taking the amount we were paying on our smallest loan and then adding that amount to the next smallest loan. In our example above, this means adding $150 per month to our $100 payment of our Manitoba loan. You’re really making progress now! Now it will be a total of $250 per month on our Manitoba loan until it is gone. We then move to Step 5.
Step 5: Rinse and Repeat
We now take the $250 we were paying on the Manitoba loan and add this to the $150 we are paying on the federal loan. We now will pay $400 per month our federal loan until it is gone. Just like that your loans will be gone!
The process above seems simple enough, but the reality is that it will take effort. You need to be disciplined enough to stick to the plan. Also, you need to be patient because it will take some time to pay it off, depending on how large your student loan debt is. However, if you stick to it, that heavy burdensome stone around your neck – called your student loans – will finally be removed. You will be free at last!