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Urban millennials left and right are stressed about the rising cost of living in their expensive city. We thought it was bad pre-pandemic, but when we compare our local pizza shop’s 2019 menu with their new one, we think about how good we had it. We also fear what is in store for our future. Once prices go up, will they ever come down?

Times are difficult for millennials. They are in the prime age bracket for financial planning, but they are doing so while an economic downturn is ahead, inflation is upsetting, and interest rates have once again gone up.

On top of monthly bills, rent/mortgage, groceries, and general expenses, many of us must also put some of our salary aside to pay off debt. Now more than ever, it is essential to have a strategy for paying off debt and getting your financial house in order. Debt can be overwhelming and hinder the many aspirations you have for the future. We are here to help by giving you a strategy to navigate the world of debt repayment.

Here are 3 strategies to consider when paying off your debt:

  1. Pay Off Your High-Interest Debts First 
  2. Pay Off Your Credit Card Bills with your Line of Credit
  3. Pay Off Your Canada Student Loan

1. Pay Off Your High-Interest Debts First

Start your debt management by gathering up all your paperwork and listing all your debts and the interest rates associated with them. Prioritize paying off debts with the highest interest rates first. After all, the higher the interest rate, the more of your payments are going toward interest.

2. Pay Off Your Credit Card Bills with your Line of Credit

Your next priority should be to pay off your credit card bills. Credit cards often come with an interest rate of 20% or higher. A purchase that costs you only a few dollars can end up costing you hundreds in interest charges if you do not pay it off. If you do not have enough money to pay off your credit card bills, there are two ways you can save on interest charges.

If you have a line of credit, you can use it to pay off your credit card bills. Line of credits typically have a lower interest rate than credit cards. By offloading your credit card debt onto your line of credit, you can pay off your debt with peace of mind knowing that your interest rate is sufficiently lower. The other method is to transfer your balance to a new credit card with a lower interest rate and repay from there.

DISCLAIMER: Please consider the method of transferring the debt to your line of credit or lower interest credit card only if you know you have good discipline in paying off your debt. Be aware of the repercussions of failing to pay off your debt when making the switch. 

After you’ve taken care of your high-interest and credit card debt, you can now focus on paying off your student line of credit. You should have been paying interest on any money you borrowed from the line of credit, and now you can focus on tackling the principal. Once you have paid off your credit card bill with your line of credit, you can begin the process of repaying your line of credit. Start by checking the fine print on your line of credit agreement.

 

3. Pay Off Your Canada Student Loan

Finally, if you have student loans, you must think about paying it off. The default interest rate on your student loan is a floating interest rate equal to the prime rate. A strategic question to consider is if you should keep your debt with the government or use your line of credit to pay it off. The answer to that is circumstantial.

You may be incentivized to pay off your loan through your line of credit if your bank offers you a better deal. However, keeping your debt with the government may also be beneficial. These benefits include getting a tax credit and qualifying for loan forgiveness under certain circumstances.

For example, during economic turbulence, such as a pandemic, the government may introduce measures to help individuals through interest relief programs. Another consideration is depending on the program you are studying in school and the requirements that come along with it, you may be eligible for specific loan forgiveness programs.

It is worth the research to figure out which method is the best for you as you could end up saving yourself money that could be used towards other expenses. If you are concerned about your debt and confused about the best approach to take when it comes to repayment, it is highly beneficial to speak to a financial advisor about the steps you can take to pay off your debt. At FLC, our advisors can help you visualize your financial house and get on the right path to planning for your future.

At Financial Literacy Counsel, our vision is to create a financially literate world of stronger families and communities for generations to come.  


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