How We Paid Off $50,000 of Debt in 4 Years – Part 1
Student debt is becoming a bit of a problem in our society these days. Education costs are rising faster than inflation so it’s becoming more difficult to “work” your way through school. Gone are the days when you could work 4 hours every day to ensure you had no debts at the end of the experience. I recently read that you’d have to work upwards of 17 hours a day at a minimum wage job to pay for a 4 year University degree in order to escape debt-free. Ouch.
At the end of 5 years of education, my wife and I had accumulated $40,000 in student debts ($20,000 each) and right after graduation, we bought a $10,000 used vehicle. Our student debts were at those levels because Stephanie took the Co-Op program and found some great paying government jobs, while I was able to live at home for all of my post-secondary tenure. We were lucky in that sense.
Over the next two blogs, I will be sharing what I feel were the 8 Biggest Factors that helped us get out of debt quicker.
Factor 1 - Immediately increase your minimum payments to OSAP
OSAP suggests that you repay your loan over 9.5 years after graduation. According to their calculation and interest rates at that time, I should have paid $239/month. Before repayment begins, you are given the option to increase your monthly payment if you want (and are capable). This is by far the easiest way to save hundreds of dollars of interest if you can swing it because the extra payment goes straight to reducing the principal loan amount. At this point in time, you aren’t used to making student loan payments, so increasing them $40-$50 shouldn’t be too big of a hit if you have a job lined up.I decided to round up and begin my monthly repayments at $300/m towards my balance.
Subsequently, each year, we increased our OSAP payments by $100/m. In 2013, they both went up to $400/month, then in 2014 up to $500/month. After the last increase, our OSAP payments were more than our rent payments. It sounds crazy, it is crazy, we were called crazy, but it helped us get out of debt much quicker! In the upcoming weeks, I'll discuss what measures we took to not only reduce our spending, but increase our incomes to make this happen.
Factor 2 - We found a cheap apartment rental and stayed put as long as possible
We lived in what our friends called “the shoebox”. The only furniture we had was a loveseat and a 2 person dinner table. If we had more than 2 guests over, it was inevitable that you would literally rub shoulders with someone else. The place was small, but it was also inexpensive. We paid $700 and it included cable, internet, parking and laundry! One of the biggest benefits of a small space is that you are not tempted to buy anything when out shopping because there is nowhere to put it!
Once we found this place, we stayed there until the owners sold the house. The benefit of staying put is that the landlord could only increase rent once per year and at a marginal rate. When you have to move to a new rental, you’re going to have to pay what the current market dictates. Moving is when you’ll experience big changes in rental costs.
Factor 3 - Every tax return went towards debt
I mentioned this in my blog last week. As recent graduates, we both had a lot of tuition credits left to claim for taxes. Instead of going on vacation or buying something really expensive, we put our tax refunds right towards our car loan, then in later years towards OSAP. Once again, these pre-payments helped immensely because they go straight towards the principal.
Stay tuned next week for more actionable tips on how you, too, can get rid of debt at an accelerated pace.