Having the ability to utilize the credit system in Canada is a common way to pursue an education and pay your living expenses while in school, all without needing a small fortune in reserve cash. But while having some student loan debt and consumer debt in minimal amounts may not be harmful, a large amount of either may jeopardize your financial future.
Consider these two examples.
Joe Homeowver has a $250,000 mortgage. He just negotiated a 5 fixed term rate at 4% and is paying it off over 20 years. His monthly mortgage payment is $1,510.
Jane Student has a student loan of $49,600. She owes $28,500 in credit card debt and owes $8,400 against an original car loan of $20,000. Her monthly debt payments?
- Credit cards $570,
- Student loan debt $700 and
- Car loan payments $315
That’s a whopping total of $1,585.
Here’s the problem. After 10 years, our homeowner will have paid off $100,566 in principal and hopefully will have a home with increased value. Our student and consumer debt borrower? She will have paid off her student loans, which is good. However, her car loan was a 7 year loan, so unless she saved another $100 to $200 a month as savings, she will have had to borrow again to purchase a replacement car. And her credit card debt? Sorry, but she still owes $27,224.
And if you think this is just a numbers game, our second example is a representation of an actual case history. Jane Student was struggling with student loan and consumer credit payments that rivaled a mortgage payment and she didn’t see a way she would ever get out of debt, let alone get ahead.
Fortunately having a massive student loan debt or consumer debt isn’t the end of the world, and trying one of the following strategies can help get you back on your feet in quick order:
Seek Student Loan Repayment Assistance
If you are having trouble making your student loan payments you can try two approaches:
- Apply to revise the term of your loan to decrease your monthly payments. If your student loan was acquired through a private institution you will need to talk to your lender. If you have a provincial or Canada Student Loan you can find more information about changing your payment terms here.
- If you are struggling with paying back your student loan, Repayment Assistance (RAP) can help ease the burden of monthly payments. This program allows you to have your current income analyzed, and your monthly payment amounts personally tailored in accordance with the amount of money you make. Programs differ depending upon whether you have a provincial or federal student loan however the principal is the same. If you qualify, you can apply to have your payments reduced.
There are two potential disadvantages with either of these two strategies. You will only qualify for repayment assistance if you meet the program’s income threshold limits or, in the case of a private loan, credit requirements. If the real problem is that other debts are taking up a large portion of your otherwise good income, you won’t qualify. Even if you do qualify you may just be delaying the inevitable. At some point you will have to pay off your student loans.
Talk To A Bankruptcy Trustee About All Your Debts
For those that can’t find relief from repayment assistance, or for individuals that find themselves with a greater portion of consumer debt, it’s probably time to get some help. Using the services of a qualified Bankruptcy Trustee may be the quickest and most cost-effective way to getting back on the path towards financial stability.
Your trustee will review the breakdown of your debts (how much is student loan debt and how much is consumer debt) and help you develop an action plan that makes sense. Any plan will need to address:
- How long since you have been out of school. Under federal insolvency law in Canada, student loans cannot be discharged in either a bankruptcy or consumer proposal unless you have been out of school for 7 years. There are exceptions for financial hardship however again, there are qualification guidelines.
- How much non-student debt you owe. If your credit card and other loan payments are the real problem, dealing with those through a bankruptcy or consumer proposal may help reduce your overall payments enough to solve your financial problems.
If you are paying the equivalent of a mortgage payment in student loan, credit card and other consumer debt payments, chances are the situation is not sustainable. Get help today. They will look at your debts, your income and your overall finances and help you find a solution to reduce your payments and make sure you are on the road to a better financial future.