Most graduates cannot wait to pay off the loans they obtained during their studies and experience the relief that comes with completing their student loan repayment. However, paying off student loans can be a little intimidating for new graduates.
Still, the student loan repayment process of does not have to be exhausting or frustrating, and you can pay off your loans with ease. If you have been wondering how to go about paying your students loans in Canada without stress, you’ve come to the right place.
This article has laid out specific steps that will guide you through paying your student loan interest seamlessly.
Begin payment immediately or make lump sum payments
The government of Canada gives a six months grace period after graduation before students are required to begin their loan repayment. However, starting to pay your loan earlier can reduce the total amount you have to pay eventually since you will be cutting down on interests and reducing the loan life.
For a lump-sum payment, the fund will be used in settling your interest first and then the principal on your loan. The best time to make your lump sum is while you are still in school or during your six months grace period. This period is interest-free, and the money will go into paying your principal loan. As a result, you will have a lesser interest in paying later.
If you are not sure how to make a lump sum payment on a student loan, visit your student loan provider for guidance.
Add a Little Extra to Your Payment
The thought of adding some more money to your loan repayment might seem odd, as you will most likely be getting cash short frequently due to your repayment. However, if you can squeeze in a few additional cash monthly and get it added to your repayment, it can save you thousands in interest throughout the loan.
This method may seem unclear since the student loan providers will typically add the extra fund to your next month’s payment, which in turn, pushes your due date further. To avert this and make the additional fund save you some interest, you should instruct your loan provider to apply overpayments to your current balance, and sustain the next month’s due date as previously stipulated.
The extra cash doesn’t necessarily have to be uniform, if you got a cash gift this month, you might add it, and if it’s just some extra tips at work you have been saving, that could work too.
Pay Twice a Month
Although you might not be able to see the effect of this on your loan repayment without some calculation, sending in half of your regular payment twice a month will help you save money. It would also result in you paying less interest.
So instead of making a full monthly payment, split it into two. You will save a significant amount of interest and also get your loan repayment made faster. You can use the Canadian student loan repayment calculator to find how much you will have to pay biweekly. You may choose to change your payment frequency to weekly or biweekly
Automate Your Payment
Once you are ready to start repaying your student loan, you can contact your loan provider and ask about the option of automated repayment. Most providers allow their student loan repayment automatically withdrawn from their checks or savings accounts as of when due. This is usually stipulated when you set up your loan repayment account.
An advantage of automated repayment is that your loan provider can shave off your Canada student loan interest rate by up to 0.25%. It may not seem much, but slow and steady wins the race, it could take a year or more off the duration of your loan repayment.
Use Tax Benefits to Your Advantage
A good thing about student loans is that interest accrued on them is tax-deductible. This means that you can exclude it from your income. With this, you have lesser taxes paid and a bigger refund. Using tax code to your advantage is effectively using the government’s fund to reduce your loan debt.
Consolidate Your Student Loan
You can consolidate a part or all of your student loans into one monthly payment if it is not a new loan with a fixed rate. Federal student loan consolidation allows you to join your existing student loan into a single direct consolidation loan. The rate is usually lower when consolidated than when paying individual loans. Thus, it will be easier to make a single payment monthly instead of several payments.
If you applied for the Alberta student loans or in some provinces like British Columbia and Manitoba, you might not be able to consolidate your loan upon graduation.
Refinance Your Student Loans
Refinancing your student loan seems to be the fastest and easiest way to repay your student loan, especially if you took multiple loans and have been able to secure a good job.
You can refinance your student loan, either federal or private loan or both into a new student loan with a lesser interest rate. When you commence the procedure to repay your loan, you can select a fixed or variable interest rate.
Also, you can choose a loan repayment term spanning from 5-20 years.
Note that it is quite challenging to refinance federal government student loans, the option available to refinance your student loan is a private provider.
Once you refinance your student loan, you will get a new student loan and will no longer have federal student loans, including remunerations like deferral and forbearance. A lot of providers offer flexible payment terms, including the chances to halt your payments if you cannot pay your student loan or lose your job.
Offset Capitalized Interest
Except the federal government funds your loans, interest will accumulate on it while you are still school, in your grace period (6 months) and during deferment and forbearance. The interest accrued during those periods capitalizes when repayment commences, which means your balance will increase, and you will have to pay interest on a higher amount.
Hence offsetting accumulated interest during your grace period will amount to you getting a lesser balance to pay off. To avoid capitalization of interest, try to make monthly interest payments while it is accumulating. Also, you can make a flat interest payment before your grace period or deferment elapses.
As a student studying with a student loan, repayment is undoubtedly getting to you. Follow some of the tips provided above to save money.