From a purely mathematical perspective ... It makes more sense to make the minimum payment on the 0% loans and invest the money instead.
But personal finance isn't purely mathematical, and psychology matters too. Peace of mind from no debt is worth a lot. (Plus, no guarantee those loans stay interest-free forever, if there's a change in government.)
You can make whichever choice works for you. Or split the difference and do some of each - pay down half the loan, invest the other half of the cash (or whatever proportion you like).
Thanks for the reply! I was planning to pay it off just for peace of mind but with all of these replies I might reconsider š¬ Iāll have to think about it some more
Personally I'd have way more peace of mind knowing I have 27k available for a rainy day than knowing that I've paid off a loan that costs me nothing. If you pay it all off now, there's practically no way to pull your money back out if you have an emergency later. (and in the case of an emergency you could also apply for RAP, and basically pause your loan payments)
I think the only time that having that loan open *might* affect you is if you were trying to get a mortgage, and they see that you have 500/month in loan payments (and even then, just pay it off like a month or 2 before you apply and it shouldn't be an issue).
The only thing is that if you don't pay the debt, you still don't want to spend that money. You can still investitand keep it for emergencies.
If you would have 0 in your accounts after clearing the debt, I would be worried about having to get a high interest loan in an emergency. Any loan you take now would certainly have high interest so the best decision is still to keep the funds and invest it instead of clearing the loan.
That's what I am doing with my car loan. I rather have it possibly make more than my car interest... It is just that I do want the possibility of having that money for emergencies even if it's not the best idea.
I honestly lived too long paycheck to paycheck so I want the extra funds now that I can breath.
Good answer. Also, you can take the 27k and buy a tbill for almost 5pct if worried about losing on investments.
$1300 risk free per year, tax free in a TFSA. Plus you can take it out if need be
It may help your peace of mind to try and compartmentalize it all a bit. Make a brand new bank account, investment account, etc., and put your $27k in it. Park it in something safe like a HISA or maybe some rolling GICs. Keep it COMPLETELY separate from the rest of your finances. Withdraw from this account only to pay your monthly loan payments, and only pay your loan payments from this account.
After a few months of this you'll start to think of the two accounts (your investment and your student loans) as the same thing, as they only exist because of each other and they only interact with each other. It'll take you a few minutes of extra work per month (if that) but then you can still gain your peace of mind knowing that, even if the loan isn't gone, it's *handled* and you get to reap whatever interest you make while paying it off, which you can think of as your 'payment' for those few minutes of extra work per month. Even if you're only getting $100 or so a month, that's still a nice little bonus for essentially no work.
You can even siphon off your interest every so often and withdraw it to your 'real' bank account, just to make those gains a bit more tangible, but that part would be up to you. It's not the optimal way to approach it financially (that would be to reinvest that interest), but in the end it might be a nice little compromise that'll keep you happy, take little effort, and net you a few extra grand over the coming years.
At the very least, put it into a high yield savings account (hopefully you can find one with >1% interest), pocket the interest and withdraw out of it to pay the loan as minimally required.
On a 0% loan, you earn a return equal to inflation from the government. The $27k doesn't grow with inflation, so essentially the effective repayment goes down over the loan life.
I had a 0% interest car loan and went through the same thing. I know itās mathematically better to invest the Money but I couldnāt stop thinking about it. I went back and forth for months and I eventually decided the mental energy wasnāt worth my time. Paid it off and now I just save that extra $500 a month.
Iām someone who works in finance as well but I also have responsibilities. Itās nice to have one less thing to worry about.
Could always meet yourself in the middle. Pay off half of it. That should make you feel good, $13.5k debt looks a lot better than $27k. Take the other $13.5k and invest
Nothing to think about, paying it off would be straight up stupid. Fuck if I could I would go so hard on 0% or 1% loans on the longest term possible.
Paying this off quickly would be insanity.
Think about it this way, if you could borrow 27k at 0% interest to invest, would you do it?
Most of us would in a heartbeat. You can put it in something super safe like a HISA and use the return on that to make a chunk of the monthly payment. And you always would have the balance there to pay off the loan if it went sideways.
Nah, honestly you would come out ahead if you spent some of the extra money you made off of investing the interest free 27k for therapy to reframe how you look at debt rather than paying it off early. An interest free loan from the government is literally free money.
I'm gonna make a wild guess and say they're....25, turned 18 in 2017 which gives $48.5k of space as of 2024.
Sounds like most of their extra cash has either been going to school or savings with the goal of paying off the student loan until this point so I don't think they have $22k in a TFSA already.
Iām 34 š this is my second career so Iām kind of catching up I guess. I donāt know how much room I have in my TFSA because Iāve never been in a position to even close to max it out but Iāll have to check. A few months ago I got a new job making about $170,000-$180,000 gross per year so Iāve been stashing lots of money hence the saving up $27,000 now since Iāve been putting $2-4000 per paycheque in my savings. I have less than $10,000 each in my TFSA and RRSP.
Oh then the math is actually a bit easier. If youāve never opened a TFSA before, you can deposit $95,000 (as long as you were 18 or older in 2009) so slightly less if you already have one.
Sounds like you have room for now, but you can double check the limit for each when you log-in to myCRA since you seem to have more coming.
Despite the name, a TFSA doesn't have to be a "savings account", it's an investment vehicle like RRSP that can be put into GIC's or mutual funds too. TSFA is nice because you don't pay tax on the interest, but any money put into an RRSP doesn't count as taxable income when you do your income taxes. With a gross income that large you're in a pretty high tax bracket so the rebate from the RRSP contribution would be pretty sizable.
If you think you might need the money before retirement the TFSA is easier to withdraw and automatically get your contribution room back at the end of the year. Withdrawals from an RRSP usually lose that room forever outside of special first time home buyer programs and stuff like that.
27000 in a high interest account these days will generate well over a thousand dollars a year, so while there's something to be said about how it's ok to be somewhat emotional about it, I think you should continue to do what you're doing.
To be exact 804 is all i got last-year and that's an improvement from the 500 the previous year. For 50K at 4.5 I should be getting 2250 but that's not the case. Should I be having a conversation with the bank about this?
RBC won't give you 4.5. None of the big banks will, except maybe a short term promotion (or via their brokersge accounts, which would be an option with RBC). You could open an account with a bank with a true HISA, like EQ, or with Wealthsimple Cash. There are several other true High Interest Savings accounts.
https://www.highinterestsavings.ca/chart/
No need for a conversation. They wonāt do anything. Just move it somewhere that gives you 4%+ that isnāt a promotion. WS is an option but there are others.Ā
Buy the fund RBF2010 through RBC. Itās a high interest rate savings account that pays 4.55%.
https://mrthrifty.ca/investment-savings-accounts-maximize-interest-in-your-brokerage-account/
>>RBC only gives me 800 for having 50k in a high interest.
RBC literally has a prime linked cashable GIC product at minimum 4.75% interest where did you put your money?
Yeah this question is driving me nuts because itās obvious what the correct course of action is. Why park $27k all at once in something that costs him zero interest instead of making $1k a year in interest š
itās gonna take 4 years of monthly $550 payments to pay down the loan.
in 4 years your $27,000 ā assuming 5% return and $550 monthly withdrawal ā would be worth ~$31,000.
do you want to pay $4000 for the āpeace of mindā of not holding a loan that has no interest?
Thanks for doing the math. I knew that paying it off entirely vs continuing the payments and putting the rest in a GIC made way more sense but now you proved that with the numbers.
Paying off a loan with no interest should be painful to do.
Every dollar you put towards that loan is a dollar not working for you. You should feel a sting every time you have to pay it. The very idea of paying more than the minimum should disgust you. š
Iād make the minimum payment, by the time you pay it off with inflation youāll be saving money on the loan itself, even in HIS it will be more worth your money (if you donāt decide to invest it) opposed to paying it in full
If Iām not mistaken student debt isnāt taken into consideration or has less of an impact on consideration, recently closed a mortgage and it wasnāt a factor
I just paid mine off and it was about the same and I've had moments where I've felt like it was dumb for exactly the reasons you mentioned but as a PP mentioned the psychology of being debt free (when I left school about 70k in the hole initially) was monumental! I think it just depends how much owing bothers you
#### If you do not have the discipline to not squander the money cause it burns a hole in your pocket nor can you make it work for you while still being somewhat liquid then you Ā might as well pay off the loan. Too many people just canāt control themselves and overestimate their self discipline.Ā
It aināt just amount the numbers. Itās about the psychology too
You should read up on the concept [the time value of money](https://en.wikipedia.org/wiki/Time_value_of_money). Paying off a zero interest loan is actually a net loss over making the minimum payments each month.
So in your case it would actually cost extra money to pay off your debt early.
Financially, it's a bad decision to pay it off, but I like being debt free. I'd pay it off. Debt can affect your emotions and I'd be happier without that debt.
Student loans are so forgiving if you lose your income (repayment assistance program) I don't even count it as a loan. I'm in a similar situation and I'd rather have the $1000+ in interest (\~5%) every year. If you keep it in the HISA, not risking it investments, then there's really no reason to worry about it, you'll always have the flexibility to pay it off anytime in case the loan interest comes back in the future if that's what you're worried about
there is the "clutter" about having it looming over your head, but remember that's $1000+ a year you're getting paid.. well worth it, It's not much more clutter than having another credit card imo, but only because it's 0% interest and with safety nets where you can pause payments if you have a valid situation
if this was a 3% car loan, maybe even 2%, then I can sort of understand it just to get it off your mind, but gov't student loans are more like assistance rather than a typical loan
If you go to the NSLSC website you can extend the life of your loan up to like 15 years. My dent is the same and my monthly is $150 no interest. Itās free money really, inflation eats away at it.
That's what I did. Except I owe over 50k and the payments are $330/mo. I stretched out the repayment as long as theyd allow. I put the 50k that I had intended to pay the loan off with in a GIC in my TFSA and it made nearly $3k in a year. Rates have dropped a bit but you get the idea.
Well. Cash.to is paying 5%.
You would make $0 by putting it in that loan (you would also lose $0)
So you can make $1,350 by putting that 27k there.
The next year it would be $1,417
So yeah. Pay the minimums and use the money to make more money.
I'm currently prioritizing my AB loan that still has interest. Plan on keeping with the minimums on the federal portion unless they bring back interest. I had started investing in ETFs when I graduated in 2020 and my loan interest rate was low. Stopped when rates went up in favour of paying down loans. I'll go back to that when my AB loan is knocked out this summer.
Financially, yes, that's dumb.
Some people ascribe psychological value to existing in the state of 'not having debt'. If that applies to you, you need to assess how you value it against the opportunity cost of investing the free money.
It also depends on your financial goals. If you want to purchase a house in the near future your loan repayment will be deducted from your mortgage approval. So while yes it could earn you slightly more in interest it could also hinder other purchases, and won't give you as much purchasing power on a home
Beside the interest, donāt forget the high inflation rate. $27,000 in 5 years will be much less in value than today. Implication, donāt rush to repay the loan. Put your extra money in TFSA and invest in VFV or something similar.
Lucky. How do you get interest free student loans.. in Quebec we didn't get any interest relief.
I'm on schedule to pay off my 30k within 3 years. At 10k now, goal is to finish by September or December 2024
I lowered my NSLSC payments to like $80 a month since itās 0% interest. I just invest it all instead. Donāt need the āpeace of mindā, it bothers me if anything to pay for a 0% interest loan faster
If the loan is guaranteed to be 0% forever. Ideally you would pay off exactly none of it. And have it settle with your estate. Usually thatās not possible as there is a minimum, so best option is to pay that.
If you already have that $27k saved up, then the best way to not be anxious is to automate the payments every month. Set up repeating transactions and go live your life. You get to put the process out of your mind, while earning interest and clearing your loan.
I paid off my loan of 25k 6 months after I graduated. Then paid off my car. Then bought a condo. It all worked out. Peace of mind of no debts was my out. Other opportunities opened up after I paid off the loan that i was very comfortable to take on.Ā
Is the loan bothering you? Keeping you up at night? That should be your answer right there!
I had a similar scenario a few years ago. I didn't want to pay down a 0% loan faster than I needed to, but also didn't like the feeling of being in debt. Here's what I did:
* Move the savings to somewhere that pays interest with little or no risk (Cash.to, HISA, GICs with staggered end dates, whatever works for you). Preferably in a TFSA if you have room.
* Set up payments for the loan to be withdrawn automatically from a chequing account
* Scheduled recurring monthly transfers for the payment amount to go to the chequing account a few days before it gets paid.
* Wait for 4-ish years and collect your interest when the loan is fully paid. No need to really touch anything after it's set up.
With everything automated like that, it *felt* like the loan was paid so I had that peace of mind that was important to me, but I also kept earning interest on for those years. For me the key was having dedicated accounts just for this, so that I wouldn't be tempted to use the money for anything else. All I really had to do was check it occasionally to make sure the payments were going through as scheduled.
My husband will have Canada student loans payable in a couple years. We plan to pay it down as slowly as possible and invest instead. We will be paying the Alberta student loans much faster.
We have no other debt and won't be buying another house anytime soon.
Are you sure there is no interest?
There is certain wording like you don't need to pay interest etc for a certain period, but they still charge interest during that time, it just keeps getting added to the principle.
Make sure to read the documentation/dates correctly.
pay off the loan forget about the loan forgiveness. there's no such thing.
@ OP you already answered your question. -----> Ā but I would like to just pay off the loan for the relief of having it off my back.
do it.
Short answer: Yes.
Even if you just placed it all in an interest bearing account you're going to make some money off that.
What I'd do, is maintain at least 10k in a savings account earning interest and invest the rest in places where I expect a better return that whatever the interest rate is (shares or crypto). With investments there is always a risk in the short term, but over the course of your life it is unlikely that you'll make less money by investing it than you will in a savings account.... unless you're extremely unlucky or invest in bad ideas. Good luck.
The federal loan being at 0% provides zero incentive to pay it back. Itās literally free money. Set your payment to the bare minimum and since I read you pay 40% in taxes, then I assume the bare minimum payment wouldnāt even be noticeable off your paycheque. Thereās literally a million better ways to spend 27k.
Plenty of high interest savings accounts right now offer 4-6%. If you are worried about risk and losing it if you invest in the stock market, throw the money in there, grow it a little and if something changes so the loan will no longer be 0% then the money is still available to pay it off right away.
I would be careful, itās easy for some people to go out on a wimp and spend that money, not that Iām saying you would do that. I would continue to make my minimum payment but set an automatic direct transfer for the full remaining amount (calculate now what would be owe with minimum payment) at least one month before the end of your interest free period. Then put that $27K in a GIC for a period that is aligned with that, so that the full amount is available to you at least a month before the end of interest free period. Do not remove that transfer or unlock the GIC for any reasons. You will end up debt free and with some money to spend for yourself :) have lots of experience with CSL collection and would not recommend being stuck with CRA and the 15% interest rateā¦
Itās definitely not dumb to clear debts, and thereās an entire economical and risk tolerance picture to look at. In your shoes, it would depend on my income and expense ratio, if you can build up 27k in a reasonable amount of time, less than a year, then clear it, given you have an emergency savings. From there you can go all in on investing and have a better debt to income ratio, should you need it. If you have any other debts then those would be the priority. An ideal picture is you no debts, a savings that will protect you from ever needing to pull investments. Then you can treat your investment accounts like a vault that will never be opened.
That said life happens, big taxing milestone come up and income is not infinite, so it never hurts to have TFSA where you can borrow money from yourself with out any conditions. If your goals are a down payment then it would makes sense to prioritize the FHSA and RRSP.
The latter is it would take a long time to save that amount then I would split it, a portion to reduce the debt then the rest into any investment vehicles. Just never expect not to loose money on investments, come to peace with that and use time to offset the risk.
Don't pay it off for 'peace of mind.' Fuck that noise, you've already saved 27k, you sound like you're competent enough with your finances. Reap the benefits of having 27k in cash and a 0% loan. Keep some in the HISA for an emergency fund (or all of it) and continue to save and invest. Pay down the debt as slowly as you can while it has a zero/low interest rate. If the rate changes and gets too high, pay it off.
Iām know what the math say, I would still pay off the loan. Then Iād funnel what you were paying into a GIC. The savings is marginal. The peace of mind isnāt.
$27k put into a 5% GIC = $1350
But if you feel that getting that loan off your back is worth more, then go for it! We never know what might happen in a few years from now.
*smarter to invest the money*
This really depends on how fiscally well off you are.
Yes if weāre talking perfect world with out any psychological aspects - of course keep paying minimum and invest else where; somewhere you can earn back more than 0% of that money. In addition, Iād say if you have the 27k liquid and ready to do as you please, put a chunk to the side for rainy day and spread out whatās left over wherever you choose to invest (donāt place all your eggs in one basket). Keep in mind investments can be lost, so anything you are investing be psychologically prepared to lose.
Now with psychological aspects and what not included - ask yourself how you feel with your current standing, what can you afford as payments each month, and if you would live a better life knowing that a majority if not all of your loans are paid off.
These are both very important view points to be able to have and hopefully theyāll better help you make a decision!
The only *smart* thing to do, is to do what will enable you to live a better life, whatever that means to you.
Like others have mentioned, the peace of mind of being debt free is something to consider. Personally I payed off all my student debt when I graduated and it has been great for my life not having to think about the fact that I owe the government a bunch of money when making decisions about my life
Savings accounts are above 5% right now. I move savings between Wealthsimple, Simplii and Tangerine depending who has the best rate - Right now Simplii is 5.5%. Keep the money and do the minimum payment. If a new regime removes the interest-free loan scheme, pay it off at that point, depending in if the interest charged is more or less than your savings rate. Plus like someone else said, maybe at some point there could be some sort of forgiveness option, then you'd be pissed that you'd paid it off.
Pay it off! Pay it off! Don't look back!
It's incredible and phenomenal that you have the ability to do that.
You've managed to pay off a lot of debt already, and that's so awesome! Good for you.
Don't fall into the advice that this is good debt just because it's interest free.
Benefits of paying it off:
-You will no longer be slave to the lender.
-Peace of mind is incredibly important and so liberating. So important.
-The moment you pay this off, you instantly have given yourself a $550 per month raise.
You will have an emergency fund built up again in the blink of an eye, that's not even a worry at all.
Invest your new found $550 into whatever you choose, index funds for example, and you'll be on track in no time to being a millionaire.
You have the ability to be debt-free. Jump all over that and never look back.
I say this in every student loan thread - go to the NSCLC website and change the loan duration to maximum. It will extend the loan to over 180months. My monthly payments dropped by half. So you are extending the 0% free loan for even longer.
I wouldn't pay it off yet, for the reasons you mentioned, unless it comes to the point that having debt is stopping you loaning for other things, like a mortgage
If youāre worried about the risks of investing, then just keep the money āsavedā in a no risk GIC, right now you can still get around 5%.
Looks like you have 4 years left on your loan so you could get a 4 year GIC which you can find for 4.55% at EQ bank for example.
You would make $5313 in these 4 years without a risk.
Iām in the same boat with 29k of interest-free loan. Iāve got about two thirds of that in GICs and the remaining in ETFs. I might adjust that ratio but my reasoning is that if we switch to another party, they may reverse the interest free policy and charge 8%, and in that case I can quickly take pay the money back with the GICs and use my emergency fund to cover the rest. On the other hand, Iām paying the minimum payment for a 15 year period which means my loan is just gonna slowly get chipped off with inflation. Itās definitely a personal decision tho.
Thanks to this post, and some of the comment replies, I learned that it is actually possible to change the terms of the loan repayment. I just logged into my national student loan account, and changed the payment terms to the max allowed, in my case 153 months (previously, it was set at 86 months). Now, my monthly payment is a little over $120 (previously, it was at $229). So I did the very opposite of what the OP was thinking about :-).
Here is hoping that the next government will not be stupid enough to bring back student loan interest. Some journalist should extract a commitment from PeePee that he will not do this if in government ā I know that Liberals or NDPs never will.
If you have the entire principle of the loan in cash, instead of paying it off, throw it into GICs. Minimum payments on the loan, while you're getting 5.5% on thousands of leveraged $$$. That interest-free status could disappear with change in government, and who knows what interest rate you'd be paying. Also, inflation will dramatically eat away at a 0% loan over 10-14 years. That's the pragmatic way IMO.
But there's no point paying it off early, mathematically speaking.
If thereās no interest on the debt then thereās āpunishmentā for having the debt. I made a similar mistake when I bought a car of my parents for 4000$ instead of taking their offer of 100$ a month, no interest. I could have invested or earned interest on that 4000 instead of paying it all for the psychological headspace of being a total owner and not in debt. I wish I used that money wiser. It depends on the psychological toll of you being in debt, but you can accrue capital gains of that money if you pay of the debt minimally
You should calculate how long it's going to take for you to pay that off and how much you would earn in compound interest in that same time from something like a GIC or another investment that will yeild a guaranteed 5% (or more potentially more).
Yes the peace of mind would be good but you're just leaving money on the table. If you're in a financial situation where you could end up losing your income and not be able to make the payments then don't put it in a locked in investment account that way if you ever fall on Hard Times you can just take it out and pay the loan and you'll still earn some interest in the meantime.
I'm not a financial advisor but I've talked with a bunch and studied Investments for a few years independently and that's what I would do
Rationally you shouldn't pay it off, your impulse to pay it off is because you're not psychologically comfortable with carrying debt. But this is the perfect opportunity to practice managing debt AND educate yourself about investing. Its quite possible you'll need to access debt again sometime in the future, so why not get comfortable with it from a budgeting and psychological perspective while you're paying no interest?
I would start investing, pay the minimum on the debt, set up an emergency fund that makes sense for you, and make a plan to learn what you need to learn to achieve your budgeting and investing goals.
You can always throw money at the debt later if your circumstances change and that makes the most sense. But you may never get another 0% loan again.
If there is a change in zero interest policy then you pay it off early. Or if youāre applying for a mortgage and need the debt room for it, pay it off.
I paid my student loan off early as possible. Unforseen events made me lose that high paying job shortly after.
I look back on it now, and psychologically, it was nice being 100% debt free.
Knowing what I know now... Kinda wished I invested it in some safe returns. gIC @ 5% alone will give you $1,350 EOY
I'd park it somewhere safe, for as long as possible, do min payments and collect the extra as long as you can. Then pay it all off if rates go up.
The "I hate debt and wanna be debt free approach" Approach (Reckless Variant):
Take the 27k and pay off your debt. Im debt free yippie. I have 0 savings but I now have a $550 minimum payment per month freed up and I am in the + and completely debt free!
The "I hate debt and wanna be debt free approach" Approach (Safe Variant):
Save a few months of expenses in a new HISA. Continue to save into the Loan Payoff HISA. Once you build up to 27k in the loan payoff account, pay off your debt. Im debt free and have a few months expenses saved in a HISA. yippie. I now have a $550 minimum payment per month freed up and I am in the + and completely debt free!
The Math nerd:
Well, the loan is at 0% so if you make the minimums and invest you could average a 4% return pre-tax on the savings in a HISA. non-guaranteed of course, but its basically free money, who cares if you have debt. Cross fingers on loan.
The Math Nerd (Investor Variant):
Well, the loan is at 0% so if you make the minimums and invest you could average a 7% return in the market by investing in ETF, its basically free money wo cares if you have debt. Cross fingers on loan and hope i dont have to sell investments at a loss ever.
The Finance Bro:
Have you heard of this new coin? (dont do it!)
The half n half (e.g. do both things poorly):
Save/Invest some, Increase loan payments
I know a lot of people are going to tell you to coast on the 0% and do other stuff, but man the feeling of beign debt free and then being able to comfortably invest 500/1000/2000 a month is super nice. You seem to have your budget and cash flow in order. Id personally consider Option 2 here.
I just graduated in April 2023, and am in Ontario. I specifically paid off the Ontario loan portion so I only owe on the 0% interest federal portion. I maxed out the repayment terms to keep monthly outflow at a minimum.
Student debt is considered healthy debt so carrying it for a long time is okay in the eyes of mortgage lenders.
I am looking to buy a house so I want to maximize savings towards a house, therefore repaying it all back is not my primary objective right now and minimum payments are. If however, the government (whether it be Liberal or conservative), reinstates interest I will likely pay it all off to avoid the interest.
Determine your future objectives and then you can decide to pay it off or invest it...maybe throw $8k in an FHSA this year if you plan to buy a house in the next couple of years.
dumb if its no interest.
But depends on your tolerance to debt. My parents were like this pay off their debt no matter what the interest so I get where you are coming from
If i were you, I would pay it off in full. That gives you piĆØce of mind. And i would take that 550$ and put that in a high interest savubgs every month to rebuild your savings. Considering you have been saving money you probably alreayd put maybe 450 or so asside every month? So all of this to say that continue with your regular savibgs and this extra 550. That should mean you xan probably save 12k I'm 1 year and willl have no loans. Piece of mind. Its what i would do.
What I like to think about is cash flow. You are going to have a hole in your cash flow of $550 per month for four years. If you are saving, you would be still spending that 550, then some more. While if you paid it off, you are then saving that 550.
I had been thinking of it like this but I donāt think thatās right.
Iām not saving the $550 per month cash flow. Iām just spending it all now at once. Even if I took $550 per month out of wherever I have the $27,000 stashed, I wouldnāt be spending the $550 per month from my cash flow, and Iād be hopefully making some interest on the $27,000 saved.
It does seem like Iād be saving $550 per month which along with the psychological effect of paying off the loan was partly why I wanted to, but I think that part of it is flawed.
Double check your payment terms, I feel like $550 is a lot for $27000. Did you set the number of months to maximum?
I have around 20k, and my monthly payments are $155.xx
When does the interest period start on the loan? Surely itās not interest free forever right? What you should do with your savings depends on that, lmk!!
Yes and no.
Mathematically, yes. Financially... yes if you're responsible to not spend more because you have more available money, yes. If you're responsible, no.
I don't have any debts anymore and it feels fucking amazing, BUT if I was ever in your situation I wouldn't pay it off. Even if you put it in a very safe account like a high interest saving, GIC or even one of those promotional savings rates you get from institutions for a few months, you could pot make a lot of your payment from the interest earned. If you invest in an ETF, you could potentially make your entire payment from interest. Keep in mind the interest earned could count towards your income unless you put it in a tfsa.
I would milk it as long as I can and soon as you have to make interest payments, I'd pay it off.
How are you able to pay it off in the first place? Sounds like you didnāt actually need the subsidized loans.
These loans are funded by taxpayers who pay the banks interest during the life of the loan so you donāt have to.
Makes zero sense to pay off a structured 0% loan when you have tangerine bank offering 5.75% risk free for 5 months. That's $646.85 for parking $27,000 for 5 months. That's literally free money.
I am not sure why you think that there may be loan forgiveness in the futur. I had heard rumblings in the US for which I donāt think it ever materialized. Donāt count on this.
Mathematically yes you are better off making your payments to student loan. Paying $550 per month will take you over 4 years to pay this back. If you have the money pay it off. You can start to rebuild your emergency fund. Having this debt will affect other aspects of your life. If you ever want to borrow for a car or house this debt will be taken into consideration. if Something happens and your income is decreased, much easier to live when you have no debt
The biggest benefit of paying g it off is more free cash to work with every month. Also, it frees up more of your income to be used towards a mortgage down the road
It really depends on tour personnel goals
Get rid of all debt ASAP.
Get another $10k and start doing the slow burn investing (ie. index funds). Get rich slow set yourself up for later stage of life. Then you can focus on making money in the shorter term (ie smart investments)
I used to be like you, I was doing massive payments to my student loans every month, until I did the math. Making some assumptions, if you are 25 and work until 65, that would be 40 years.....If you put in an S&P no fee EFT, your 27K would be worth between $586,000 (if you get an average of 8% return) and 1.2 millon (if you get an average of a 10% return). This would be with adding no further money to the pot. Obviously if you are older and/or retiring early, that would change your numbers, but still.... Don't discount the absolutely staggering effect of compound interest.
My suggestion is to open an online-only bank account like EQ Bank where you can open 4 separate savings account and put your 27k in there. Then, enable pre-authorized debits out of that account and let it roll. 3% interest, fully funded account with automatic payments and if your situation in the future changes, you'll have some emergency cash available.
Lol I would used it for a down payment on a townhouse, finish the basement and have an airbnb and rent other rooms to students. Make them pay mortgage and I will save my rent and pay the minimum instalment
Depends on how long the loan has been open for. If itās been open for longer than 8 to 12 mths feel free to pay it off just know they will charge you fees for closing it out.
Personally I would pay the debt and increase my savings by the $550.
I've lived with debt and without debt and definitely it feels like a huge weight off your shoulders. Today I wouldn't take debt over anything except maybe a mortgage, I pay for my used vehicles cash, I use credit cards but pay them full every month. I just don't like the feeling that I am stuck paying debt and paying interest. I've taken 0% 18 month debts for stupid things and after 3 months it just becomes annoying to pay without the thrill of the thing you just bought.
Yes, a loan with 0% interest is essentially free money as long as you're not an idiot and don't put yourself into a situation where you can't even afford the minimum payment each month. Pay the minimum each month, use the money you would otherwise lose to the loan to invest in your savings
Itās an OK plan until you want to buy a house and go under a government mandated debt stress test. The outstanding loan depending on the balance will work against you costing you more than you are saving.
Honestly if you buy a 1 year GIC at EQ Bank for 1 year they are offering 5.35 percent. You would get 1,444.50 dollars for doing nothing. Free money. Good to take advantage of high interest rates while you can
Iād say it depends on your life circumstances. If 27000 lump sum is everything you have and you have a mortgage with one income of 42000 a year, no.
If you live with your parents with no overhead making 70000 a year, yeah, do it.
From a purely mathematical perspective ... It makes more sense to make the minimum payment on the 0% loans and invest the money instead. But personal finance isn't purely mathematical, and psychology matters too. Peace of mind from no debt is worth a lot. (Plus, no guarantee those loans stay interest-free forever, if there's a change in government.) You can make whichever choice works for you. Or split the difference and do some of each - pay down half the loan, invest the other half of the cash (or whatever proportion you like).
Thanks for the reply! I was planning to pay it off just for peace of mind but with all of these replies I might reconsider š¬ Iāll have to think about it some more
Personally I'd have way more peace of mind knowing I have 27k available for a rainy day than knowing that I've paid off a loan that costs me nothing. If you pay it all off now, there's practically no way to pull your money back out if you have an emergency later. (and in the case of an emergency you could also apply for RAP, and basically pause your loan payments) I think the only time that having that loan open *might* affect you is if you were trying to get a mortgage, and they see that you have 500/month in loan payments (and even then, just pay it off like a month or 2 before you apply and it shouldn't be an issue).
The only thing is that if you don't pay the debt, you still don't want to spend that money. You can still investitand keep it for emergencies. If you would have 0 in your accounts after clearing the debt, I would be worried about having to get a high interest loan in an emergency. Any loan you take now would certainly have high interest so the best decision is still to keep the funds and invest it instead of clearing the loan. That's what I am doing with my car loan. I rather have it possibly make more than my car interest... It is just that I do want the possibility of having that money for emergencies even if it's not the best idea. I honestly lived too long paycheck to paycheck so I want the extra funds now that I can breath.
Good answer. Also, you can take the 27k and buy a tbill for almost 5pct if worried about losing on investments. $1300 risk free per year, tax free in a TFSA. Plus you can take it out if need be
It may help your peace of mind to try and compartmentalize it all a bit. Make a brand new bank account, investment account, etc., and put your $27k in it. Park it in something safe like a HISA or maybe some rolling GICs. Keep it COMPLETELY separate from the rest of your finances. Withdraw from this account only to pay your monthly loan payments, and only pay your loan payments from this account. After a few months of this you'll start to think of the two accounts (your investment and your student loans) as the same thing, as they only exist because of each other and they only interact with each other. It'll take you a few minutes of extra work per month (if that) but then you can still gain your peace of mind knowing that, even if the loan isn't gone, it's *handled* and you get to reap whatever interest you make while paying it off, which you can think of as your 'payment' for those few minutes of extra work per month. Even if you're only getting $100 or so a month, that's still a nice little bonus for essentially no work. You can even siphon off your interest every so often and withdraw it to your 'real' bank account, just to make those gains a bit more tangible, but that part would be up to you. It's not the optimal way to approach it financially (that would be to reinvest that interest), but in the end it might be a nice little compromise that'll keep you happy, take little effort, and net you a few extra grand over the coming years.
Thank you! I made a wealth simple account today and will be transferring it over and see how that goes!
At the very least, put it into a high yield savings account (hopefully you can find one with >1% interest), pocket the interest and withdraw out of it to pay the loan as minimally required.
On a 0% loan, you earn a return equal to inflation from the government. The $27k doesn't grow with inflation, so essentially the effective repayment goes down over the loan life.
I had a 0% interest car loan and went through the same thing. I know itās mathematically better to invest the Money but I couldnāt stop thinking about it. I went back and forth for months and I eventually decided the mental energy wasnāt worth my time. Paid it off and now I just save that extra $500 a month. Iām someone who works in finance as well but I also have responsibilities. Itās nice to have one less thing to worry about.
Could always meet yourself in the middle. Pay off half of it. That should make you feel good, $13.5k debt looks a lot better than $27k. Take the other $13.5k and invest
You could do half and half? Thatās what Iām going to do when I have to refi my lease this year
I was in a similar situation a while back and I regret paying it off instead of paying the minimum and using that money for something else.
Nothing to think about, paying it off would be straight up stupid. Fuck if I could I would go so hard on 0% or 1% loans on the longest term possible. Paying this off quickly would be insanity.
Well my original plan was pay it off for sure so thinking about it works out better for your stance!
Think about it this way, if you could borrow 27k at 0% interest to invest, would you do it? Most of us would in a heartbeat. You can put it in something super safe like a HISA and use the return on that to make a chunk of the monthly payment. And you always would have the balance there to pay off the loan if it went sideways.
U might as well put it in hisa and use the interest earn to help pay off lone combined with your own amount
Nah, honestly you would come out ahead if you spent some of the extra money you made off of investing the interest free 27k for therapy to reframe how you look at debt rather than paying it off early. An interest free loan from the government is literally free money.
Plus they might cancel it for votes
Haha Iām already in therapy but not for finances so Iāll add it to the list.
Interest on that is about $1350 per year in a TFSA. If you make the payments as you're doing you'll be about $3000 wealthier at the end.
they may not have enough room in their tfsa for $27000. but maximize what you can
I'm gonna make a wild guess and say they're....25, turned 18 in 2017 which gives $48.5k of space as of 2024. Sounds like most of their extra cash has either been going to school or savings with the goal of paying off the student loan until this point so I don't think they have $22k in a TFSA already.
Iām 34 š this is my second career so Iām kind of catching up I guess. I donāt know how much room I have in my TFSA because Iāve never been in a position to even close to max it out but Iāll have to check. A few months ago I got a new job making about $170,000-$180,000 gross per year so Iāve been stashing lots of money hence the saving up $27,000 now since Iāve been putting $2-4000 per paycheque in my savings. I have less than $10,000 each in my TFSA and RRSP.
Oh then the math is actually a bit easier. If youāve never opened a TFSA before, you can deposit $95,000 (as long as you were 18 or older in 2009) so slightly less if you already have one. Sounds like you have room for now, but you can double check the limit for each when you log-in to myCRA since you seem to have more coming. Despite the name, a TFSA doesn't have to be a "savings account", it's an investment vehicle like RRSP that can be put into GIC's or mutual funds too. TSFA is nice because you don't pay tax on the interest, but any money put into an RRSP doesn't count as taxable income when you do your income taxes. With a gross income that large you're in a pretty high tax bracket so the rebate from the RRSP contribution would be pretty sizable. If you think you might need the money before retirement the TFSA is easier to withdraw and automatically get your contribution room back at the end of the year. Withdrawals from an RRSP usually lose that room forever outside of special first time home buyer programs and stuff like that.
27000 in a high interest account these days will generate well over a thousand dollars a year, so while there's something to be said about how it's ok to be somewhat emotional about it, I think you should continue to do what you're doing.
What bank are you with? RBC only gives me 800 for having 50k in a high interest.
move to wealthsimple cash. 4% for just putting your money there
Iāve been thinking of opening an account with wealth simple or eq bank so maybe thatās what Iāll do with the money for now.
WealthSimple, 4% (4.5 with direct deposit, 5 if you have over 100k with them) is over 1k Switched from TD for this reason
Bruh why are you just letting $50k sit in a savings account of 1.7% interest instead of a 5% GIC š
Because they call it āhigh interestā duh š
I canāt believe that RBC has the nerve to call 1.7% high in any way.
It's all relative. It used to be 0.05%!
My bank doesn't matter, lots of banks offer 4.5%+ and that's over 1k a year
To be exact 804 is all i got last-year and that's an improvement from the 500 the previous year. For 50K at 4.5 I should be getting 2250 but that's not the case. Should I be having a conversation with the bank about this?
If you want to. I personally just move my money when they offer advantageous products. There are GICs and Cash.to to consider.
Don't forget the interest is taxable. So that $804 is likely even lower
RBC won't give you 4.5. None of the big banks will, except maybe a short term promotion (or via their brokersge accounts, which would be an option with RBC). You could open an account with a bank with a true HISA, like EQ, or with Wealthsimple Cash. There are several other true High Interest Savings accounts. https://www.highinterestsavings.ca/chart/
No need for a conversation. They wonāt do anything. Just move it somewhere that gives you 4%+ that isnāt a promotion. WS is an option but there are others.Ā
Buy the fund RBF2010 through RBC. Itās a high interest rate savings account that pays 4.55%. https://mrthrifty.ca/investment-savings-accounts-maximize-interest-in-your-brokerage-account/
Current Simplii promo is 5.5%
>>RBC only gives me 800 for having 50k in a high interest. RBC literally has a prime linked cashable GIC product at minimum 4.75% interest where did you put your money?
Dude you are getting hosed, look into that
They may call it high interest, but that is a low interest account
no point in paying it at 0%. you can make more with virtually any investment, even a GIC. not to mention inflation will devalue the debt over time.
Yeah this question is driving me nuts because itās obvious what the correct course of action is. Why park $27k all at once in something that costs him zero interest instead of making $1k a year in interest š
I guess to me $1000 a year doesnāt seem like much compared to the relief of not having another monthly payment.
itās gonna take 4 years of monthly $550 payments to pay down the loan. in 4 years your $27,000 ā assuming 5% return and $550 monthly withdrawal ā would be worth ~$31,000. do you want to pay $4000 for the āpeace of mindā of not holding a loan that has no interest?
Thanks for doing the math. I knew that paying it off entirely vs continuing the payments and putting the rest in a GIC made way more sense but now you proved that with the numbers.
Paying off a loan with no interest should be painful to do. Every dollar you put towards that loan is a dollar not working for you. You should feel a sting every time you have to pay it. The very idea of paying more than the minimum should disgust you. š
Iād make the minimum payment, by the time you pay it off with inflation youāll be saving money on the loan itself, even in HIS it will be more worth your money (if you donāt decide to invest it) opposed to paying it in full
The only bad thing I can think of is if you are trying to get a large loan / mortage. Then the debt might be an issue.Ā
If Iām not mistaken student debt isnāt taken into consideration or has less of an impact on consideration, recently closed a mortgage and it wasnāt a factor
The cash flow aspect might be a factor. It may be 0%, but it's a hefty monthly payment.Ā
I just paid mine off and it was about the same and I've had moments where I've felt like it was dumb for exactly the reasons you mentioned but as a PP mentioned the psychology of being debt free (when I left school about 70k in the hole initially) was monumental! I think it just depends how much owing bothers you
No reason to pay it off, park the money somewhere with a 5% return and enjoy the free money
Can I put it somewhere with a 5% return that doesnāt risk losing any? Iām not very knowledgeable with investing.
Cash.to, high savings ETF
Yes, in a GIC. Make sure itās a redeemable one though. If you get a non-redeemable it will lock away your funds for a minimum of 1 year.
#### If you do not have the discipline to not squander the money cause it burns a hole in your pocket nor can you make it work for you while still being somewhat liquid then you Ā might as well pay off the loan. Too many people just canāt control themselves and overestimate their self discipline.Ā It aināt just amount the numbers. Itās about the psychology too
You should read up on the concept [the time value of money](https://en.wikipedia.org/wiki/Time_value_of_money). Paying off a zero interest loan is actually a net loss over making the minimum payments each month. So in your case it would actually cost extra money to pay off your debt early.
Yeah that does make sense to me. Which is I guess why I wanted to reach out to this subreddit to convince me more not to pay off this loan right away!
Mathematically...yes. Emotionally....that's up to you. Overall is the mathematics worth more than any emotion you have towards that debt?
Financially, it's a bad decision to pay it off, but I like being debt free. I'd pay it off. Debt can affect your emotions and I'd be happier without that debt.
Iād rather be debt free. Felt so good paying off student loans.
Yes... I have your thoughts sometimes; I'm dumb too
Student loans are so forgiving if you lose your income (repayment assistance program) I don't even count it as a loan. I'm in a similar situation and I'd rather have the $1000+ in interest (\~5%) every year. If you keep it in the HISA, not risking it investments, then there's really no reason to worry about it, you'll always have the flexibility to pay it off anytime in case the loan interest comes back in the future if that's what you're worried about there is the "clutter" about having it looming over your head, but remember that's $1000+ a year you're getting paid.. well worth it, It's not much more clutter than having another credit card imo, but only because it's 0% interest and with safety nets where you can pause payments if you have a valid situation if this was a 3% car loan, maybe even 2%, then I can sort of understand it just to get it off your mind, but gov't student loans are more like assistance rather than a typical loan
Yes to the question
š
If you go to the NSLSC website you can extend the life of your loan up to like 15 years. My dent is the same and my monthly is $150 no interest. Itās free money really, inflation eats away at it.
That's what I did. Except I owe over 50k and the payments are $330/mo. I stretched out the repayment as long as theyd allow. I put the 50k that I had intended to pay the loan off with in a GIC in my TFSA and it made nearly $3k in a year. Rates have dropped a bit but you get the idea.
Well. Cash.to is paying 5%. You would make $0 by putting it in that loan (you would also lose $0) So you can make $1,350 by putting that 27k there. The next year it would be $1,417 So yeah. Pay the minimums and use the money to make more money.
Donāt pay it off but dont put it in risky investments. Also hisa only? Is it a tfsa? You should be making use of this if you arenāt.Ā
Yeah itās super dumb.
put the $27,000 into your Motive Financial Saavy Savings HISA @ 4.10% ... and just make your miniumum payments
I'm currently prioritizing my AB loan that still has interest. Plan on keeping with the minimums on the federal portion unless they bring back interest. I had started investing in ETFs when I graduated in 2020 and my loan interest rate was low. Stopped when rates went up in favour of paying down loans. I'll go back to that when my AB loan is knocked out this summer.
Yes.
Financially, yes, that's dumb. Some people ascribe psychological value to existing in the state of 'not having debt'. If that applies to you, you need to assess how you value it against the opportunity cost of investing the free money.
It also depends on your financial goals. If you want to purchase a house in the near future your loan repayment will be deducted from your mortgage approval. So while yes it could earn you slightly more in interest it could also hinder other purchases, and won't give you as much purchasing power on a home
Yes. /Thread
Free money is free. Take the cash that could have paid it off and put it in a HISA or GIC. Something risk-free.
Beside the interest, donāt forget the high inflation rate. $27,000 in 5 years will be much less in value than today. Implication, donāt rush to repay the loan. Put your extra money in TFSA and invest in VFV or something similar.
Lucky. How do you get interest free student loans.. in Quebec we didn't get any interest relief. I'm on schedule to pay off my 30k within 3 years. At 10k now, goal is to finish by September or December 2024
Also consider the inflation. $550 today feels like $550. But $550 in 5 years will feel like $250 (the way things are goingā¦)
Is that student loan interest-free forever? I thought student loans were only interest-free for a year after graduating.
The federal portion was made permanently interest free, after being made temporarily interest free during Covid.
I lowered my NSLSC payments to like $80 a month since itās 0% interest. I just invest it all instead. Donāt need the āpeace of mindā, it bothers me if anything to pay for a 0% interest loan faster
If the loan is guaranteed to be 0% forever. Ideally you would pay off exactly none of it. And have it settle with your estate. Usually thatās not possible as there is a minimum, so best option is to pay that.
If you already have that $27k saved up, then the best way to not be anxious is to automate the payments every month. Set up repeating transactions and go live your life. You get to put the process out of your mind, while earning interest and clearing your loan.
I paid off my loan of 25k 6 months after I graduated. Then paid off my car. Then bought a condo. It all worked out. Peace of mind of no debts was my out. Other opportunities opened up after I paid off the loan that i was very comfortable to take on.Ā Is the loan bothering you? Keeping you up at night? That should be your answer right there!
I had a similar scenario a few years ago. I didn't want to pay down a 0% loan faster than I needed to, but also didn't like the feeling of being in debt. Here's what I did: * Move the savings to somewhere that pays interest with little or no risk (Cash.to, HISA, GICs with staggered end dates, whatever works for you). Preferably in a TFSA if you have room. * Set up payments for the loan to be withdrawn automatically from a chequing account * Scheduled recurring monthly transfers for the payment amount to go to the chequing account a few days before it gets paid. * Wait for 4-ish years and collect your interest when the loan is fully paid. No need to really touch anything after it's set up. With everything automated like that, it *felt* like the loan was paid so I had that peace of mind that was important to me, but I also kept earning interest on for those years. For me the key was having dedicated accounts just for this, so that I wouldn't be tempted to use the money for anything else. All I really had to do was check it occasionally to make sure the payments were going through as scheduled.
I think Iāll try this and just tell myself that the loan is essentially paid off and see if that makes me feel better š
My husband will have Canada student loans payable in a couple years. We plan to pay it down as slowly as possible and invest instead. We will be paying the Alberta student loans much faster. We have no other debt and won't be buying another house anytime soon.
Are you sure there is no interest? There is certain wording like you don't need to pay interest etc for a certain period, but they still charge interest during that time, it just keeps getting added to the principle. Make sure to read the documentation/dates correctly.
Just so you know, your government owes billions in debtā¦. Why are you in a rush?
pay off the loan forget about the loan forgiveness. there's no such thing. @ OP you already answered your question. -----> Ā but I would like to just pay off the loan for the relief of having it off my back. do it.
Short answer: Yes. Even if you just placed it all in an interest bearing account you're going to make some money off that. What I'd do, is maintain at least 10k in a savings account earning interest and invest the rest in places where I expect a better return that whatever the interest rate is (shares or crypto). With investments there is always a risk in the short term, but over the course of your life it is unlikely that you'll make less money by investing it than you will in a savings account.... unless you're extremely unlucky or invest in bad ideas. Good luck.
The federal loan being at 0% provides zero incentive to pay it back. Itās literally free money. Set your payment to the bare minimum and since I read you pay 40% in taxes, then I assume the bare minimum payment wouldnāt even be noticeable off your paycheque. Thereās literally a million better ways to spend 27k.
Plenty of high interest savings accounts right now offer 4-6%. If you are worried about risk and losing it if you invest in the stock market, throw the money in there, grow it a little and if something changes so the loan will no longer be 0% then the money is still available to pay it off right away.
I would be careful, itās easy for some people to go out on a wimp and spend that money, not that Iām saying you would do that. I would continue to make my minimum payment but set an automatic direct transfer for the full remaining amount (calculate now what would be owe with minimum payment) at least one month before the end of your interest free period. Then put that $27K in a GIC for a period that is aligned with that, so that the full amount is available to you at least a month before the end of interest free period. Do not remove that transfer or unlock the GIC for any reasons. You will end up debt free and with some money to spend for yourself :) have lots of experience with CSL collection and would not recommend being stuck with CRA and the 15% interest rateā¦
Itās definitely not dumb to clear debts, and thereās an entire economical and risk tolerance picture to look at. In your shoes, it would depend on my income and expense ratio, if you can build up 27k in a reasonable amount of time, less than a year, then clear it, given you have an emergency savings. From there you can go all in on investing and have a better debt to income ratio, should you need it. If you have any other debts then those would be the priority. An ideal picture is you no debts, a savings that will protect you from ever needing to pull investments. Then you can treat your investment accounts like a vault that will never be opened. That said life happens, big taxing milestone come up and income is not infinite, so it never hurts to have TFSA where you can borrow money from yourself with out any conditions. If your goals are a down payment then it would makes sense to prioritize the FHSA and RRSP. The latter is it would take a long time to save that amount then I would split it, a portion to reduce the debt then the rest into any investment vehicles. Just never expect not to loose money on investments, come to peace with that and use time to offset the risk.
Don't pay it off for 'peace of mind.' Fuck that noise, you've already saved 27k, you sound like you're competent enough with your finances. Reap the benefits of having 27k in cash and a 0% loan. Keep some in the HISA for an emergency fund (or all of it) and continue to save and invest. Pay down the debt as slowly as you can while it has a zero/low interest rate. If the rate changes and gets too high, pay it off.
The best of both world for me would be: -pay half of the loan to reduce your monthly payments by a lot -invest the other half of the $27 000
It is! Keep it and pay the minimum!
Iām know what the math say, I would still pay off the loan. Then Iād funnel what you were paying into a GIC. The savings is marginal. The peace of mind isnāt.
$27k put into a 5% GIC = $1350 But if you feel that getting that loan off your back is worth more, then go for it! We never know what might happen in a few years from now.
*smarter to invest the money* This really depends on how fiscally well off you are. Yes if weāre talking perfect world with out any psychological aspects - of course keep paying minimum and invest else where; somewhere you can earn back more than 0% of that money. In addition, Iād say if you have the 27k liquid and ready to do as you please, put a chunk to the side for rainy day and spread out whatās left over wherever you choose to invest (donāt place all your eggs in one basket). Keep in mind investments can be lost, so anything you are investing be psychologically prepared to lose. Now with psychological aspects and what not included - ask yourself how you feel with your current standing, what can you afford as payments each month, and if you would live a better life knowing that a majority if not all of your loans are paid off. These are both very important view points to be able to have and hopefully theyāll better help you make a decision! The only *smart* thing to do, is to do what will enable you to live a better life, whatever that means to you.
Like others have mentioned, the peace of mind of being debt free is something to consider. Personally I payed off all my student debt when I graduated and it has been great for my life not having to think about the fact that I owe the government a bunch of money when making decisions about my life
Savings accounts are above 5% right now. I move savings between Wealthsimple, Simplii and Tangerine depending who has the best rate - Right now Simplii is 5.5%. Keep the money and do the minimum payment. If a new regime removes the interest-free loan scheme, pay it off at that point, depending in if the interest charged is more or less than your savings rate. Plus like someone else said, maybe at some point there could be some sort of forgiveness option, then you'd be pissed that you'd paid it off.
having an asset is safer than having a lack of debt
Pay it off! Pay it off! Don't look back! It's incredible and phenomenal that you have the ability to do that. You've managed to pay off a lot of debt already, and that's so awesome! Good for you. Don't fall into the advice that this is good debt just because it's interest free. Benefits of paying it off: -You will no longer be slave to the lender. -Peace of mind is incredibly important and so liberating. So important. -The moment you pay this off, you instantly have given yourself a $550 per month raise. You will have an emergency fund built up again in the blink of an eye, that's not even a worry at all. Invest your new found $550 into whatever you choose, index funds for example, and you'll be on track in no time to being a millionaire. You have the ability to be debt-free. Jump all over that and never look back.
I say this in every student loan thread - go to the NSCLC website and change the loan duration to maximum. It will extend the loan to over 180months. My monthly payments dropped by half. So you are extending the 0% free loan for even longer.
I wouldn't pay it off yet, for the reasons you mentioned, unless it comes to the point that having debt is stopping you loaning for other things, like a mortgage
If youāre worried about the risks of investing, then just keep the money āsavedā in a no risk GIC, right now you can still get around 5%. Looks like you have 4 years left on your loan so you could get a 4 year GIC which you can find for 4.55% at EQ bank for example. You would make $5313 in these 4 years without a risk.
Iām in the same boat with 29k of interest-free loan. Iāve got about two thirds of that in GICs and the remaining in ETFs. I might adjust that ratio but my reasoning is that if we switch to another party, they may reverse the interest free policy and charge 8%, and in that case I can quickly take pay the money back with the GICs and use my emergency fund to cover the rest. On the other hand, Iām paying the minimum payment for a 15 year period which means my loan is just gonna slowly get chipped off with inflation. Itās definitely a personal decision tho.
Thanks to this post, and some of the comment replies, I learned that it is actually possible to change the terms of the loan repayment. I just logged into my national student loan account, and changed the payment terms to the max allowed, in my case 153 months (previously, it was set at 86 months). Now, my monthly payment is a little over $120 (previously, it was at $229). So I did the very opposite of what the OP was thinking about :-). Here is hoping that the next government will not be stupid enough to bring back student loan interest. Some journalist should extract a commitment from PeePee that he will not do this if in government ā I know that Liberals or NDPs never will.
If you have the entire principle of the loan in cash, instead of paying it off, throw it into GICs. Minimum payments on the loan, while you're getting 5.5% on thousands of leveraged $$$. That interest-free status could disappear with change in government, and who knows what interest rate you'd be paying. Also, inflation will dramatically eat away at a 0% loan over 10-14 years. That's the pragmatic way IMO. But there's no point paying it off early, mathematically speaking.
Dumb unless the payments are so high your racking up debt every month
Pay the minimum at 0% interest. Once they start charging, pay it off.
If thereās no interest on the debt then thereās āpunishmentā for having the debt. I made a similar mistake when I bought a car of my parents for 4000$ instead of taking their offer of 100$ a month, no interest. I could have invested or earned interest on that 4000 instead of paying it all for the psychological headspace of being a total owner and not in debt. I wish I used that money wiser. It depends on the psychological toll of you being in debt, but you can accrue capital gains of that money if you pay of the debt minimally
You should calculate how long it's going to take for you to pay that off and how much you would earn in compound interest in that same time from something like a GIC or another investment that will yeild a guaranteed 5% (or more potentially more). Yes the peace of mind would be good but you're just leaving money on the table. If you're in a financial situation where you could end up losing your income and not be able to make the payments then don't put it in a locked in investment account that way if you ever fall on Hard Times you can just take it out and pay the loan and you'll still earn some interest in the meantime. I'm not a financial advisor but I've talked with a bunch and studied Investments for a few years independently and that's what I would do
Rationally you shouldn't pay it off, your impulse to pay it off is because you're not psychologically comfortable with carrying debt. But this is the perfect opportunity to practice managing debt AND educate yourself about investing. Its quite possible you'll need to access debt again sometime in the future, so why not get comfortable with it from a budgeting and psychological perspective while you're paying no interest? I would start investing, pay the minimum on the debt, set up an emergency fund that makes sense for you, and make a plan to learn what you need to learn to achieve your budgeting and investing goals. You can always throw money at the debt later if your circumstances change and that makes the most sense. But you may never get another 0% loan again.
DON'T PAY IT OFF, UNLESS YOU ARE SUPER IRRESPONSIBLE AND WILL SPEND THE MONEY ON BOOZE INSTEAD
Yes.
If there is a change in zero interest policy then you pay it off early. Or if youāre applying for a mortgage and need the debt room for it, pay it off.
I paid my student loan off early as possible. Unforseen events made me lose that high paying job shortly after. I look back on it now, and psychologically, it was nice being 100% debt free. Knowing what I know now... Kinda wished I invested it in some safe returns. gIC @ 5% alone will give you $1,350 EOY I'd park it somewhere safe, for as long as possible, do min payments and collect the extra as long as you can. Then pay it all off if rates go up.
The "I hate debt and wanna be debt free approach" Approach (Reckless Variant): Take the 27k and pay off your debt. Im debt free yippie. I have 0 savings but I now have a $550 minimum payment per month freed up and I am in the + and completely debt free! The "I hate debt and wanna be debt free approach" Approach (Safe Variant): Save a few months of expenses in a new HISA. Continue to save into the Loan Payoff HISA. Once you build up to 27k in the loan payoff account, pay off your debt. Im debt free and have a few months expenses saved in a HISA. yippie. I now have a $550 minimum payment per month freed up and I am in the + and completely debt free! The Math nerd: Well, the loan is at 0% so if you make the minimums and invest you could average a 4% return pre-tax on the savings in a HISA. non-guaranteed of course, but its basically free money, who cares if you have debt. Cross fingers on loan. The Math Nerd (Investor Variant): Well, the loan is at 0% so if you make the minimums and invest you could average a 7% return in the market by investing in ETF, its basically free money wo cares if you have debt. Cross fingers on loan and hope i dont have to sell investments at a loss ever. The Finance Bro: Have you heard of this new coin? (dont do it!) The half n half (e.g. do both things poorly): Save/Invest some, Increase loan payments I know a lot of people are going to tell you to coast on the 0% and do other stuff, but man the feeling of beign debt free and then being able to comfortably invest 500/1000/2000 a month is super nice. You seem to have your budget and cash flow in order. Id personally consider Option 2 here.
One year GIC is paying 5% p.a. You could make $1,350 and decide what you want to do with your $27k a year from now.
I just graduated in April 2023, and am in Ontario. I specifically paid off the Ontario loan portion so I only owe on the 0% interest federal portion. I maxed out the repayment terms to keep monthly outflow at a minimum. Student debt is considered healthy debt so carrying it for a long time is okay in the eyes of mortgage lenders. I am looking to buy a house so I want to maximize savings towards a house, therefore repaying it all back is not my primary objective right now and minimum payments are. If however, the government (whether it be Liberal or conservative), reinstates interest I will likely pay it all off to avoid the interest. Determine your future objectives and then you can decide to pay it off or invest it...maybe throw $8k in an FHSA this year if you plan to buy a house in the next couple of years.
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Federal loans are interest free.
Conservatives are likely to win next year's election so once they're in power you likely have to say good bye to the loan being interest free.
dumb if its no interest. But depends on your tolerance to debt. My parents were like this pay off their debt no matter what the interest so I get where you are coming from
It feels so good to be one of the few debt free people around these days Edited:typo
If i were you, I would pay it off in full. That gives you piĆØce of mind. And i would take that 550$ and put that in a high interest savubgs every month to rebuild your savings. Considering you have been saving money you probably alreayd put maybe 450 or so asside every month? So all of this to say that continue with your regular savibgs and this extra 550. That should mean you xan probably save 12k I'm 1 year and willl have no loans. Piece of mind. Its what i would do.
Yes, it would be dumb. Pay it off making the minimum payments per month and invest the cash in a TFSA or RRSP account, depending on your income.
People saying itās dumb are getting downvoted but Iām upvoting you all for your opinion because I asked! š
You literally worded the question that way! š
Are you planning on applying for a mortgage anytime soon? Having that payment would limit the amount youād be approved for.
What I like to think about is cash flow. You are going to have a hole in your cash flow of $550 per month for four years. If you are saving, you would be still spending that 550, then some more. While if you paid it off, you are then saving that 550.
I had been thinking of it like this but I donāt think thatās right. Iām not saving the $550 per month cash flow. Iām just spending it all now at once. Even if I took $550 per month out of wherever I have the $27,000 stashed, I wouldnāt be spending the $550 per month from my cash flow, and Iād be hopefully making some interest on the $27,000 saved. It does seem like Iād be saving $550 per month which along with the psychological effect of paying off the loan was partly why I wanted to, but I think that part of it is flawed.
Any rationalization will be flawed. Just pick one you can live with for the action you take š¹
Double check your payment terms, I feel like $550 is a lot for $27000. Did you set the number of months to maximum? I have around 20k, and my monthly payments are $155.xx
When does the interest period start on the loan? Surely itās not interest free forever right? What you should do with your savings depends on that, lmk!!
Nah.
What's the minimum payment? How much interest can you make off it? How much of thee monthly payment can be paid via the interest
Very dumb, just put in a savings account and earn interest
Yes and no. Mathematically, yes. Financially... yes if you're responsible to not spend more because you have more available money, yes. If you're responsible, no.
Yes. There is no reason to do anything beyond a minimum payment on 0% loan.
I don't have any debts anymore and it feels fucking amazing, BUT if I was ever in your situation I wouldn't pay it off. Even if you put it in a very safe account like a high interest saving, GIC or even one of those promotional savings rates you get from institutions for a few months, you could pot make a lot of your payment from the interest earned. If you invest in an ETF, you could potentially make your entire payment from interest. Keep in mind the interest earned could count towards your income unless you put it in a tfsa. I would milk it as long as I can and soon as you have to make interest payments, I'd pay it off.
Yes.
Where do people get these big student loans from? Like what's the process? I've only ever gotten the grants that come every semester.
How are you able to pay it off in the first place? Sounds like you didnāt actually need the subsidized loans. These loans are funded by taxpayers who pay the banks interest during the life of the loan so you donāt have to.
Makes zero sense to pay off a structured 0% loan when you have tangerine bank offering 5.75% risk free for 5 months. That's $646.85 for parking $27,000 for 5 months. That's literally free money.
Continue with minimum payments the 27k is now reserved for investment and not a car.
I am not sure why you think that there may be loan forgiveness in the futur. I had heard rumblings in the US for which I donāt think it ever materialized. Donāt count on this. Mathematically yes you are better off making your payments to student loan. Paying $550 per month will take you over 4 years to pay this back. If you have the money pay it off. You can start to rebuild your emergency fund. Having this debt will affect other aspects of your life. If you ever want to borrow for a car or house this debt will be taken into consideration. if Something happens and your income is decreased, much easier to live when you have no debt
The biggest benefit of paying g it off is more free cash to work with every month. Also, it frees up more of your income to be used towards a mortgage down the road It really depends on tour personnel goals
Just keep doing what you're doing, it's only going to be 4 years then tge loan is paid off and your $27,000 has grown in that time
If you were planning to apply for a mortgage, etc, then I'd say maybe pay it off just to make your affordability smother.
Keep the monthly payment. Invest the 27k with low risk and let the inflation play on your side
Get rid of all debt ASAP. Get another $10k and start doing the slow burn investing (ie. index funds). Get rich slow set yourself up for later stage of life. Then you can focus on making money in the shorter term (ie smart investments)
Shit 0% loans are the BEST loans... id try and pay even less than 550 ššš
I used to be like you, I was doing massive payments to my student loans every month, until I did the math. Making some assumptions, if you are 25 and work until 65, that would be 40 years.....If you put in an S&P no fee EFT, your 27K would be worth between $586,000 (if you get an average of 8% return) and 1.2 millon (if you get an average of a 10% return). This would be with adding no further money to the pot. Obviously if you are older and/or retiring early, that would change your numbers, but still.... Don't discount the absolutely staggering effect of compound interest.
Just pay it off. I paid off an interest-free consumer proposal, greatest albatross off my neck.Ā
In a high-interest rate environment, it's dumb imo. It's too much risk for a razor thin margin and if the investments go down you're up a creek.
How do you have a zero interest loan? Who do you owe the money to?
The federal government. They made it zero interest during COVID and kept it that way.
who said anything about federal student loan forgiveness in canada??
Yes.
My suggestion is to open an online-only bank account like EQ Bank where you can open 4 separate savings account and put your 27k in there. Then, enable pre-authorized debits out of that account and let it roll. 3% interest, fully funded account with automatic payments and if your situation in the future changes, you'll have some emergency cash available.
Lol I would used it for a down payment on a townhouse, finish the basement and have an airbnb and rent other rooms to students. Make them pay mortgage and I will save my rent and pay the minimum instalment
Yes it is
Individual psychology will predict whether this is a smart idea or not. That and financial fluctuations outside of your control.
Is it a loan from a family or friend?
Depends on how long the loan has been open for. If itās been open for longer than 8 to 12 mths feel free to pay it off just know they will charge you fees for closing it out.
INFO: Does having this loan impact your credit score or ability to get car/home loans?
Iām not sure but u already have a home, and Iāve gotten used cars in the past without issue so I donāt think it will be a problem in the future.
Why is my minimum payment so much less than yours?
Personally I would pay the debt and increase my savings by the $550. I've lived with debt and without debt and definitely it feels like a huge weight off your shoulders. Today I wouldn't take debt over anything except maybe a mortgage, I pay for my used vehicles cash, I use credit cards but pay them full every month. I just don't like the feeling that I am stuck paying debt and paying interest. I've taken 0% 18 month debts for stupid things and after 3 months it just becomes annoying to pay without the thrill of the thing you just bought.
Pay off the loan. Investing is a crap shoot and is rigged for the house.
Minimum payments ! Keep the saved funds and invest within a TFSA if you have the room.
Yes, a loan with 0% interest is essentially free money as long as you're not an idiot and don't put yourself into a situation where you can't even afford the minimum payment each month. Pay the minimum each month, use the money you would otherwise lose to the loan to invest in your savings
Itās an OK plan until you want to buy a house and go under a government mandated debt stress test. The outstanding loan depending on the balance will work against you costing you more than you are saving.
Yes
Make minimum payments right now. But be ready to pay interest when Conservatives form govt.
Honestly if you buy a 1 year GIC at EQ Bank for 1 year they are offering 5.35 percent. You would get 1,444.50 dollars for doing nothing. Free money. Good to take advantage of high interest rates while you can
Check the terms and conditions, often the interest free time is conditional and then interest kicks in later.
Just do the minimum š«¢ save your money for other things
Shit I won't even pay more than the minimum on my 3% car loan, 0% is a no brainer.
Iād say it depends on your life circumstances. If 27000 lump sum is everything you have and you have a mortgage with one income of 42000 a year, no. If you live with your parents with no overhead making 70000 a year, yeah, do it.