Personal Finance

22 y/o looking for some financial advice

  • Last Updated:
  • Sep 17th, 2014 1:37 pm
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[OP]
Newbie
Sep 14, 2014
9 posts
3 upvotes
Vancouver, BC

22 y/o looking for some financial advice

Any advice or recommendations much appreciated! Thank you :lol:

22 year old full-time uni student here. I should be done with my classes by the end of this year with the grad ceremony next May. I'll end up with about 22k in student loans debt. The grace period is from late-December to May, meaning I go into repayment in June 2015. I expect monthly payments to be around 300/month?

Currently I have a part-time job (couple days a week with varying hours) that gets me around 1k/month. When I finish school, I intend to keep this part-time. I’m still trying to figure out what “job” I can get with my degree. So assume 1k/month income for now.

I live at home with family so living/housing expenses are minimal at the moment, at 200/month (cell phone bill, going out, transit, etc).

I have about 15k saved up, sitting in a high-rate savings account with 1.05% interest.

I’m looking to open a TFSA - have 26k unused contribution room. Where should I open it? A friend of mine recommends doing it at Industrial Alliance (http://www.inalco.com/english/individua ... a/tfsa.jsp) and then starting investments with funds. How different would this option be as opposed to say, opening a TFSA at TD or Coast Capital for example?

Another question, should I be buying life insurance? At my age, monthly premiums are “low”. 10/month for 100k Term-10, although it doubles to 20/month for the following 10 years, and increases more after that. Or instead of Term, should I look into UL instead? UL appeals in the sense that the investment portion from interest earned will eventually be able to cover the basic cost of insurance, so I don’t have to pay every month when that happens.

Summary:
  • 22k student loans debt, repayment starts June 2015
  • current income 1k/month, from part-time
  • expenses 200/month
  • 15k saved up
  • want to start TFSA
  • investment options
  • what about life insurance? UL?
14 replies
Sr. Member
Oct 31, 2003
810 posts
121 upvotes
Woodbridge
step31 wrote:
Sep 15th, 2014 11:02 pm
Any advice or recommendations much appreciated! Thank you :lol:

22 year old full-time uni student here. I should be done with my classes by the end of this year with the grad ceremony next May. I'll end up with about 22k in student loans debt. The grace period is from late-December to May, meaning I go into repayment in June 2015. I expect monthly payments to be around 300/month?

Currently I have a part-time job (couple days a week with varying hours) that gets me around 1k/month. When I finish school, I intend to keep this part-time. I’m still trying to figure out what “job” I can get with my degree. So assume 1k/month income for now.

I live at home with family so living/housing expenses are minimal at the moment, at 200/month (cell phone bill, going out, transit, etc).

I have about 15k saved up, sitting in a high-rate savings account with 1.05% interest.

I’m looking to open a TFSA - have 26k unused contribution room. Where should I open it? A friend of mine recommends doing it at Industrial Alliance (http://www.inalco.com/english/individua ... a/tfsa.jsp) and then starting investments with funds. How different would this option be as opposed to say, opening a TFSA at TD or Coast Capital for example?

Another question, should I be buying life insurance? At my age, monthly premiums are “low”. 10/month for 100k Term-10, although it doubles to 20/month for the following 10 years, and increases more after that. Or instead of Term, should I look into UL instead? UL appeals in the sense that the investment portion from interest earned will eventually be able to cover the basic cost of insurance, so I don’t have to pay every month when that happens.

Summary:
  • 22k student loans debt, repayment starts June 2015
  • current income 1k/month, from part-time
  • expenses 200/month
  • 15k saved up
  • want to start TFSA
  • investment options
  • what about life insurance? UL?
Do you have any credit cards? If not, try applying for one of those student credit cards and if you get one, congrats as this will help you establish your credit history!

If you can't get one, apply for a secured credit card. Put $1,500 of your $15k as a deposit.

Secondly, put everything you got and pay off that student loan asap. $13.5k-$15k immediately. That'll save you thousands of dollars in future interest.

tfsa, life insurance, investment options, all later.

career wise? not enough info given.
Newbie
Mar 12, 2008
28 posts
5 upvotes
Toronto/Markham
+1 pay off as much of the student loan as you can. Your 'high interest' is actually a net loss after taxes and inflation
[OP]
Newbie
Sep 14, 2014
9 posts
3 upvotes
Vancouver, BC
CLOSER wrote:
Sep 15th, 2014 11:31 pm
Do you have any credit cards? If not, try applying for one of those student credit cards and if you get one, congrats as this will help you establish your credit history!

If you can't get one, apply for a secured credit card. Put $1,500 of your $15k as a deposit.

Secondly, put everything you got and pay off that student loan asap. $13.5k-$15k immediately. That'll save you thousands of dollars in future interest.

tfsa, life insurance, investment options, all later.

career wise? not enough info given.
Credit cards yes, I have one from HSBC and mbna Smart Cash, totaling a 4k credit limit. I pay off the balance in full, always. Heard somewhere that it's a good idea to use not more than 30% of that limit if possible? Is this right?

As for the student loans, it's a bit troubling to think about. And a scary thought too that BOOM! most of what I've saved disappears just like that by paying off those loans right away. :eek: But ya I do understand that the interest adds up the longer I drag it out.
[OP]
Newbie
Sep 14, 2014
9 posts
3 upvotes
Vancouver, BC
daking555 wrote:
Sep 15th, 2014 11:35 pm
+1 pay off as much of the student loan as you can. Your 'high interest' is actually a net loss after taxes and inflation
Ah, I never thought about it that way. So a high interest account like that isn't recommended? Better to invest some of it?
Deal Fanatic
User avatar
Aug 22, 2005
7734 posts
932 upvotes
Definitely pay of your student loans ASAP.

I'm not sure about BC, but with OSAP, interest starts accumulating on our loans as soon as we graduate (Federal portion, Provincial is deferred for 6 months). So although payments aren't due for 6 months, you should try to pay off as soon as possible.

This is priority number 1. I would put all 15k on your student loan, and then whatever excess is left over after your expenses from your part time job.
step31 wrote:
Sep 16th, 2014 12:38 am
Ah, I never thought about it that way. So a high interest account like that isn't recommended? Better to invest some of it?
A high interest account isn't a bad idea, usually. But it's not a good idea to let interest accumulate on your debt while you make a measly amount of interest from your savings. The interest owed is more than the interest earned in this case.
Newbie
Mar 12, 2008
28 posts
5 upvotes
Toronto/Markham
step31 wrote:
Sep 16th, 2014 12:38 am
Ah, I never thought about it that way. So a high interest account like that isn't recommended? Better to invest some of it?
There isnt anything wrong with saving at the same time as paying off debts - its just that 1.05% is not high. inflation is at about 2.4%. so yes your $1 will still be $1 but the value has gone down, also you are required to pay taxes on the interest you earn - which based on a part time job, and still being able to use tuition tax credits may actually be $0....and the rate on your student loan ( im assuming works like osap) Loan interest will be like 5.5%ish

now depending on your risk tolerance you can earn alot more than 6% investing you money - but that comes with the risk of losing it also....

Personally - when i graduated, i was in a similar situation as you - and as soon as i graduated, i dumped my savings into my OSAP loan to reduce the Interest the govnt will charge during the Grace period for payments, and was taking a portion of the $ i made from my part time job into savings, spending $ and the majority as extra pmts to my Oasp loan - and as soon as the loan was paid off - i started investing more money into RRSP's and TFSA's
Member
Dec 20, 2009
414 posts
426 upvotes
Vancouver
You can check out the life insurance sticky thread for more info but the tldr version is you don't need life insurance from the information you've given as you don't seem to have any dependents or debt (I believe and I could be wrong, but student loans don't need to be paid off by estate after death). And it would be unlikely for you to be able to afford a UL policy while paying off your student loan.
Deal Expert
User avatar
Jul 22, 2006
21734 posts
2418 upvotes
<-- One reason I'm taking University slow

My advice is dump as much money into the amount you owe in student debt during the grace period due to the interest.

And don't get into the "I'll use my CC and pay it back later mentality" BAD!!!
[OP]
Newbie
Sep 14, 2014
9 posts
3 upvotes
Vancouver, BC
One more question, say for next year, after tuition tax credits etc. I still have income that is taxable, would my tax amount get reduced further because I paid off a portion of my student loans?
Deal Fanatic
User avatar
Aug 22, 2005
7734 posts
932 upvotes
step31 wrote:
Sep 16th, 2014 2:02 am
One more question, say for next year, after tuition tax credits etc. I still have income that is taxable, would my tax amount get reduced further because I paid off a portion of my student loans?
Nah. Student loan interest is tax deductible, but only 15% of it and not worth it compared to the accumulated debt. Only really useful for people who can't pay off their loan.
Member
User avatar
Aug 29, 2012
257 posts
53 upvotes
Mississauga
step31 wrote:
Sep 16th, 2014 2:02 am
One more question, say for next year, after tuition tax credits etc. I still have income that is taxable, would my tax amount get reduced further because I paid off a portion of my student loans?

At $1000 a month, and full time tuition credit I doubt you will owe taxes at year end. I think you can carry forward the unused tuition credits, which if possible makes sense.

I gave the credits to my parents and they used them as if they paid my tuition.
Deal Addict
User avatar
Oct 4, 2004
4013 posts
961 upvotes
Vancouver
step31 wrote:
Sep 16th, 2014 2:02 am
One more question, say for next year, after tuition tax credits etc. I still have income that is taxable, would my tax amount get reduced further because I paid off a portion of my student loans?
The good news- as long as the tuition credits are yours.. at your current income level, you won't be paying taxes for a while. The basic amount (~11k) is almost your annual earnings which means you have only about 1k of taxable income.. which is no more than $220 after all taxes and will be all but nullified after you include every other credit you qualify for.

The bad news- You don't make enough to be considering investments and the such with your current debt levels. I would not leverage borrowed money (which you are essentially if you don't dump all of your savings towards your debt) to investment and hope you're going to beat 5.5% (pro-tip: you probably won't). Do you really just spend $200 a month? If so, that's fairly impressive.

The really bad news- The "real" grace period only applies while you are taking classes and interest actually starts accumulating after you have finished classes and if you don't return to them after six months, repayment begins along with any interest accumulated from the previous six months........ and you're over-thinking everything. Your massive student loan debt equates to about $1200 in interest per year so sink your $15k into repayment immediately after your classes end- 7k is much more reasonable. Now you can slowly work towards debt repayment. Unfortunately, a student loan is not like a revolving credit line where you can take out money again if you need it for an emergency so what I would recommend is not to sink every dollar into your student loan, but work at it aggressively, keeping some money on the side. At your income, you won't be making much disposable income any time soon. It's quite manageable though, the repayment periods can be massive so set it in the system to some outrageously long time frame and then pay it off little by little while your income is low and then settle it all at once when you land a good-paying job.. at least you know you're not paying $1200 behind the scenes every year now.

Alternatively, the less financially-responsible side of me will tell you to take up to 5k (or more!) from your savings and use it to go travel and see the world now that you've done school but don't have a "real" job lined up. It's a reasonable investment into your personal development to gain life experience (priceless!) The small interest you pay on 5k of borrowed money is worth it in my opinion. To be honest, I don't know how long or how far 5k will get you but maybe 1-2 months abroad? Maybe longer if you're not going to Europe? You (probably) won't regret it.

Look for a better job or work more hours after you graduate, OP!
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Deal Addict
Oct 6, 2007
1017 posts
387 upvotes
Toronto, ON
I was in a similar situation as you when I graduated. I had OSAP debt of about 12k and savings of 13k. I naively thought 'I'll make my monthly payment to OSAP and keep saving.' Then I saw the interest charge on the first statement and all I could think was... why the hell do I want to be throwing money away into the air (interest) when I can wipe this debt away right now? I paid it off in full and never looked back.

My sister, on the other hand, didn't have a big savings. She applied for some sort of TD Credit Card that had a lower interest rate than her OSAP loan (I don't recall which card this was). She paid her OSAP off using the CC then paid the CC off over the course of the year.

It's all just a war of interest rates. If interest rate of income is less than interest rate of debts then destroy the debts.
Deal Addict
Nov 11, 2004
2637 posts
477 upvotes
Throw your 15K (keep 1-2K for emergency fund) and put it all towards the $26K (since interest is likely accumulating, if it's like Ontario and grace period = before repayment begins...while interest keep accumulating).

You can also look into those MBNA cards with 0% Interest and 1% Transfer fee. That rate is lower than you're prime + X rate BC Gov't is giving you and you'll save some more off that.

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