Personal Finance

Debt! What's my best solution?

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  • Jun 21st, 2016 4:45 pm
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[OP]
Newbie
Jun 17, 2016
4 posts

Debt! What's my best solution?

Hey guys, there's lots of knowledge on this board, so I am asking for some help and advice! Thank you, for starters:

My History:
CRA Loan (because I defaulted on Osap) $18,800
(They charge approx. $3/day interest)
I currently pay $325 a month
They have holds on my taxes, etc

Fixed Payment loan $9000
9.6% interest
I currently pay $250 a month

Line of credit $5000
9.6% interest
I currently pay $50 a month

Capital one credit card $2000 limit
(I just got this to help repair my credit, not planning on carrying a balance)

In summary, approx $32,000 in debt, I want to try and pay this off in 24-36 months.

My fico score is around 635.

What's my best solution?
Keep paying as is?
Consolidation loan?
How to improve my credit further?

Any help is so very much appreciated.

I make about $600-700 a week, take home.
Moved back home to try and pay this debt off.

Thank you
17 replies
Jr. Member
Mar 29, 2015
164 posts
101 upvotes
London, ON
twixbar wrote: Begin rehabilitating the student loan ASAP and after 6 months when they are transferred back to NSLSC, and are in good standing, apply for Repayment Assistance. If you qualify then you don't need to make any payments and the government will cover the interest payments för up to 60 months.
Seconded. You have to pay the outstanding interest on your entire loan and then make two monthly payments for it to be rehabilitated. But once it is, NSLSC will work with you to make geared-to-income payments, it will report favorably to credit bureaus, and your tax holds will cease.
http://www.esdc.gc.ca/en/student_loans/collections.page

Prioritize that while making payments on your other debts. Your Repayment Assistance payment will likely be lower than your CRA Loan based on your income.
[OP]
Newbie
Jun 17, 2016
4 posts
The cra loan doesn't show on bureaus which I like, that's why I hadn't rehabilitated it. Whereas it would show again if I did and show $18,800 more of debt.

What do you think?
Jr. Member
Mar 29, 2015
164 posts
101 upvotes
London, ON
VinceYork31 wrote: The cra loan doesn't show on bureaus which I like, that's why I hadn't rehabilitated it. Whereas it would show again if I did and show $18,800 more of debt.

What do you think?
Federal student loans are installment loans and are reported to the bureaus as such. Installment loans affect your credit rating significantly less than revolving accounts. Also, even with Repayment Assistance, the loan is reported as being paid monthly on time. I have like $40k of student loans reflected on my credit report and my score is typically 730 or above. My bf is on Repayment Assistance with $38k of debt and his score is like 750 right now. The credit cards and lines of credit are dragging down your score more than anything else.
Sr. Member
User avatar
Apr 5, 2009
948 posts
335 upvotes
Toronto
At this point, what's the point of worrying about your credit score? Once you pay your loans off it will all improve anyway. If I were in your situation, I'd consider how I can increase my income more so than what my credit score is.
Deal Addict
Jun 20, 2011
2002 posts
847 upvotes
VANCOUVER
On a more serious note. Suggestions per post 2 and 3 should be considered.
Deal Fanatic
Mar 24, 2008
6052 posts
2305 upvotes
Toronto
Pay minimum on everything and follow the Debt Snowball plan.
Illegitimi non carborundum
Deal Addict
Apr 4, 2013
1274 posts
407 upvotes
Consolidation loans do not reduce debt - it potentially reduces the total interest that you pay. Consolidating your debts is just a small step forward, but with a credit score of 635, it will be difficult for you to get a consolidation loan. Repayment Assistance on your student loans also do not reduce the debt, but simply reduces your payment. Your goal is not to reduce the amount that you pay every month - your goal is to get out of debt.

The easiest way to get out of debt is to start making payments. You have moved back home to reduce your living expenses. You have $32,000 in debt. To pay this off in 24 months you will need to pay $32,000/24 = $1,333 a month. To pay it off in 36 months you need to pay $888 a month. Either of these are viable options when you bring home $600 - $700 a week income.
Sr. Member
Mar 3, 2015
699 posts
95 upvotes
Scarborough, ON
Consolidate with (Canada Debt Solutions) they are non profit. They helped me get out of 38k debt in 32 months by re negotiation my debt from 38k to 22k and I paid them fixed $650 a month.
Member
Nov 19, 2011
292 posts
66 upvotes
Calgary
Well if you want pay this stuff off in the time frame you specified you really need to get a firm grasp on we're all your money goes. To me seems like you have a general idea considering you moved hime to help with keeping costs low. You need to crunch the numbers to see how much you need to pay every month to meet your goal in the time specified. Once you have the number you now can look at the feasibility of that payment against your monthly costs. Depending on this you may need to reevaluate expectation or make sure you are deciplined with taking that money and applying it to the debt. Once you have attacked the source of debt that is most problematic (usually highest interest is the one to go for first, but people on this thread have other knowledge which you may wish to consider), you can reevaluate and see if any new options are available to you or just continue with the set plan.
Sr. Member
Mar 18, 2012
577 posts
120 upvotes
Ok here's what I would do-
-rehab student loan then utilize the system to reduce payments
-start focusing all extra payments on line of credit. As its your smallest loan so will be easiest to wipe clean.
-then pay of loan.
-finish paying of student loan last.

I don't think you need to worry about the Capital One card at the moment. Just don't use it.
Deal Fanatic
User avatar
Nov 2, 2013
5533 posts
1416 upvotes
Edmonton, AB
First, look for an additional source(s) of income. Even some BS braindead part-time job can net you another few hundred to a thousand per month. Comes a long way. Then, reduce your expenses. Common sense, but traditional RFD or Foreigner doctrine frequently only emphasizes one of those, and that's why many of them don't get far in life.
CRA Loan (because I defaulted on Osap) $18,800
(They charge approx. $3/day interest)
I currently pay $325 a month
They have holds on my taxes, etc
Don't know the formalities, but since they have holds, pay off this first, or enough so that it reverts back to a standard student loan. Then reduce the monthly payment to the least possible by stretching the term.
Fixed Payment loan $9000
9.6% interest
I currently pay $250 a month
After you have the student loan sorted out, then tackle this next. This one before the one below as the higher monthly payment increases your debt-to-income ratios, so it is more painful for your credit eligibility in the future.
Line of credit $5000
9.6% interest
I currently pay $50 a month
Tackle this after the above 2.
Then, open a TFSA and buy either ETFs or some quality stocks. Blue chip dividend-paying ones, high growth ones that don't pay dividends, etc... Lots of choices, pick some that are your cup of tea.

Most people who tell you to pay your student loan off first don't realize that:
(1) Interest is tax-deductible
(2) If you lose your job and/or go back to school, you can stop payments and interest
(3) Stocks/ETFs are liquid, your student loan contributions have 0 liquidity unless you go back to school.
(4) Many ways to beat the student loan interest rate.
My fico score is around 635.
Don't worry yourself to sleep over your score. 635 looks like you just got some minor blemishes. Most lenders are OK with 650+ given that your debt-to-income ratios are satisfactory.
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Deal Addict
Feb 5, 2009
2395 posts
355 upvotes
ksgill wrote: Pay minimum on everything and follow the Debt Snowball plan.
Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.

Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

WTF?

OK, I read further and see he suggests that so you get quick wins and "stay pumped", but knowing I was paying more interest than I had to would not exactly have me pumped...
[OP]
Newbie
Jun 17, 2016
4 posts
Guys, thanks for advice so far.

I figured paying off highest interest first is my best bet.

Just wondering why the suggestion of rehabilitating loan is best decision?

Right now at least it doesn't show on bureau as another $18,800 owing. And going with the repayment assistance and making minimal payments doesn't really help, I'd think?

At least with CRA, that debt is kind of "hidden", if I wanted to buy a house let's say in 2-3 years when I'm done paying all of this stuff off.

Thank you for any more advice, in advance!
Deal Addict
User avatar
Aug 16, 2009
1491 posts
361 upvotes
GSRee wrote: Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly.

Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.

WTF?

OK, I read further and see he suggests that so you get quick wins and "stay pumped", but knowing I was paying more interest than I had to would not exactly have me pumped...
It's more of a mindset thing over anything else. Yes, it will cost more money. The idea is that debt repayment can be exhausting and people tend to burn out and fall off the wagon, which could lead to a spontaneous bad spending decision. If you can get some early "wins", it can give you positive reinforcement to keep the momentum.

Everyone is different and we all are motivated in different ways.
Deal Fanatic
Mar 24, 2008
6052 posts
2305 upvotes
Toronto
GSRee wrote: ...
OK, I read further and see he suggests that so you get quick wins and "stay pumped", but knowing I was paying more interest than I had to would not exactly have me pumped...
If you were that serious about finances, you wouldn't be in debt to begin with. Debt snowball is based on psychology, not math.
Illegitimi non carborundum
[OP]
Newbie
Jun 17, 2016
4 posts
Just want to update you guys:

I have rehabilitated my loan back to osap (takes 4-6 weeks) but I met all criteria, etc.

Now will go into repayment assistance with them, which significantly lowers my current payment of $325. I will pay them off the slowest and last.

Will use the excess money to pay off more on 9k fixed loan (9.6% interest) first.

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