# Student with some debt and some savings



## DollaWine (Aug 4, 2015)

Hey guys, 

New to the forum! I'm going into my last year of university, Business Management at Ryerson (Marketing Major). I've always been interested in investment and money management and I've taken a few Finance courses over the years so I have a solid understanding of a lot of the basics of finance and investing. I'm with Scotiabank and use their iTRADE practice program to get some experience with buying and selling. 

I'm on OSAP, currently about 20k in debt and should be about 26k when I graduate. I paid my tuition out of pocket last year so help slow down my debt accumulation, so I spent this summer working and building up some savings. It's not much, but it's better than being a dead broke student. About I have about 6k. and should have 7k+ by the end of August. I've been looking at ETFs and mutual funds and have been very intrigued. (Also have been somewhat pressured by Scotiabank tellers, but I'm not going to let them force me into investing blindly). 

My question is, at this point, would it be smart to invest a chunk of that 6-7k, or just keep it as a rainy day fund and focus on paying off my school debts with it + full-time money when I graduate? I guess it comes down to the debate of investment returns vs debt interest rates, which one will be higher. I just feel like letting it sit in my TFSA isn't doing myself any favors. So, what do you guys think? Make some STABLE and BALANCED investments (not high risk of course), or sit on the cash and pay off my school debt and invest in the future? I hope to pay off my debt ASAP after graduating and starting my career. Thanks for any tips!


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## DollaWine (Aug 4, 2015)

It also might be relevant to mention:

- I own by property. I live at home and have the option of living there as long as I need to rent-free, my parents aren't rushing to kick me out or anything
- No other debt except OSAP


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## DollaWine (Aug 4, 2015)

Typo: I own NO property. You can't edit a post on this board? :hopelessness:


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## Spudd (Oct 11, 2011)

You can edit, but maybe only after you build up enough posts to not be considered a newbie anymore? I'm not sure. 

Anyway, as to your main question, I would sit on the cash (put it in the highest interest TFSA account you can find - as of right now that looks to be People's Trust at 2%). 
https://www.highinterestsavings.ca/chart/


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## Soon Forget (Mar 25, 2014)

If you're living at home and aren't in a rush to move out, I don't think you should even keep a very big rainy day fund. Keep a few grand in cash as play money and put every penny you earn into crushing that student debt. You will not regret doing this. Once the debt is gone you can build up your emergency fund again and start planning your move out.

The invest vs. debt payment question isn't one you should be making over a relatively small amount of high interest student debt. If you take on a mortgage in the future at sub-3%, then you can start making that decision.


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## Ag Driver (Dec 13, 2012)

I kept everything in a HISA until I had a sufficient amount for a down payment on a house, and then started investing "couch potato" style with the surplus cash after the down payment.

While I had debt from training and automotive, I would still sock away 10% of my paycheque regardless. To this day, I still sock away 10% after taxes.


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## jaybee (Nov 28, 2014)

I would put it into a HISA, until it comes time to start paying back the student loan. And then I would crush the student loan before doing too much in the way of investing.


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## tkirk62 (Jul 1, 2015)

Was just recently a student and still carry about the same amount of debt as you ($6K OSAP, $20K line of credit). I invested excess savings while I was in school and continue to do so.

Your earning power in the future with your degree should make that $26K very manageable once you graduate. I would invest your savings and start whatever sort of portfolio you wish to build. Then after you graduate maybe split your savings half to your debt and half to your portfolio. 

I pay the minimum on my debt while investing all I can. My rationale is that my earning power is pretty high, my expenses as low as they'll ever be and the time value of my money is greatest now. I would rather keep my money in the market to compound longer, many calculators and examples will show that a few extra years of compounding can make a huge difference when you go to use that money in the future. But I am very comfortable with my debt and am okay with the risk I am taking on. If you are comfortable with the debt, invest. If the amount of debt you have causes you worry, pay it down. Strictly from a returns point though I think your return will be greater by buying investments now and paying the debt slowly.


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## GreedIsGood (Dec 4, 2013)

I was in the exact same situation as you 3 years ago and I also asked this question on here. The overwhelming response was: *pay off debt*, which is what I'll say to you now. Some people say partly pay it off and partly invest, but I would definitely put it entirely against the debt because the interest rate is guaranteed (prime + 2.5%?, don't remember exactly)

If you live at home with parents rent free, like I do, I wouldn't even keep a rainy day fund until you pay off your debt.

A bit about me: I borrowed $41k on OSAP and only had to pay back $29k. Now, after 3 years I have $70k.


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## CalgaryPotato (Mar 7, 2015)

Investing is fun, I get it. But investing for the future... well what does that mean? Are you starting your retirement savings? If so ETF's in your TFSA is probably a great way to start. But if you're talking your future as in, buying a house in 3 years, than you should probably not have all the money in the market... maybe none of it.

I don't think there is anything wrong with keeping it invested and paying off your loans out of your income once it comes due, but I know a lot of young people come blazing out of school thinking the money they are saving is going to be "long term". And then have to tap into it for houses, weddings, cars etc. in the very short term.


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## My Own Advisor (Sep 24, 2012)

Personally I like the call of killing student debt as soon as you can, then after school debt / OSAP is gone, then use savings for a few things:

1. build up a small emergency fund.
2. build up a savings fund for larger, future purchases (car? house? travel?)
3. build up savings fund and move savings for investment purposes. 

I have a bias to this approach since it worked for me but your mileage may vary!

Good luck!


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## drunkmunky (Sep 8, 2014)

GreedIsGood said:


> If you live at home with parents rent free, like I do, I wouldn't even keep a rainy day fund until you pay off your debt.
> A bit about me: I borrowed $41k on OSAP and only had to pay back $29k. Now, after 3 years I have $70k.



How is it that you managed to get debt forgiven? good credit? 

please expand if you can?

Thanks,


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## DollaWine (Aug 4, 2015)

Thanks for the responses, guys. I'm leaning more towards the debt repayment as a top priority. I'm going to set up my school schedule so I'm on-campus as little as possible (online classes and multiple classes in one day) to save money on commuting, as well as create more time fro me to work and save. I also recently sold my car (which was more of a convenient want than a need) so there goes gas and insurance bills! 

Would putting a small portion of those savings, even 1k, into an ETF likely create any relevant return in say a year, or is it not worth the risk for the pennies I would yield?


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## GreedIsGood (Dec 4, 2013)

drunkmunky said:


> How is it that you managed to get debt forgiven? good credit?
> 
> please expand if you can?
> 
> Thanks,


It wasn't forgiven debt. I just googled right now and it seems to be the *Ontario Student Opportunity Grant*. I think this is the 25% grant you see in the commercials if you watch TV. I wasn't even aware of this until I graduated.

https://osap.gov.on.ca/OSAPPortal/en/A-ZListofAid/PRDR008169.html

I borrowed the maximum which is around $10k per year and, according to the website, it limited my repayment to $7,300 per year. So for four years it came out to borrowing approximately $41k and paying back $29k. My family is low-to-moderate income though so I guess that was a factor. I'm guessing here but I think my mom made $60k gross at that time and my dad was $14/hour.


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## tkirk62 (Jul 1, 2015)

On $1K, even the best case scenario won't be worth the risk of losing some money when you go to repay your debt after you graduate. Just stick all your savings in a high interest savings account. Then pay down your debt with it May 1st 2016. While you have a six month grace period where you do not have to pay, interest does accumulate so pay down as much as you can immediately after you are done your last exam next year.


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## MRT (Apr 8, 2013)

My Own Advisor said:


> Personally I like the call of killing student debt as soon as you can, then after school debt / OSAP is gone, then use savings for a few things:
> 
> 1. build up a small emergency fund.
> 2. build up a savings fund for larger, future purchases (car? house? travel?)
> ...


+1

particularly when investing a relatively small amount of money, the potential difference in return between 2% HISA and the unknown return from equities is just not worth the risk to your principal, IMHO...not while carrying debt that will eventually start accruing interest.

you seem to have disciplined savings and spending habits, which is the best thing anyone can develop early on, IMHO. Keep doing what you are doing and worry about constructing an investment portfolio when you have no student debt, some savings, and reliable income/employment to provide you with some peace of mind. Good job so far!


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## Afp (Mar 19, 2013)

Pay off debt first, invest later. The amount of 6k-7k is not enough for you to buy a basket of different stocks to diversify so your only option is ETF. Given the S&P is at all time high, this is not a great time to buy index.

Only invest the money that you can afford to lose. Given the amount of student loan that you have at the moment, one mistake with your investment, you'll dig yourself into a bigger hole. Pay off your debt first, if I remember correctly, The interest you have to pay for OSAP is at least 5.50% so you definitely want to kill it off ASAP.


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## Bobbyjohn (Jul 28, 2015)

If you think you can get a better return on your money, than the cost of your debt, than invest. If not (and given risk free returns are super low and market volatility is super high nowadays), I'd say pay off the debt. Moreover, there is no price on not having debt, and sleeping easy on your pillow every night.


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## DollaWine (Aug 4, 2015)

Update!

I followed the vastly most popular response to my original question in this thread and decided to attack my student loan. A year later I've graduated, gotten a full-time position that I love, and I've paid off my OSAP loan! 29k crushed in 9 months. I just made my final payment. I'M DEBT FREE! Time to save and invest!


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## peterk (May 16, 2010)

Woo hoo! Nicely done Dolla. 29k in 9 months is a mighty good accomplishment, nobody ever regretted paying off their debts and the reduced stress that comes with it. Life gets pretty simple and enjoyable when you have excess disposable income, no debt, and your only financial thoughts are rent and a monthly credit card bill with auto-payments for any bills setup (highly recommended if you don't already).

What's next?


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## DollaWine (Aug 4, 2015)

peterk said:


> Woo hoo! Nicely done Dolla. 29k in 9 months is a mighty good accomplishment, nobody ever regretted paying off their debts and the reduced stress that comes with it. Life gets pretty simple and enjoyable when you have excess disposable income, no debt, and your only financial thoughts are rent and a monthly credit card bill with auto-payments for any bills setup (highly recommended if you don't already).
> 
> What's next?


Thank you! I CAN'T WAIT to have my only outgoing cash flow be towards monthly bills and not debt. I currently still live at home (big factor for why I was able to pay it off so quickly). My monthly expenses only total about $700 a month with a monthly income of $3200. I'm in no rush to leave and my parents are in no rush to kick me out, so I'm lucky in that sense. I decided to throw a lot of my savings + my new income to kill the debt. One payment I made was about 11k of almost all my savings. It was like ripping off a bandaid, it hurt for a second but then it was pure relief to know I delivered a HUGE punch to Mr. Debt.

My first goal is to rebuild my emergency fund (it's currently at 1k, looking to get it to 5k). This emergency fund will be for when I inevitably do move out. I'll have that saved up by Christmas. Then, begin saving for a down payment on a house in the next few years (here's hoping the housing bubble bursts when I'm ready to buy!). It will probably be around that time that I'll be engaged to my longtime girlfriend, who is also debt free and saving for a down payment. And of course throughout that, I'll be putting away savings for retirement and re-contributing those tax returns.

Short term goals: Emergency fund saved (2-3 months), "new" used car paid in cash (2 years), down payment for a home saved (2-3 years)
Long term goals: Grow net worth by leaps and bounds, retire by 60! But who knows what life holds this early on, right?


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