How long did it take to pay off your loans (or how long do you anticipate it to take) and what was/is your budget like?

[LoganRoy]

Of course answers will vary but I am hopeful this thread can help me anticipate what's to come considering I expect my debt-load to lie between 40-50k after graduation. For further context, I will be working in Toronto big law subject to hireback following articles. Any/all insight is greatly appreciated and thank you in advance.

[PzabbytheLawyer]

I'd be surprised if you don't pay it all off after one full year as an associate, depending on your bonus.*

 

Whether you should pay it all off that quickly is a different question.

 

*Assuming you're single, don't have family financial obligations, no kids, etc. 

Edited December 28, 2021 by PzabbytheLawyer

[BlockedQuebecois]

WIth a 40-50k debt load and a bay street salary, you could easily wipe out your debt within about two years of graduation if you prioritized paying it down. 

Whether you should or not is an entirely different question. Considering current interest rates and your low debt load, I would prioritize investing in a TFSA with a growth-oriented investment strategy. Your earnings are almost certain to outstrip the interest rate on your line of credit, and it's easy to liquidate your TFSA and pay off your line of credit if you need to be debt free for some reason (including if interest rates rise). 

Wealthsimple has been earning about 8% per year over the last five years, while prime interest rates have been between 2.5% and 3% or so. On a $50,000 investment over five years, that means you'd come out about $14,000 ahead by investing your money rather than paying down debt.

The only risk is that you could invest your money, see a market downturn, then need to liquidate your assets and pay off your debt all at the same time. That's not terribly likely to happen (especially as market downturns are usually accompanied by cuts in interest rates), but it is a real risk that you should consider. 

The other consideration is whether you'll find the peace of mind of being debt free more valuable than the net income from investing. 

Edited December 28, 2021 by BlockedQuebecois

[LoganRoy]

Thanks very much you two. I am single with no familial obligations and my biggest liability is likely to be rent, so this is all very encouraging. The big contingency here seems to be whether I want to pay the debt down as quickly as possible or pursue other alternatives.

@BlockedQuebecois your explanation was not only thorough but also confirmed my lack of knowledge pertaining to long-term investment strategies. I appreciate that you took the time to break things down so well.

[Mountebank]

While I agree with @BlockedQuebecois, the only thing I would add, should you be interested in entering the housing market, is that a revolving line is significantly more impactful on mortgage applications than a fixed debt, so to the extent that your student debt is comprised of a LOC, paying it off earlier may get you into a larger mortgage earlier.

Just personal preference, but I'm also a supporter of the theory that, while I'd generally invest before repaying the debt, it's sensible to prioritize setting aside 6 months of expenses in cash before investing (I'm assuming you don't have any short-term debt like credit cards to take care of first). You never know when you'll suddenly need to be liquid and when that time comes, we may be in a downturn and/or you may no longer have debt facilities available to you. Having a 6 month runway gives you some reasonable security and may also help to mitigate any anxiety you have about not prioritizing the student debt.

[easttowest]

15 minutes ago, Mountebank said:

While I agree with @BlockedQuebecois, the only thing I would add, should you be interested in entering the housing market, is that a revolving line is significantly more impactful on mortgage applications than a fixed debt, so to the extent that your student debt is comprised of a LOC, paying it off earlier may get you into a larger mortgage earlier.

Just personal preference, but I'm also a supporter of the theory that, while I'd generally invest before repaying the debt, it's sensible to prioritize setting aside 6 months of expenses in cash before investing (I'm assuming you don't have any short-term debt like credit cards to take care of first). You never know when you'll suddenly need to be liquid and when that time comes, we may be in a downturn and/or you may no longer have debt facilities available to you. Having a 6 month runway gives you some reasonable security and may also help to mitigate any anxiety you have about not prioritizing the student debt.

Definitely true regarding revolving lines and mortgages but these typically harden into a fixed debt in repayment within some period of time after articles.

[Mountebank]

20 minutes ago, easttowest said:

Definitely true regarding revolving lines and mortgages but these typically harden into a fixed debt in repayment within some period of time after articles.

From the borrower's perspective, but not necessarily as far as lenders are concerned.

[PzabbytheLawyer]

I recently got a mortgage with a PSLOC with balance outstanding.

It certainly was a wrinkle for one bank so they were lending me less than the ratio of down payment to lended amount I wanted. So I went to another and got it.

Few days later Bank number one called me saying they'd match with a lot of perks (but still one missing that was very important to me). It was too late anyway.

Not saying the PSLOC won't be an issue. But I'm willing to bet you can find a way around it.

*Should mention I have a very good credit rating with a decade and a half of credit history. 

 

[Mountebank]

For those new to managing their finances, here's a solid flow chart: https://m.imgur.com/zlGnuDO

 

The chart comes from the r/PersonalFinanceCanada subreddit, which I'd also recommend. They have a useful wiki for beginners and the discussions are often relevant and interesting. There are a lot of success stories on there from people who make less than most of us and it helps me, at least, to put things in perspective.

[WhoKnows]

I'll go ahead and say the same thing I always do regarding mortgages and PSLOC balances. Speak to a (good - well rated) mortgage broker. The banks have zero loyalty to anyone, and the brokers are going to get your situation and be able to say the magic words to get you a good deal and a max amount of money.