Wednesday, November 14, 2007

Student loan issue least for now

On the way home from work last night I finally got my husband to open up a bit about how he wants to handle his student loans. Turns out I was mistaken about what issues were driving him in his decisions.

I’m planning on having my student loan paid off by the end of the month. I’m on course to have this done, as I don’t think I’ll have any problem coming up with the roughly $1500 remaining on it out of the four paycheques we still have coming to us this month.

I’d planned on tackling his provincial loan next, which is currently about $4200 and must start to be repaid at the end of this month. I’ve previously written a rant a post about this loan. It has a somewhat lower interest rate than his larger Canada Student Loan (CSL), but it’s less accessible and much more irritating.

I can’t explain exactly why this loan bothers me so much. I think it’s the lack of control. I can’t look it up on the Internet or pull out the last statement to see exactly how much it’s worth at any given time. That drives me nuts. To the point that I want to use some of our emergency fund to pay it back in a lump sum, and then spend several months bringing the fund back up to $5000.

It turns out that my husband’s desire to pay back his larger CSL first was not driven by the larger interest rate, as I’d previously believed, but by the fact that he sees it as an albatross around his neck. The smaller provincial loan doesn’t bother him. He doesn’t see it as a problem or an issue, though he can’t quite explain why. He wanted to use the emergency fund money to make a large inroad into the CSL.

I balked at that. By using the fund to pay off the provincial loan, we’re completely getting rid of a monthly payment which means our absolutely required expenses will go down before I go on parental leave.

Current minimum payments are $50 (my loan) + $58 (provincial loan) + $181 (CSL) = $289. By getting rid of the two small loans, we’ll only be obligated to pay $181 a month.

I had every intention of putting at least $289 a month into the CSL until it’s gone, but I’ll feel much more comfortable if we have the ability to reduce payments if it becomes necessary.

So, we’ve compromised. I think my threat of making him call the Private Bank every month to get his provincial loan’s exact balance tipped the scales. I’m a meanie that way.

We’ll pay off my loan this month. We’ll pay off the provincial loan in full rather than signing up for monthly payments, and we’ll sign the CSL consolidation forms for $400 a month. Once the fund is back up to $5000, I’ll sock any extra money into the CSL.

My most loathed loan will be gone, he’ll see significant decreases in his most loathed loan, and the emergency fund will never drop below $1000. If we have income problems in the future, we can call the Private Bank and have them reduce withdrawals back down to $181.

It’s not perfect, but we can both live with it, and that’s what’s important.

Anyone else discover that they were looking at their debt issues in a completely different way than their partner? Did you resolve it? And if you did, how?


The Chef said...

Nice post, I too have a student loan for quite a while now, I am regularly paying interest on that though no principal payment. I wan to create assets first and then to pay my students loan

Fecundity said...

Thanks very much for the comment.

What you do first financially really depends on your current goals and desires.

We already have a house, a small retirement savings and some stocks. We both have comfortable incomes. We have no credit card debt. We're starting a family in (checks watch) seven months, and so it's become very important to us to get rid of (or at least significantly reduce) the last of our 'bad' debt.

Our expenses will go up when the baby arrives, and I want to reduce the avoidable ones as much as possible. Just in case.

Your goals are probably different, but keep in mind that while you're only paying interest, you're doing nothing for your net worth. The loan continues to sit there, never getting smaller. Even a small increase in payment can make a difference. $5 a month extra gets you started on the principal. That's about Rs 200. Or just 100, or 50 if that's all you can afford. Whatever amount you choose, if you can set it up to transfer out of your bank automatically on payday, you'll never notice it's gone.

I think my husband may already be planning a CSL statement bonfire when it's finally gone. I imagine there will be dancing involved. Really really bad dancing.

Maybe I'll buy another fire extinguisher. Just in case.