This & That: Student Edition

S Wrote: First of all, I am not sure how I would have made it through college without your help!! Now that I've graduated and I'm out in the work force, things aren't as rosy as I thought they would be. I have a full bachelor's degree, but because my kind of work is not in demand right now, I am making quite a bit less than I had predicted I would with my full education. I had only a little debt left over from my education that I hoped would be paid off quickly. However, I couldn't seem to get ahead, even after re-working my budget. So, besides my full time job, I decided to take on another part time job. Just when I thought I was getting a handle on things, my rent went up and an emergency expense brought me right back to where I had started. I feel like I have hit bottom since my little savings and emergency fund money have disappeared. My question(s) for you is: Is it appropriate to ask for a raise if I feel my work is worth more than I am currently being paid? Is it an option for me to go more into debt and spend the money on moving somewhere with less rent for the long run benefits? How can I get back on my feet? Thanks so much for your help Gail!! I hope I'm not a Princess!

Gail Says:  I'm sorry you're having a tough go of it right now. Life sometimes conspires to undo all the good we've done. But remember, where you are now is not where you are going to be next. So breathe. And then come up with a plan.

If you feel you are deserving of a raise, you should sit down with your boss and talk about his/her expectations and how you should proceed to prove your value is above your pay-grade. Talk about what he/she wants to see and what the company policy is on raises. Explain that you're prepared to work hard, achieve what needs to be achieved, and that you want to be sure you'll be fairly compensated.

As far as moving goes, if the move is going to ease your cash flow crunch, then it will be a good thing in the long run. Make sure if you are financing this that you're doing so at the lowest possible interest rate. Have a plan for having the debt paid off as quickly as possibly. And make sure the total cost still leaves you saving money when all is said and done. It's a math problem. Do the math.

You don't sound like a princess to me. Just a chick trying to make it all work. As long as you're not shopping your brains out, living too high for your income, or making everyone else pay for your self-indulgences, you're in the clear. From your message to me, you don't sound like you're doing any of that.

Congrats on two things: getting through college and having the emergency fund so you had options when the caca hit the fan. See, it worked. Now you have to get busy rebuilding. Chin up!

Z Wrote: My name is Zach I'm fixing to graduate high school.  My parents are divorced and have never set up a college fund. Also they have a horrible credit score.  I've been approved for FAFSA but it does not begin to cover my college. I work as a Nurse's Aide.  What's your advice on getting a loan and not going bankrupt after college?

Gail Says:  M'love, you are going to have to use loans, but how much will depend on how hard you're also prepared to work while in school. I've met many people who manage to get through school with no debt by busting their butts working while in school. You're going to have to take this route, and live a very frugal life, if you want to come out the other end not buried in debt. I know you can do it. You can be creative about where and how you live (sharing to reduce costs or staying at home), about your entertainment (get friends who like cheap fun and don't waste money on booze), and be smart about where you shop (second hand). Live like a starving student so you don't end up starving because your debt is so high you have no money for anything else once you go to work.

S Wrote: I will be graduating from university this June. After 9 years of post-secondary education, I have only accumulated $10,000 in student loans (thanks in part to bursaries).  When I start working I will make a salary of at least $80,000/year. My partner and I really want to buy a house by June 2012. We have no credit card debt or other consumer debt. The only investments we have are TFSA's that we are planning to use towards the down payment for a house. My TFSA contains the extra money that I didn't need from my government student loans. When I was in school it served as my emergency fund, but I was planning to use it to pay down 100% of my student debt the day I graduate. I recently mentioned this to a friend who said that I should instead make minimal payments on my student loan as long as possible, because 1) the debt will not be considered by the bank when we ask for a mortgage pre-approval  2) there is a tax credit issued on the amount of interest paid and 3) when I do have extra money I should first invest in an RRSP, then pay down the mortgage and finally put anything left over toward the student debt.  What should my priorities be? Should I stick with my original plan or should I take my friend's advice?

Gail Says:  Contrary to what a lot of people think, student loan debt is just like any other debt. Just because there is a small tax credit associated, that does not mean you should keep paying interest for as long as the system will allow you. The interest rate on student loans is actually quite high, relative to what you could finance for at the bank, but people stay in the system because they want to be able to claim the credit and they want to be able to claim relief if the worst happens.

The non-refundable tax credit varies by province. Non-refundable means it can lower your taxes, but it won't give you a refund. If you are in Ontario, your tax credit would be worth about $105 to you if you pay $500 in interest a year on your student loan. You can use this calculator to get an idea of what your tax credit will be. ( http://www.debt101.ca/taxcredit )

It is important to save for a house, put money aside for retirement, and have a life. But debt is debt. Student loans and mortgage debt is less-terrible debt, but it is still debt.

You should focus on paying off your student loan as soon as you can without compromising the rest of your financial plan. Aim to stick about 6% of your money away for retirement if you're still in your 20s. You can up it to 10% once you've got your student loans paid off.

I would use the money in your TFSA for the downpayment. Do not buy too much house. Your housing costs (everything in, including property taxes, insurance, utilities and maintenance) should not be more than 35% of your total net income. Then make a plan to get the rest of the student debt paid off in three years or less. That'll be fine.

Good job on getting to where you are with so little debt. I'm very impressed.

L wrote: Hi Gail, love your approach and your show. I recently graduated from law school and have a horrendous amount of student debt (to the tune of $38,250 in government loans and $65,000 professional student line of credit). As you probably know, young lawyers make a pathetically low amount of money starting out, at least in the Maritimes. I am living at home for my articling year, but would like to be back out on my own ASAP. My net monthly income is $2070/mo (gross $37,000/year). While my salary will increase with every year of practice under my belt, and ultimately my career choice will be a lucrative one, I feel extremely helpless and stuck right now. Do I have to move to a big city and make more money? What is the best line of attack?

Gail says:  Professional degrees that come with a lot of debt have to be looked at more like mortgages than like consumer debt. Yes, it is going to take you a while to get this puppy paid off. But that's okay, as long as you're living within your means and working hard to improve your career position. As you say, every year you'll make more money…but it won't just happen, you have to make it happen.

Do you have to move to the big city? If you do, your costs are likely to go way up. I don't have a sense that young people starting out do that much better in the big city. You might want to consider staying home for an extra year if your folks will have you (you are paying rent, right?) You definitely should NOT move out until you have all your costs of living on your own covered from cash flow, a healthy emergency fund, and you've socked away the money you'll need to buy the stuff to set up a home of your own.

You're going to have to bust your butt too. You don't say what aspect of law you are planning to practice, but you can start setting up your own "on the side" clients by forming relationships with people who can refer people to you. So if you plan to do corporate law, for example, you can set up a side "real estate" law biz where you work with particular realtors who may want to refer their clients to an accommodating and efficient (and cheaper) lawyer for closing fees. You'll have to make sure you have set this up so that a) you're not in conflict with your full-time job and b) you've covered your ass on the biz end with enough insurance and the like. But you know all that… YOU'RE A LAWYER.

You can have everything you want. Set your sights up, look forward and be brave. I know you're feeling a little overwhelmed right now; that's natural. It's a big weight you're carrying. But focus on what is to come and then make it happen.

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