Today’s question came from Alison in Mississauga: “Hi Ross I currently have a $50, 000 CAD student loan which I must now start paying off. I have a short term work contract, making a $70,000 a year salary. I have about $10,000 in savings, but am unsure about how to use this. I would like to buy an income property in the next couple of years, so am unsure as to whether I should put the lump sum down on my student loan, or continue to save for a down payment on an income property. Any advice would be appreciated!”
[important]This is often how a Q and A session begins online from this blog. When I received the above email, I sent an immediate reply, requesting more information. Alison in turn responded (in blue), and then we got into the heart of the matter. If you have questions you’d like me to dig into, just drop me a line – I answer them all myself.[/important]
Ross replied: Thanks for reaching out Alison. Before I give you an answer, I need to ask you a few questions if you don’t mind.
How short is the short term contract, and what do you think are your job prospects after this position comes to an end? What kind of income can you expect then? The contract is set to end in two months. In terms of prospects, I am reviewing job offers at the moment and would expect to make similar money (around $65 -$70,000). I am considering undertaking a PhD starting in Sept 2013, but would depend on various things.
Has your student loan begun repayment? If so, what is the scheduled monthly payment and what is the interest rate? How many years is it expected to last before paid off? Repayment begins next month. The scheduled monthly payment is $500 a month at prime +2.5 for 114 months.
Do you have any other monthly obligations at the moment? Do you live rent free with parents, or do you pay rent and if so how much? I live in an apartment and pay $1,500 a month.
Do you have a car payment, and if not, do you see that happening in the next year or two? I have no car and don’t expect to get one.
How old are you, are you single or married, and do you have any dependents? I am 30, single, no dependents.
What city do you live in and do you plan to stay there? I live in Toronto and am in the midst of deciding where to go based on job prospects. As I am uncertain of where I am going, the idea of an income property, or buying something in a city and renting it out, to have a base, is what appeals to me.
How much are your presently saving each month? Not quite sure. About $1,200 a month.
What is your net income each month, after all deductions? Net income is around $4,000.
Do you have any credit card debt or other lines of credit? No lines of credit or credit card debt.
With this information, I will have a better picture of your situation Alison. Some financial experts would advise you focus on paying down your student loan first – if not all, then a big whack of it.
I am not so quick to say that – I like balanced strategies which involve a combination of debt repayment and investment in your future. But again, it will depend on your answers to the questions.
[important]Once I had Alison’s answers, I was able to come up with specific advice which I hope will help her as she decides her next steps.[/important]
To read the advice I gave Alison, click here please.
Lots of chatter these days about mortgage brokers