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Pique N Your Interest

Milestones and millstones

There are milestones and there are millstones.

A personal milestone was this Feb. 28 at the stroke of midnight, when $141.69 was drawn from my bank account – thereby removing the millstone of a massive student loan that has been hanging around my neck for the past decade.

I won’t be entirely debt free after that, I’m still a year away, but Feb. 28 puts me closer than ever before. Thanks to matching RRSP contributions, a low-interest line of credit, and some painfully frugal saving habits, I even have a positive net worth for the first time since I went to university back in 1992.

I can’t begin to tell you how good that feels. The whole experience has also taught me a difficult but valuable lesson about money. Wish I learned it sooner.

When you’re young, money equals opportunity. It’s a means to an end, and the freedom to do what you want, when you want. Debt is inconsequential because we all assume that we’ll either be dead or making more than enough money to pay everything off by the time the first notice arrives. Besides, our parents are always there to bail us out.

It’s when you get older that you realize that money actually equals security, and that debt is the opposite of freedom and opportunity. It’s a prison that keeps us locked in one place, reduces our ability to do and buy things we want, and in some cases keeps us chained to jobs and responsibilities we’d rather not have.

Unfortunately, we’re a nation of debtors – there were 22 million credit cards in Canada in 2003 with an average negative balance of $2,200. That’s a combined credit card debt of $48.4 billion. With lending rates generally between 12.5 per cent and 18.5 per cent a year for most credit cards, we make our financial institutions richer by probably more than $8 billion a year in interest. Some of that money is no doubt spent on administration, but I’m positive the majority of it is contributing to record banking profits.

It’s the banks who start us off small on the road to indebtedness. In university, when I was on my first year of student loans, my account actually came with a student Visa card – nothing major, low interest and a $500 maximum. You could opt out, but almost nobody did because we were told it would help us to build our credit rating, something we would need in the future to apply for loans, get mortgages, and so on.

When the end of the year rolled around, and all my cash was gone, that student Visa was all I had and I quickly maxed it out. I made minimum payments all that summer, and by the time the next year rolled around I was upgraded to another card with a $2,000 limit – the start of a very slippery slope.

I now have two credit cards with a combined maximum limit of $29,000, my bonus for never missing a payment in 12 years. I no longer carry a balance on either card, but that’s only a recent development – for the past decade I’ve been splitting pretty much every spare cent between my student loan and two credit cards, slowly chipping away at the principal while squandering who knows how many thousands of dollars in interest.

My parents did try to teach my brother and me the real value of a dollar once upon a time, encouraging us to do chores and find extra work here and there. Somehow my brother got the message about saving and long term planning loud and clear, and even made it through university without much debt. He’s now on his second house, third car, and is looking to buy a cottage.

For me, the message backfired because I somehow came away with the idea that money was easy to make if you were willing to do a little work, and easy to spend because you can always make more of it. Unlike my brother, I couldn’t look far enough down the road to a point where savings might come in handy, and I have no house, no car, and no cottage.

I estimate, conservatively, that half the money from my student loans probably went into the tills and tip jars of Halifax’s prolific bar scene. It’s hard to begrudge a cent of that, because I had an amazing four years and made a lot of great friends and memories.

Looking back, I wish I had used just a little more restraint. I could have easily made it through school with a loan half as large as the one I’m finally paying off on Feb. 28, AND graduated without any credit card debt. I would still have had a lot of fun, and probably come home with better grades at the same time.

This is a message I’ll probably try to pass on to my own kids one day, but I don’t have much hope it will sink in – some things you can only learn from experience, and there are some things you can only experience in the real world. Crawling out from under a mountain of debt is one of those things.

Good-bye, student loan; you almost taught me more after I graduated than you did when I was in school.