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Lines of Credit for Medical Students (Scotia is the best option)

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40 minutes ago, la marzocco said:

Definitely get it now. The beauty of LOC is that it’s there if you need it; otherwise, it’s just a silent player :)

only risk there is you don't have enough control NOT to use it :) I usually do recommend getting one, but I have run into the odd person where that is just not a good idea. 

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1 hour ago, Eudaimonia said:

Yes especially now that RBC has extended their grace period to 2 years, the only difference is how interest charges are paid and whether you have full access to the LOC from year 1. Depending on your spending habits, the different cards may seem more appealing, or some people want to stay with their current bank/advisor

Scotia and RBC are quite close - they are effective at war with each other. Sometimes one gets a small advantage for a brief period and then the other comes back and matches it. Scotia's cards seem for most a bit better now that still is a personal choice. 

Beyond what is on the paper make sure you are working with a LOC specialist you can actually trust/has a proven track record. There are reasons particular schools go one way or the other (where I am from there is a very clear advantage to one particular bank, and frankly they earned it, and keep earning it as it were.) If those reasons make sense to you then that is something to consider. 

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3 minutes ago, rmorelan said:

only risk there is you don't have enough control NOT to use it :) I usually do recommend getting one, but I have run into the odd person where that is just not a good idea. 

Yes haha I would be lying if I said the LOC doesn't seem tempting :P sure.. let's throw this lavish vacation on the LOC..

Prudence is key. 

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5 minutes ago, rmorelan said:

yeah there is no fixed rate option - if there were that rate would considerably higher as well as the current rate. That is the danger about LOC rates rising as you correctly surmise.

I think in part it has been a vicious circle tuition has risen insanely over the past 10 years, and in large part no one has been complaining about that because we have these ever increasing (200-250-275K now) LOCs that with low rates don't punish us early on a ton. We just collectively shrug our shoulders at it (as opposed to say the people in Quebec - that do anything but). 

However that is slowly changing - a rate of about 4 percent as given by someone above is a lot higher than 2.45% we recently had. It could very easily rise higher than that. It will quickly become a very high burden on people if we are not careful. 

More reason to just make sure you are very careful with your LOC, and use all the other tricks you can find to reduce your exposure. You only make roughly 3K a month as a PGY1 - you don't want to be shelling out 1/4 of that alone to interest payments. 

Question regarding minimizing the use of LOC - if we have some savings, do you have any tips on how much we should deplete that first before pulling on a LOC? Use it until 0 and then use LOC and pay interest with LOC, or save enough to pay the interest off LOC for the rest of your expenses?

1 minute ago, rmorelan said:

Scotia and RBC are quite close - they are effective at war with each other. Sometimes one gets a small advantage for a brief period and then the other comes back and matches it. Scotia's cards seem for most a bit better now that still is a personal choice. 

Beyond what is on the paper make sure you are working with a LOC specialist you can actually trust/has a proven track record. There are reasons particular schools go one way or the other (where I am from there is a very clear advantage to one particular bank, and frankly they earned it, and keep earning it as it were.) If those reasons make sense to you then that is something to consider. 

I hear about some schools strongly favoring one bank- are they getting some school-specific deal that the rest of us can't have?

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9 minutes ago, Eudaimonia said:

Question regarding minimizing the use of LOC - if we have some savings, do you have any tips on how much we should deplete that first before pulling on a LOC? Use it until 0 and then use LOC and pay interest with LOC, or save enough to pay the interest off LOC for the rest of your expenses?

I hear about some schools strongly favoring one bank- are they getting some school-specific deal that the rest of us can't have?

Think of it as your net position (savings account + chequing account + investments less LOCs). You should really deplete your savings before you dip into LOC. There is no point in incurring debt-servicing costs from drawing on your LOC if you have savings.

Some will argue that seeing a "nest egg" being built on the side for some other designated purpose is better, but it's all psychology. Sure, it will feel good, but end of the day, it's the net position that truly matters.

EDIT: I have some TFSA investments from my previous career that I am slowly converting to cash as I don't like the thought of drawing on the LOC. But, from a purely mathematical standpoint, my investments have been giving me higher returns (as a 3-yr CAGR) than the current LOC prime less .25. There is incentive to hold that investment, but who knows.. things can take a nosedive. So I have been slowly liquefying my investments.

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2 minutes ago, la marzocco said:

Think of it as your net position (savings account + chequing account + investments less LOCs). You should really deplete your savings before you dip into LOC. There is no point in incurring debt-servicing costs from drawing on your LOC if you have savings.

Some will argue that seeing a "nest egg" being built on the side for some other designated purpose is better, but it's all psychology. Sure, it will feel good, but end of the day, it's the net position that truly matters.

That was my original thought, and seems straightforward unless someone had some guaranteed 4%ish return of investment (if so let me know please!) they could use their savings for while living off LOC.

I was never able to figure out how to compare the cost of that compounded interest if you have no savings left vs the interest of principal only if you still had savings

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5 minutes ago, Eudaimonia said:

That was my original thought, and seems straightforward unless someone had some guaranteed 4%ish return of investment (if so let me know please!) they could use their savings for while living off LOC.

I was never able to figure out how to compare the cost of that compounded interest if you have no savings left vs the interest of principal only if you still had savings

Haha you're on the money. See the edit of my post :) The thing is even 'guaranteed' investments such as GICs would not give you a return that would justify doing that. If you want higher return to justify this, you need to subject yourself to higher risk.. you then would have to venture into riskier instruments like ETFs/mutuals/indexfunds, etc... which although diversified are still subject to systemic market risk arising from the business cycle/potential contagions like the 2008-2009 financial crisis. Last thing you want is to invest using your LOC money and make a gamble in the market!

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4 minutes ago, la marzocco said:

Haha you're on the money. See the edit of my post :) The thing is even 'guaranteed' investments such as GICs would not give you a return that would justify doing that. If you want higher return to justify this, you need to subject yourself to higher risk.. you then would have to venture into riskier instruments like ETFs/mutuals/indexfunds, etc... which although diversified are still subject to systemic market risk arising from the business cycle/potential contagions like the 2008-2009 financial crisis. Last thing you want is to invest using your LOC money and make a gamble in the market!

While I recognize the higher return potential of those investments I'm not for that kind of uncertainty haha which is why the GIC (never 3% even during promotions) doesn't help me make the decision. I would never use money I don't own and risk it!

So your method is use savings first, and when you run out, then you'll just deal with that compound interest? Paying interest on interest sounds scary which is why I considered keeping some savings to handle those interest charges. I know the comparison requires a calculation that needs to factors in how much LOC you're using and for how long.. so maybe there isn't a general better method and is highly dependent on the individual :wacko:

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4 minutes ago, Eudaimonia said:

While I recognize the higher return potential of those investments I'm not for that kind of uncertainty haha which is why the GIC (never 3% even during promotions) doesn't help me make the decision. I would never use money I don't own and risk it!

So your method is use savings first, and when you run out, then you'll just deal with that compound interest? Paying interest on interest sounds scary which is why I considered keeping some savings to handle those interest charges. I know the comparison requires a calculation that needs to factors in how much LOC you're using and for how long.. so maybe there isn't a general better method and is highly dependent on the individual :wacko:

Sorry just popping in now - do LOCs have compound interest? Or is it simple interest like government loans?

(Also Eudaimonia, we're gonna be classmates ;))

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10 minutes ago, Eudaimonia said:

While I recognize the higher return potential of those investments I'm not for that kind of uncertainty haha which is why the GIC (never 3% even during promotions) doesn't help me make the decision. I would never use money I don't own and risk it!

So your method is use savings first, and when you run out, then you'll just deal with that compound interest? Paying interest on interest sounds scary which is why I considered keeping some savings to handle those interest charges. I know the comparison requires a calculation that needs to factors in how much LOC you're using and for how long.. so maybe there isn't a general better method and is highly dependent on the individual :wacko:

I notice that you're IP at McGill so the lower Quebec IP tuition should be a big help. I think you would qualify for provincial aid. I think taking all these factors into consideration, you're already helped by virtue of being Quebecois. Also, McGill med has entrance scholarships that they award based on your dossier. 

There is a field of behavioural finance - there are factors that are hard to detach from our decision-making. Although interest on interest sounds scary, it would make the most sense. However, I can't argue the comfort of the psychology of having a small nest egg. Do whatever makes you sleep better at night.

4 minutes ago, canada747 said:

Sorry just popping in now - do LOCs have compound interest? Or is it simple interest like government loans?

(Also Eudaimonia, we're gonna be classmates ;))

 Yes, think of a snowball. The interest rolls in on itself and compounds. 

Also congrats both on McGill :)

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2 minutes ago, canada747 said:

Sorry just popping in now - do LOCs have compound interest? Or is it simple interest like government loans?

(Also Eudaimonia, we're gonna be classmates ;))

No it should be simple interest, say you used 10k on day 1 and never used any more later, you will pay 3.2% (unless it changes) in interest until you pay off the 10k.

But if you have no savings to pay off interest charges, you'll be using LOC to pay that, which will itself again accrue interest- so it compounds.

Yes I saw you in that school debate thread and cheered your decision!

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1 minute ago, la marzocco said:

I notice that you're IP at McGill so the lower Quebec IP tuition should be a big help. I think you would qualify for provincial aid. I think taking all these factors into consideration, you're already helped by virtue of being Quebecois :) Also, McGill med has entrance scholarships that they award based on your dossier. 

There is a field of behavioural finance - there are factors that are hard to detach from our decision-making. Although interest on interest sounds scary, it would make the most sense. However, I can't argue the comfort of the psychology of having a small nest egg :) Do whatever makes you sleep better at night.

 Yes, think of a snowball. The interest rolls in on itself and compounds. 

...yikes. So glad I'm going to McGill then. Won't really need to use the LOC to be honest. Might get it for the perks, and the liquidity if anything happens.

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2 minutes ago, canada747 said:

OK wait we have different answers here from @Eudaimonia and @la marzocco... What's correct?

Also, yes! I'm so hype. Still can't believe I got in as an OOP. Dreams do come true.

By definition, LOCs are simple interest instruments. But, because you let the interest roll in on itself so it will continue to grow (like a snowball). It's not as scary as it sounds, but that's how it works.

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Just now, la marzocco said:

By definition, LOCs are simple interest instruments. But, because you let the interest roll in on itself so it will continue to grow (like a snowball). It's not as scary as it sounds, but that's how it works. 

OK, so essentially: interest accrues, and you pay that interest off with the space you have available on your LOC. Then interest is charged in the next cycle (I guess monthly?) of the original loan, leading to a sort of compounding. OK makes sense - still not a preferable situation.

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6 minutes ago, la marzocco said:

I notice that you're IP at McGill so the lower Quebec IP tuition should be a big help. I think you would qualify for provincial aid. I think taking all these factors into consideration, you're already helped by virtue of being Quebecois. Also, McGill med has entrance scholarships that they award based on your dossier. 

There is a field of behavioural finance - there are factors that are hard to detach from our decision-making. Although interest on interest sounds scary, it would make the most sense. However, I can't argue the comfort of the psychology of having a small nest egg. Do whatever makes you sleep better at night.

 Yes, think of a snowball. The interest rolls in on itself and compounds. 

Also congrats both on McGill :)

Yes I'm so grateful for that (although I don't have the choice of living at home)! I will be applying to AFE (thought it'd be opened by now) but because I made income this year I'll have a harder time getting funds and may need to use LOC a bit. I don't know how likely it is that I'll be the recipient of a scholarship given the caliber of all the students. 

Haha it sounds scary only because I can't predict how large the sum will total to be - my math is not up to par. My psyche is that simple interest is easier to mentally deal with but I  know that it may not be the most cost-effective. May have to trust your advice!

Thank you! :D

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7 minutes ago, canada747 said:

OK, so essentially: interest accrues, and you pay that interest off with the space you have available on your LOC. Then interest is charged in the next cycle (I guess monthly?) of the original loan, leading to a sort of compounding. OK makes sense - still not a preferable situation.

Consider that the average Canadian med school graduate incurs about $150K+ in debt. And this average has only escalated with more and more graduates hovering around the $200K mark. This is the new normal given ever-rising tuitions and cost of living. What I can only suggest is to be financially prudent - learns some basics on budgeting and find your comfort zone. Moving from a good-paying career into medicine, I really had to pare back on a lot of 'lavish' expenses.. it was damn hard! ha 

Prudence goes a long way. Be balanced, but don't be afraid to live a little and indulge once in a while. :) 

 

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7 minutes ago, Eudaimonia said:

Yes I'm so grateful for that (although I don't have the choice of living at home)! I will be applying to AFE (thought it'd be opened by now) but because I made income this year I'll have a harder time getting funds and may need to use LOC a bit. I don't know how likely it is that I'll be the recipient of a scholarship given the caliber of all the students. 

Haha it sounds scary only because I can't predict how large the sum will total to be - my math is not up to par. My psyche is that simple interest is easier to mentally deal with but I  know that it may not be the most cost-effective. May have to trust your advice!

Thank you! :D

your school's wellness office (or whatever it happens to be called) can help with some of that. Getting understand of the financial situation can be done with their help :) 

One thing I guess - as long as the interest rate is relatively low the impact of compound interest is along relatively small. 

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15 minutes ago, canada747 said:

OK, so essentially: interest accrues, and you pay that interest off with the space you have available on your LOC. Then interest is charged in the next cycle (I guess monthly?) of the original loan, leading to a sort of compounding. OK makes sense - still not a preferable situation.

No, ha, but it is the situation that exists :) No more government interest shields - which is another aspect of this I find annoying from a policy point of view. You would think the system would not rely on private businesses to make it possible for the country to create doctors. 

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So I've calculated how much my first year is going to cost starting this fall, and based on what I already have saved, what I can save from this summer, and the loan I should qualify for from OSAP, I should be able to get through first year without needing the LOC. I was originally planning on waiting until next summer to apply for a LOC, but should I get it this summer then for the credit cards? I'm so confused... I was under the assumption that the credit cards you got were basically how you dipped into your LOC, just without paying it back every month like you would with other credit cards... Clearly I'm not understanding something. Please help hahaha

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5 minutes ago, xiphoid said:

So I've calculated how much my first year is going to cost starting this fall, and based on what I already have saved, what I can save from this summer, and the loan I should qualify for from OSAP, I should be able to get through first year without needing the LOC. I was originally planning on waiting until next summer to apply for a LOC, but should I get it this summer then for the credit cards? I'm so confused... I was under the assumption that the credit cards you got were basically how you dipped into your LOC, just without paying it back every month like you would with other credit cards... Clearly I'm not understanding something. Please help hahaha

No you can pay off your credit cards using whatever method- LOC or savings. So no need to touch LOC if you don't need to. The cards offered are just perks to get you signed up at the bank and aren't actually tied to your LOC

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4 minutes ago, xiphoid said:

So I've calculated how much my first year is going to cost starting this fall, and based on what I already have saved, what I can save from this summer, and the loan I should qualify for from OSAP, I should be able to get through first year without needing the LOC. I was originally planning on waiting until next summer to apply for a LOC, but should I get it this summer then for the credit cards? I'm so confused... I was under the assumption that the credit cards you got were basically how you dipped into your LOC, just without paying it back every month like you would with other credit cards... Clearly I'm not understanding something. Please help hahaha

no problem - all this is pretty new to you and that is normal.

that is not unusual if you are in good standing to start to have the first year covered or mostly so. Not everyone can do it but again not uncommon. 

the credit cards are completely separate. if you use them you will need to pay them off each month just like any other credit card - you can do that taking money out of the LOC using it to pay them off. 

You can also move money out of and eventually when paying back into the LOC at will online. If you need money in your regular bank account you just move it out of the LOC and deposit it into your chequing or savings account. 

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44 minutes ago, Eudaimonia said:

No you can pay off your credit cards using whatever method- LOC or savings. So no need to touch LOC if you don't need to. The cards offered are just perks to get you signed up at the bank and aren't actually tied to your LOC

 

43 minutes ago, rmorelan said:

no problem - all this is pretty new to you and that is normal.

that is not unusual if you are in good standing to start to have the first year covered or mostly so. Not everyone can do it but again not uncommon. 

the credit cards are completely separate. if you use them you will need to pay them off each month just like any other credit card - you can do that taking money out of the LOC using it to pay them off. 

You can also move money out of and eventually when paying back into the LOC at will online. If you need money in your regular bank account you just move it out of the LOC and deposit it into your chequing or savings account. 

Thank you!! This makes a lot more sense! Guess it's time to figure out if I should go with RBC or Scotiabank...

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10 hours ago, Eudaimonia said:

You should get one now even if you don't think you will need it. It doesn't take much hassle if you wanted to do it later either, but if you sign up now you get access to those sweet credit cards!

The credit cards they offer is available online if you search for their professional student line of credit. Scotiabank offers both the Passport visa and AmexGold as default. RBC offers the Paltinum Avion visa (seems previously that some people were able to negotiate for the Infinite avion but they're now more strict on the minimum income requirement)

 

10 hours ago, la marzocco said:

Definitely get it now. The beauty of LOC is that it’s there if you need it; otherwise, it’s just a silent player :)

 

9 hours ago, rmorelan said:

yeah there is no fixed rate option - if there were that rate would considerably higher as well as the current rate. That is the danger about LOC rates rising as you correctly surmise.

I think in part it has been a vicious circle tuition has risen insanely over the past 10 years, and in large part no one has been complaining about that because we have these ever increasing (200-250-275K now) LOCs that with low rates don't punish us early on a ton. We just collectively shrug our shoulders at it (as opposed to say the people in Quebec - that do anything but). 

However that is slowly changing - a rate of about 4 percent as given by someone above is a lot higher than 2.45% we recently had. It could very easily rise higher than that. It will quickly become a very high burden on people if we are not careful. 

More reason to just make sure you are very careful with your LOC, and use all the other tricks you can find to reduce your exposure. You only make roughly 3K a month as a PGY1 - you don't want to be shelling out 1/4 of that alone to interest payments. 

Thank you all for the information! You were all very helpful.

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