Line of Credit interest increasing

[alrightythen]

Hi everyone,

2nd year medical student here. I don't know much about finance but I know the government has been increasing what Prime interest is, so I guess that means our interest rates on our LoC are also increasing, right (bc its typically prime -0.25%)?

I'm with Scotia for my LOC and i'm just wondering if there's anything one can do about this (I have no idea what!!), like maybe negotiate for a lower interest rate or something?

Thanks

[shikimate]

not much you can do with the interest rate, scotia is already one of the "better" options for LOC, unless you're able to find a even better one elsewhere.

since you don't have to pay it back yet, just try to be judicious when using the LOC. For example avoid fast depreciating things like luxury cars, high tech gadgets. Tip: fast depreciating things like cars, gadgets, boats, equipment etc are often found at a steep discount 2nd hand. I've bought some refurbished electronics and furniture online that works very well and cost a lot less than new.

once you start paying it back (be it during residency or later), try to live a modest lifestyle while you still have a balance.

if you have other higher interest debt (credit card, car loan, etc) you should actually consolidate them into your LOC.

[LostLamb]

Just don’t consolidate things like government loans yet as there can be loan forgiveness programs for residents/new staff. 
Even as staff you can use the government loan interest as a tax credit (of course better to pay off if you can, but…not feasible for some). You cannot write off the loc interest. 

[eggowafflerecall]

reviving this as I'm reviewing my budget (PGY1 in HCOL city): is it worth consolidating my ontario loans into my LOC in light of current interest rates? with the tax credit it seems like I'll pay about ~100 dollars less over the repayment period if I keep the provincial loan active. might be easier to just have everything in one place but I guess there's always a chance that there are some pauses on interest (unlikely)...

[anonymouspls]

1 hour ago, eggowafflerecall said:

reviving this as I'm reviewing my budget (PGY1 in HCOL city): is it worth consolidating my ontario loans into my LOC in light of current interest rates? with the tax credit it seems like I'll pay about ~100 dollars less over the repayment period if I keep the provincial loan active. might be easier to just have everything in one place but I guess there's always a chance that there are some pauses on interest (unlikely)...

Keep your government loans. You can save on taxes, theres loan forgiveness programs for staff / residents in Ontario. And you never know what government will get into power and what they will do with the loans.

[rmorelan]

I always have to do the math every time with this - a lot of it will depend on whether you have access to those loan forgiveness options. Also matter if you are in a long residency/fellowship pathway as you are stuck with the payments etc long prior to being able to start really paying it off. 

[ameltingbanana]

I would also add that the type of residency changes this pretty significantly: family med, vs IM/subspec (moonlight from PGY4 onward), vs 5 year subspec without moonlighting opportunities. This is what I would probably do:

- I agree I would not consolidate my loans at the moment - you can always do this later if the interest rate environment changes

- I would try and find a way to pay off the provincial portion of my loans only (possible but a bit convoluted to do) as the federal portion does not incur interest under the current federal government.

- Be very wary of taking on more debt than you can handle (car, house, luxurious purchases NOS - debt is no longer cheap and a 5-10K vacation to Hawaii on Scotiabank's dime may bite you in the rear later on)

- Depending on gas-in-the-tank, think about looking for locum and moonlighting opportunities if you are in a specialty that lets you do so and doing well academically and have gas in the tank to not burn out. This made a massive dent in my LOC personally.

[rmorelan]

I should add - I am starting to run into more and more people getting into trouble with these loans with the rate increase. They are close to the limits for a variety of reasons and the significant bump in monthly payments is squeezing them. Often that is related to living in a high cost of living area which is why they used so much of it and as well why their on going monthly costs are so high as a double hit. People have been used to the extreme flexibility and low cost of these for a long time - unfortunately that seems to have ended at least for the near future. 

[Mark_O]

On 7/14/2023 at 9:48 AM, eggowafflerecall said:

reviving this as I'm reviewing my budget (PGY1 in HCOL city): is it worth consolidating my ontario loans into my LOC in light of current interest rates? with the tax credit it seems like I'll pay about ~100 dollars less over the repayment period if I keep the provincial loan active. might be easier to just have everything in one place but I guess there's always a chance that there are some pauses on interest (unlikely)...

This is a great question and one that I've thought about myself as a PGY1 in a HCOL city. Here's what I know from learning from Dr. Steph and taking Dal's mini mba course. First of all, as a resident physician in a high-cost-of-living city, budgeting and financial planning are crucial. You're considering consolidating your Ontario loans into your Line of Credit (LOC) and wondering if it's worth it given the current interest rates. You've also noted that with the tax credit, you might save about $100 over the repayment period if you keep the provincial loan active.

Let's break this down:

1. Interest Rates: The interest rate on your LOC and your Ontario loans will be a significant factor in this decision. If the interest rate on your LOC is significantly lower than your Ontario loans, it might be worth consolidating. However, if the rates are similar, the benefits of consolidation might not outweigh the benefits of keeping them separate.
2. Tax Credit: As you've noted, you can get a tax credit for the interest you pay on your student loans. According to the Student Loan Interest Tax Credit Calculator, the value of this credit depends on where you live, as the provinces vary in their tax credit rates. This could potentially save you money over the repayment period if you keep the provincial loan active.
3. Loan Management: Consolidating your loans into your LOC would mean you only have one payment to worry about, which could simplify your financial management. However, it's important to consider that if you consolidate, you might lose the flexibility that comes with having multiple loans, such as being able to target the highest-interest loan for quicker repayment.
4. Potential Pauses on Interest: While you've noted that pauses on interest are unlikely, it's worth mentioning that some loan programs do offer relief measures such as interest-free periods or repayment assistance plans. If you consolidate your loans into your LOC, you might not be eligible for these benefits.
5. Loan Repayment Strategies: The Loan Interest Calculator can be a useful tool to visualize how different repayment strategies might affect your overall cost. For example, making larger or more frequent payments can reduce the amount of interest you pay over the life of the loan.

So... the decision to consolidate your Ontario loans into your LOC depends on a variety of factors, including the interest rates, potential tax benefits, your personal financial management preferences, and the potential for relief measures. It's a good idea to run the numbers using the tools provided and consider your personal financial situation and goals. Many people would suggest a financial advisor.. coming from a more humble financial background, I'm a little skeptical and like running the numbers myself with the calculators. If this kind of stuff interests you, we have a growing community of residents, med students, and even premeds who gather to talk about these more niche and deep topics surrounding career exploration, lifestyle, money, etc. things that are less openly spoken about. Just ask me anything, and I can relay it over to some of my mentors in our community who have given me some amazing and sage advice that money can't buy. 

 

[eggowafflerecall]

On 7/16/2023 at 11:04 PM, ameltingbanana said:

I would also add that the type of residency changes this pretty significantly: family med, vs IM/subspec (moonlight from PGY4 onward), vs 5 year subspec without moonlighting opportunities. This is what I would probably do:

- I agree I would not consolidate my loans at the moment - you can always do this later if the interest rate environment changes

- I would try and find a way to pay off the provincial portion of my loans only (possible but a bit convoluted to do) as the federal portion does not incur interest under the current federal government.

- Be very wary of taking on more debt than you can handle (car, house, luxurious purchases NOS - debt is no longer cheap and a 5-10K vacation to Hawaii on Scotiabank's dime may bite you in the rear later on)

- Depending on gas-in-the-tank, think about looking for locum and moonlighting opportunities if you are in a specialty that lets you do so and doing well academically and have gas in the tank to not burn out. This made a massive dent in my LOC personally.

thanks for the reply! i'm in a 5 year specialty but can moonlight after PGY3. one strategy might be to try and pay down most of the provincial portion, possibly over the next year if I'm really aggressive about it. I'm in ON for what it is worth.

my overall debt load isn't terrible. it's about ~100k inclusive of LOC and government loans but yes, buying property is unlikely to be feasible or comfortable until I'm staff. the vacations, however, are tempting...

[ameltingbanana]

Haha, it's a matter of balance I'd say. Set yourself a budget of what you'd be okay with your LOC going to (and ensure that you can afford the interest payments at that balance +/- another 1-2% of interest). It's also important to enjoy yourself and relax during residency! It's tough - I remember when I started (I'm a PGY7 now) there were people in my class buying BMWs etc with their LOC, speculating on stocks, going on vacation in Hawaii (i brought that up because i definitely did that) investing in property....I think those days are past now for quite some time. Definitely not fair to the incoming MS1s but you will all do well as physicians financially.

I would give strong consideration to moonlighting; used it to go after my LOC aggressively. You can think of it as an investment that's providing a 6-7% dividend (whatever your interest rate is). I was also able to moonlight after PGY3 then locum at the start of PGY5). Definitely a big hit to wellness, but will start you off on the right foot financially in this new environment that's come about.

[rmorelan]

7 hours ago, eggowafflerecall said:

thanks for the reply! i'm in a 5 year specialty but can moonlight after PGY3. one strategy might be to try and pay down most of the provincial portion, possibly over the next year if I'm really aggressive about it. I'm in ON for what it is worth.

my overall debt load isn't terrible. it's about ~100k inclusive of LOC and government loans but yes, buying property is unlikely to be feasible or comfortable until I'm staff. the vacations, however, are tempting...

Moonlighting as long as it doesn't kill you in the process can be useful! Not everyone can do it mind you and many programs either don't have it or restrict it otherwise

and that is not bad debit load to have at that stage. 

ameltingbanana mentioned this but it is always good to remember that the LOC has to last way beyond the med school - for many it is often almost twice that much with various fellowship and "life" showing up. That is the big drawback to using in some fashion to tie up funds. It can work but there is a bit of luck involved (like interest rates not jumping up for ages).