Financial advisor shares VERY grim warnings about HECS debt – and her simple five-step plan for paying your student loan off as soon as possible
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A financial advisor who built a $200,000 investment portfolio without using a dollar from her salary has issued grave warnings about student debt – and why prolonging repayments can spell disaster for your future.
Canna Campbell, from Sydney, said while loans may be interest-free, they are marked against inflation which could mean thousands in additional debt each year.
In a video uploaded to her YouTube channel, Sugar Mamma TV, the single mum warned outstanding debt will limit what you can borrow from banks, meaning you could miss out on your dream home all because of a poor repayment strategy.
To protect your future financial health, Canna advises contacting the Australian Tax Office or looking at your My Gov account to determine exactly how much debt you owe, then drafting a budget that allows you to make higher repayments so you can clear it as soon as possible.
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1. Always remember inflation
While student debt is technically interest-free, Canna said it is crucial to remember that it is always indexed against inflation.
She recounted a recent conversation with a client who had $80,000 in student debt.
Left unpaid, an annual inflation rate of three percent means the client’s debt will increase by $2,400 each year.
‘While she never thought she had to worry about her student debt, she’s actually getting deeper and deeper into debt every single year,’ Canna said.
1. Contact the ATO and find out exactly how much debt you owe.
2. Draft a monthly budget that allows you to make higher repayments of your loan so you can pay it off quicker.
3. Set mini financial goals around reducing student debt.
4. Allow yourself some small rewards every time you repay a big chunk.
5. Be realistic – don’t overstretch yourself or prioritise student debt over toxic credit card loans because it is likely the interest rate is higher than the student loan.
Source: Canna Campbell via Sugar Mamma TV
2. ‘Debt limits loans’
Applicants looking to borrow money from banks to finance a house deposit or a new car should be mindful that outstanding student debt will make them less likely to be approved for a loan, Canna warned.
‘Even debt that is three, four, five years old, they will consider that debt as well as potential future debt and it may limit your ability to borrow money,’ she said.
Gallery: When does debt become too much debt? (Espresso)
Canna advised viewers to prioritise debt repayments to avoid missing out on the home of their dreams by ’10 or 20 thousand dollars’ because a bank deems you too high of a risk.
3. The bigger the debt, the longer the repayment time
It may sound obvious, but Canna reminded viewers that more student debt they accumulate, the longer and harder it will be to pay it off.
She said she often meets clients who delay repayments until years after they have started their first professional job, only to find their debt is spiralling out of control.
‘It’s so easy to get carried away and forget about out student debt, just letting it sit there for years and years until we can actually realistically pay it off,’ Canna added.
She urged viewers to build some form of repayment strategy while they are still studying or working part-time to avoid being hit with inflation down the track.
‘Even if it’s only $100 a month, it will still go a long way to making your debt smaller,’ she said.
4. Huge debt reduces cashflow
If you are earning more than a certain amount, Canna reminded viewers that employers are required to take some of your pay to make compulsory repayments of your student debt.
Compulsory repayment rates increase as your income increases, which means the more you earn, the higher your repayment.
These forced repayments protect the student loan system, but Canna said there are far more exciting goals and experiences your money could be spent on if you pay your loan off before they kick in.
‘Yes it’s a small amount and it takes years and years to pay it off, but it’s still valuable cash that belongs in your pocket, not the ATOs,’ she added.
‘When you have more cashflow, you have more options.’
How Canna Campbell built a $200k investment portfolio without touching her salary
Canna said growing her portfolio to this level required six years of hustling, budgeting, saving, working and investing.
But now, her $200,000 portfolio yields a gross return of almost $7,500 per year. This is just one part of her financial strategy and how she advises people when starting out.
As soon as she decided to start saving, Canna created ‘The $1,000 Project’, which involves depositing any spare cash into a locked account until you accumulate $1,000.
As soon as the mum reached her target, she put it in a diversified investment portfolio so that she wasn’t tempted to spend it.
Over the six years, Canna continued to save in chunks of $1,000, investing as soon as she hit her target.
‘Never at any stage did I say to myself, I want to save $200k, because at the time that seemed like a crazy amount of money,’ Canna said.
‘Instead, I focused on what I could do right now, and $1,000 seemed like an achievable amount of money to save.’
Of course, amassing $200,000 doesn’t come without hard work.
Canna said she had to work, hustle, budget and save relentlessly, especially in the early days.
Good ways to make extra money include working overtime or taking on a side hustle during nights, weekends and early mornings, as well as selling clothes and other unused items.
Canna also embraced financial challenges like ‘Frugal February’ – where she was as frugal as possible throughout February – and ‘Manifesting March’ – where she worked to make as much money as she could through March outside of her salaried job.
‘I had to make sacrifices along the way where I had to say no to certain things,’ she said.
5. Be careful of changes in rules and regulations
Canna said she is always watching for shifts in financial trends that may signal a change in the structure of loan repayments.
She said she takes account of things like rising university fees and the government’s pursuit of students who have moved overseas to escape the responsibility of paying off their debt.
Canna has also been monitoring the billion dollar stimulus packages doled out to Australian businesses since the outbreak of the pandemic in early 2020 to gauge the impact on the national economy as a whole.
‘These are all trends that indicate rules are changing, and they may continue to change,’ she said.
Canna said while your loan may have issued interest-free, regulators may change from an inflation rate to a nominal interest rate which could strap you with thousands in additional debt almost overnight.
She said regulators could also increase the minimum repayment requirement or start charging higher fees on the loan account which will ultimately make it more difficult to repay.
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