Avoiding Interest

With bills, books, food and tuition, you have enough expenses. Why spend more if you don't have to?

That's why you should keep a close eye on what you're paying in interest. There are some easy ways to keep your interest costs under control - or eliminate the expense altogether.
 

What is interest?

When you borrow money - whether it's a credit card balance or a student loan -you'll have to deal with interest. Interest is an agreed amount (usually calculated as a "percentage" or "rate") that a borrower pays to the lender for the use of the money.

The key is how much you have borrowed (the balance). To put it simply: A higher balance equals more interest.
 

Student loans

Depending on what type of loan you have, interest may be piling up while you are in school. Be aware of how your loan works and what your responsibilities are.

A privately-sponsored or bank-financed loan may require regular interest payments, while government-sponsored loans usually defer your interest payments for as long as you're still in school and continue to qualify for the loan program.

And as a general rule, once the diplomas have been handed out, you will need to start paying back the money you received from the bank or the government.

The sooner you pay off your student loan, the better. If you pay only the minimum each month, you're going to pay more interest in the long run.

Paying more than the minimum amount means that you're paying off more of the principal (the original amount borrowed) and reducing the amount of interest you will have to pay over time.
 

Credit cards

Credit cards have a higher interest rate, and the companies that issue the cards won't wait until after graduation to be paid. So if you use a credit card, you must be prepared to cover the cost of what you buy.

However, if you are responsible with your money and stick to your budget, credit cards can give you some flexibility, help establish your credit rating and teach you essential money management skills.

Credit cards are great to have in case you are stranded or hurt and have no other method of payment readily available. Try to keep your balance a couple of hundred dollars below your maximum limit - this will curb your spending and help protect you in case of emergency.
 

Making the payments

You may be charged late fees if you miss a loan or credit card payment, raising the total amount of money you owe. It's also important to know that if you forget or can't make a payment, you will be charged full interest on your outstanding balance (including those late fees). And if it happens often, your credit rating may be negatively affected.

Thankfully, modern banking makes it easier to pay your bills on time:

• Internet banking - Banking online can simplify the way you pay bills. The money is taken electronically from your account and you get a confirmation number, which is like a teller's stamp, for your records. You can even schedule the payments for future dates, or so they happen each month. And best of all, it's free at CIBC! Regular charges may apply, depending on what kind of account you have, but the online banking service is free.
  Register for CIBC Online Banking
• Telephone banking - The phone offers another easy way to pay your bills. You'll be taken through simple automated steps and you can schedule future or recurring payments. Regular charges may apply, but this bill-payment option is also free at CIBC.
  More about CIBC Telephone Banking
   

It can add up

Interest can seem like a small expense at first. But if you don't watch how much you are spending compared to how much you're actually paying back, it can get out of control pretty quickly.