A $60K bonus dilemma: Should you pay off your mortgage, rental debt or student loans? Dave Ramsey has a surprising answer

A caller to The Ramsey Show said he expects a US$60,000 (C$84,000) gross bonus (about US$40,000 (C$56,000) after taxes) and currently holds around US$50,000 (C$70,000) in student loan debt, combined with his wife’s (1).

The couple also has two mortgages: one with a remaining balance of US$80,000 (C$112,000) on a rental property (at 3.6%) and another with US$240,000 (C$337,000) left on their primary home (around 7%). They’ve built a healthy cash cushion — about US$50,000 (C$70,000) in savings, half earmarked as emergency funds.

Rather than throw the bonus at the highest-interest debt (the 7% mortgage), he considered paying off the student loans first, which carry an interest rate of roughly 5%.

“You’ve got to get rid of the stupid student loans,” Ramsey said flatly. “You’re not going to prosper as long as you keep those things around. This is not an investment strategy. This is stupidity, and you’ve got to clean it up.”

Ramsey’s logic might sound familiar to Canadians managing their own mix of high mortgage rates, rental properties and student debt.

His advice: Clear the student loans first, then tackle the smaller mortgage, and consider refinancing the larger one when rates fall.

Why the student-loan payoff wins

Student debt remains a significant financial burden. The average Canadian student loan borrower owes about $25,200 at graduation (2).

Interest accumulation can be punishing — even though the federal government permanently eliminated interest on Canada student loans in 2023 (3). However, provincial loans (4) may still charge interest, depending on the borrower's location.

While a 5% rate may seem moderate compared with today’s mortgage rates, the key issue is time and flexibility. Paying off student loans eliminates a fixed monthly cost and frees up cash flow.

In Canada, most student loans have an amortization period of 9.5 years (5) on average, but thousands of borrowers take far longer (6). The more time it takes for you to repay, the more your cash flow is locked up — especially if you’re juggling housing costs in an expensive market like Toronto or Vancouver.

Meanwhile, the caller’s rental mortgage — at 3.6% — could be considered “good debt,” especially if the property appreciates or generates rental income.

Ramsey also pointed out that when debt is scheduled to disappear in a shorter period, the primary concern becomes cash flow and the path to zero.

“The shorter the period of time in which you're going to pay off the debt, the less interest rates matter.” he said.

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Is it really the best long-term move?

Prioritizing student-loan repayment over a 7% mortgage can be a smart financial move, but the decision depends on balancing interest costs, cash-flow flexibility and personal goals.

Interest cost:

A 7% mortgage in Canada is expensive — though not unusual in late 2025, as the Bank of Canada’s overnight rate hovers around 2.27% (7).

Putting the bonus toward your mortgage could reduce long-term interest. Still, student debt isn’t tax deductible for Canadians, but you can claim a non-refundable tax credit for the interest paid on eligible student loans from the government.

Cash-flow flexibility & risk:

Paying off loans boosts monthly breathing room and reduces risk if income fluctuates. According to an Ipsos study (8), nearly half of Canadians with student debt said loan payments delayed major life milestones, including a home purchase (46%), having children (24%), getting married (21%), or pursuing work in their chosen field (16%).

Psychological benefits:

Ramsey and other behavioural experts argue that becoming “debt-free” yields a compounding sense of control and momentum. The Financial Consumer Agency of Canada reports that Canadians who “avoid borrowing to meet daily expenses” have higher levels of financial well-being (9).

Deciding which debt to pay first

If you’re expecting a year-end bonus or windfall, here are a few guiding questions:

• What debts do you hold, and what are their rates and terms?
• Which obligations constrain your cash flow or cause the most stress?
• How long would it take to pay each off if you used the bonus and made extra payments?
• What would it feel like to eliminate one of these debts?

For Canadians juggling multiple loans — mortgage, student, or credit card, the order matters. Consider this first: Which debt, if gone, would make the most significant impact on your financial freedom?

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

The Ramsey Show - YouTube (1); Statistics Canada (2); Office of the Parliamentary Budget Officer (3); CBC (4,6); Government of Canada (5); Bank of Canada (7); Ipsos (8); Financial Consumer Agency of Canada (9)