How to Budget an Income Driven Plan
When taking out a student loan, it may be daunting to think about how or even when you are going to pay it back. It’s an anxiety-filled thought that many college attendees have to go through their minds. While the thought of it can most likely be scary, preparing to repay the loan and organizing the future can help mitigate some of the anxiety you experienced before.
As a solution, here are different ways to plan out repaying your student loans.
Know Your Loan
Before taking out any loan that you may need, know how much you are going to take out and how you are going to repay it. Getting ahead is the best way to stay on track when repayment time comes.
Knowing how much you need to put aside each month is a great way to not fall behind on payments and have less of a chance of getting hit with interest charges.
Many people may only have one loan, but others may have more than one. Having one loan may be easy to take care of, but having multiple may need more of a sense of organization to it.
Keeping up-to-date and consolidating payments is the best way to stay within your repayment plan and pay off your loan as soon as possible.
Figure Out Your Budget
Make sure you know how much you make monthly from your annual salary at your current employer. It is also important to calculate how much you are going to take home from your annual salary after taxes are taken out of your paycheck.
A lot of people like to come up with a budgeting tool that separates their paychecks into different categories for them to section their finances depending on importance.
One trick people use is the 50/30/20 rule. This rule instructs you to put 50% of your paycheck towards bills, 30% of your paycheck towards free use, and 20% of your paycheck towards your savings.
Student loans would fall into Bills – which take up 50% of your paycheck.
Student Loan Repayment Calculator
While you may be able to calculate them yourself, you may want to use a student loan repayment calculator to make sure that all of your numbers are correct.
This can help you know how much money you need to put aside to achieve your monthly payments on time. Taking a few minutes to input information and getting the correct calculations can save you big than if you make a mistake from your calculations in the beginning.
10% Budget Allocation
Some people find that calculating monthly payments can be the monthly salary they bring home. They take 10% of their calculated take-home salary and put it towards their student loans.
If the amount is higher than the amount you need to pay towards your loans, you can either pay that amount and get ahead of your payments – which is good – or you can lower it down to the amount that is recommended to be paid.
If the amount is lower than what is recommended to pay mostly towards your loans, then it may be wise to see if you can raise and meet the monthly payments. If not, it is good to see what the interest rates will be and how to prepare for them.
Using this 10% tool is a great way to see how your monthly payments will go depending on the salary you make and take home within the month.
Stay on Track
Knowing what your payments are going to be like, and knowing the loan that you are taking out, is a great start to your repayment journey. Staying on top of calculations and information about your loans will help you stay on track to not having to pay any interest.
The pause of federal student loan repayments allows for more time to set aside money to repay your loans and have a plan for when you have to get payments in again.