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.
When you take out a student loan, thinking about repayment can feel overwhelming. Many college students worry about how and when they will pay it back.
While these thoughts can be stressful, planning ahead can help. Organizing your repayment strategy and preparing for the future can reduce anxiety and give you more control over your finances.
Know Your Loan
Before taking out a loan, know exactly how much you need and how you will repay it. Planning ahead is the best way to stay on track.
Understanding how much you need to save each month can help you avoid late payments and extra interest.
Some borrowers have only one loan, while others have multiple. Managing multiple loans requires more organization. Keeping up-to-date records and consolidating payments can help you pay off your loans faster and stay within your repayment plan. Note: Research how a consolidation will affect your eligibility for loan forgiveness! Consolidating your loans can reset your progress toward programs like Public Service Loan Forgiveness (PSLF). It is best to speak with an expert before submitting a consolidation.
Figure Out Your Budget
Start by calculating your monthly income from your annual salary. Don’t forget to account for taxes and deductions to know your take-home pay.
Many people use budgeting tools to divide their paycheck into categories. One popular method is the 50/30/20 rule:
50% for bills (including student loans)
30% for discretionary spending
20% for savings
Student loans fall under the bills category, which helps ensure you allocate enough money toward repayment.
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.
