If you're one of the 43.5 million Americans living with student loan debt, you'll have to start making payments soon. The federal student loan payment pause and frozen interest officially ended at the end of August after more than three years. Interest started accruing again in September, and now it's time to prepare for the first round of payments that are coming due in October.
If you're trying to figure out how to start chipping away at your student loan balances next month, don't panic. We've pinned down some budgeting strategies to get you started now.
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1. Cut unnecessary spending
Ideally, your basic necessities, such as rent, groceries, and utilities, should not exceed more than 50% of your monthly income. That way, you'll have half of your paycheck to allocate toward savings and wants.
But if that's not realistic right now, there are a few moves you can make to free up money so you won't be strapped for cash when student loan payments return.
- Review your expenses. Determine what expenses are essential and if you can cut back on some items.
- Put subscriptions on pause. If you don't want to cancel a subscription, you can inquire about a temporary pause at a reduced fee.
- Give yourself an allowance. If you give yourself a spending limit, you might think twice before you make an impulse purchase.
2. Start saving now
The average student loan borrower owes $337 per month, which can easily eat up a good chunk of your paycheck. If you start saving a percentage of every dollar you earn now, you won't have to worry about coming up with hundreds of dollars on the spot to pay your first bill.
For starters, look at your monthly income and expenses. Then, calculate how much you have left over after paying all your bills. If you can comfortably save $200 every two weeks, you'll be able to cover the average student loan payment and have extra money to put toward your next bill. Consider putting your savings on autopilot to ensure your money automatically goes into an account earmarked for student loan payments.
If saving extra money is unrealistic, you should look into an income-driven repayment plan. This could bring your payments down, based on your income. With Biden's SAVE (Saving on a Valuable Education) plan, some borrowers could see their monthly payments drop to zero. Check in with your loan servicer to learn more about your options.
3. Beef up your emergency fund
If you don't have an emergency fund yet, start building one now. The last thing you want to do is spend money earmarked for student loan payments on other expenses.
An emergency fund can serve as a buffer for emergencies like your car breaking down or unexpected medical bills. The more money you have in your emergency fund, the less tempted you'll be to turn to credit cards or touch your student loan savings.
Depending on your situation, you might want to consider having an emergency fund that covers six to 12 months' worth of expenses. But having at least $1,000 in your account can keep many small emergencies at bay. You can funnel any extra money you have toward your student loan debt.
Create your student loan plan now
The student loan repayment clock is ticking, but there's no need to worry. There are many repayment options you can take advantage of, based on your situation.
For right now, keep an eye on your finances and find out how much you owe ahead of your due date. If you plan ahead, you'll be able to crush your student loan goals this year.
