Over 43.5 million Americans are on the hook for student loan payments. And for the first time in over three years, many borrowers will have to pay a student loan bill this month.
The average student loan balance is $37,720. That number isn't small by any means, and it could be intimating to even think about it. But if you tackle that, every other financial goal on your list will be a breeze.
Getting started is the first step. If you're swamped with anxiety and don't know where to focus your attention, below are three budgeting tips to get you moving on the right track.
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1. Set payment goals
Paying off more than $37,000 worth of debt may seem out of reach if you're just getting started. Granted, it's not chump change, but it's completely doable if you set goals. With any goal, it's about breaking it down into bite-sized pieces so that the journey is less overwhelming.
Let's say your student loan bill is close to the average amount, which is $337 per month. Setting a goal of paying $400 per month would allow you to get ahead of your student loan payments and save money on interest charges. Check with your loan servicer to ensure they are applying the extra money toward your principal balance.
Having specific goals will help you stick to your budget when the need for impulse spending arises. So, when you identify your goals, make sure you also think about the impact the goal will have on your future self. For example, paying more than the minimum balance every month will allow you to shed debt faster so you can free up cash for other goals.
2. Create a payment plan
Based on the goals we discussed above, you could set aside $100 every week to hit your target goal of paying $400 toward your student loan debt. If you want to make the deal sweeter, consider making biweekly payments. You'll end up making 26 half payments instead of 12 monthly payments at the end of the year. That works in your favor because you'll have an additional full payment toward your student loan every year.
Here are some quick tips to make your payment plan a success:
- Create a sub-savings account for student loan payments.
- Set up automatic weekly transfers from your core account to your student loan savings account.
- Find out if your loan servicer will allow you to make automatic biweekly payments.
- Consider enrolling in AutoPay to snag a 0.25% interest rate reduction.
3. Keep tabs on your money
Start tracking your expenses for the next 30 days to see where your money is going. You may be able to cut back on some spending categories that have been slipping through the cracks. A $5 splurge on a cupcake every day might not seem like a big deal until you realize that's an extra $150 you could use toward student loan debt.
You also want to make sure you aren't overspending in some areas. Your housing expenses, for example, are likely the biggest monthly necessity you'll have to budget for. A common rule of thumb is to make sure housing doesn't exceed 30%. And if you can keep your total monthly needs, including utility bills, insurance, and food, less than 50%, you should be in good shape to manage your non-essential expenses.
The less money you need to allocate to essentials, the more money you can play around with for student loan repayment.
Your debt payoff victory is right around the corner
Student loans can easily cause anxiety if you have no idea how to manage them. That's why having a budget is key. You'll get a better idea of your financial picture and what's realistic for you. After you determine the best moves for your budget and create a game plan, you'll be steps away from your student loan payoff victory.
