What Should Be My Monthly Student Loan Budget to Payoff my Debt Quickly
Wondering what you should budget for you student loans to pay off the debt as quickly as possible? You’ve come to the right place.
As I was writing Follow This 4 Step Student Loan Payoff Plan, I realized I missed a crucial step. You might be wondering, how do I even come up with the appropriate monthly budget for my student loans so that I can chip away at them quickly, but also have a social life. Aha! I can help with that, as I am not one of those people that is like eat old bread so that you can put more money towards your students loans (though I will just cut out the mold if its only a small piece of the bread…). But I do know about a thing called discipline, and that’s what you’re going to need if you want to get rid of your student loans quickly.
Let’s start out with the first step:
Create a Timeline
You need to look deep into your heart and think about how long you want to sit in debt. What are you comfortable with? 1 year? 5 years? 10 years? Or maybe the thought of being in debt right now is enough to make you want to barf, and you need those loans gone ASAP.
Whatever your timeline is, stick to it! Like I mean don’t kill yourself over the timeline — you can give or take a few months of meeting your goal, but if you are a year off of meeting your goal because you want to splurge on a car, think again.
My timeline truly was ASAP, so I went through the steps to see the maximum amount of money that I could contribute to my student loans every month. I came up with a perfect solution for me, which will also be able to help you if you are desperate to pay off your student loans as quickly as possible (which you should be as I talked about before).
Follow the 21% – 43% – 35% Rule
This is a rule that I made up to keep me on track to pay off my student loans on schedule. It’s so simple:
21% of your income goes towards your taxes
43% of your income goes towards your everyday living expenses
35% of your income goes towards your student loans
If this looks depressing, well it kind of is. But somehow I have snuck plane tickets into this budget and will still pay off about $35,000 in 18 months so it can’t be that bad. These are rough estimates of the percentages, but know that your student loans should be around 1/3 of your gross income.
When you organize your thoughts around this rule, you come to realize 3 things.
The government takes a lot of your money.
You should check to see if your rent/mortgage/car payment is too high.
You can live a decent life while still putting a third of your income towards your student loans.
Now that we know that we have these realizations in mind, we can run the numbers in Excel without being super depressed about it because you know that it is possible and reasonable.
Let’s go through an example. Let’s say you graduate college and get the average starting salary for 2017 college graduates, $50,000 (Time). Yes! Now you have all of this money to pay the government and the debt collectors. Woot! It’s okay — with this plan in motion, we will soon only have to pay the government.
Let’s say you’re living in Denver, CO and have the following living expenses:
Car Payment: $400
Car Insurance: $120
Miscellaneous (Netflix, Spotify, Uber, etc.): $40
These basic expenses are $2,000, which is 48% of your gross income (2,000/4,167). Hey, you live in a major city and living expenses are just getting higher and higher. Your taxes are about 22%. That leaves about 30% for your student loans. Not bad. You have a relatively new car and and enjoy Spotify (hopefully still on your student discount).
If you found a cheaper car, lowered your rent, lowered your food bill, got rid of the miscellaneous expenses, or didn’t turn your heat on in the winter, you could lower your living expenses and put money towards your student loans. BUT, you would be miserable, so that really doesn’t make sense.
You have $1,250 (30%) to put towards your student loans. If you have a $35,000 student loan debt like me, you should be able to pay off all of your student loans in 2 years and 4 months. This doesn’t account for interest accumulated, but you should honestly not have too much interest accumulated because you are paying well above the minimum payment each month.
Stick To The Plan (Kind Of)
You see how easy this process is if you follow the rule? You won’t even be stressing out about paying your student loans because you know you have a plan.
And, listen: don’t be discouraged if you are not right on your schedule. If you want to take a $1,000 Vegas birthday bash trip, do it! If you need to spend $2,000 to move cities for a new job, do it! Don’t stress yourself out. Life is too short, and the interest accumulated will not be that much since you’ve been so diligent in the months before.
But, as much as you can, stick to the schedule that makes you the most comfortable, and say GOODBYE to those nasty student loans.
What percentage of your budget will you contribute to your student loans? Comment below.
This post contains content this is for informational purposes only, and should not be considered legal or financial advice. Please read my Disclaimer for more information.
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