To manage your money effectively, self-discipline must be invoked. For most people, budgeting is hard and having student debts makes the issue more complicated. It is essential to master the basics of budgeting, but this might not be a practical solution when you are strapped for cash. You need a better plan.
The New York Federal Reserve Statistics report that about 44 million Americans owe $1.34 Trillion in student loans. This makes student debts the second largest consumer debt in the US. It has surpassed credit card and auto loans. Due to the inability to service the loans, most accounts are delinquent or in default.
If you are among the student loan beneficiaries but you are struggling with your monthly payments, you’ll need a foolproof plan to repay. Here, you’ll find some budgeting tips that will help you reverse the situation andbreak free from student debts.
Examine your financial situation
You may be already on a budget but this doesn’t mean you are running as lean as you should be. If you realize that your monthly expenses are more than what you are comfortable with, it’s time to act. Find out clever ways of cutting back on expenses while you work out ways to increase your income. Basically, you’ll need to examine your expenses and income. This is the only way you will design a working budget for dealing with debt.
If you go keenly go over all the expenses for a couple of months, you can break them down into wants and needs. This is one of the best ways of prioritizing expenses and organizing your budget. You should also try to understand your spending patterns and figure out how to make important adjustments.
When you are getting started, it’s easy to be too strict with yourself.
Don’t.
If you are too hard on yourself, chances are that you will have a really hard time following through with your plan. Having some wiggle room keeps you motivated. You can downgrade yourluxurious lifestyle to free up some much-needed money.
Get furious about the student loan
You need to get agitated by the debt you accrued when in college. Once this happens, it becomes a priority. Some people have gone as far as taking multiple jobs to raise more money. Others have relentlessly pursued programs that can offer debt forgiveness.
To get things going more quickly, adopt the 20-30-50 formula which helps you take control of your expenses. About 20% of your monthly income is set aside to student loan repayment while the remainder can be split between recreation and essential expenses.
Cut back on your monthly expenses and form better spending patterns
If your loan payments are hard to keep up with, lowering the recurrent expenses is essential if you are serious about turning things around. For instance, you could downgrade the cable subscription, give up regular vacations, and avoid multiple eat outs in a month.
When running on a lean budget, it can be pretty hard to choose what to cut back on. However, always make sure your expenses go towards budget items that you really need.
The truth is that you are still in debt and there may be various reasons to justify the situation. But your lifestyle is also a huge suspect. Regardless of why you’ve accumulated the debts, your spending patterns must be in line with the debt repayment objective.
While debts like student loans are justifiable, you still have aresponsibility to repay every single penny. Therefore, make sure you avoid charging your credit card for an unplanned purchase. The idea is to stay focused on the debt repayment plan while avoiding piling up new debts.
Always pay yourself and prioritize the debts
Irrespective of your debt situation, you should always pay yourself. As long as you have an income, at least 10% should go towards your savings. Whenever you get more money, increase savings.
If you took student loans from multiple lenders, keeping up with payments can be a daunting task. Therefore it is critical to decide which debts get paid first. Before doing this, make sure you have allocated enough funds towards your living expenses.
The debts should be ranked from most expensive to least expensive. If a loan carries high interest rates, make sure you allocate a high amount. This helps you keep the debts from growing to unhealthy levels.
Draft a working budget
When almost all your cash is being spent, cash flow can be really tight. This implies that working with a normal budget might be quite impractical. To ensure you are on the right track, focus on practicality.
For example, all allocations for each expense should be very applicable. It would be wrong to make allocations based on assumptions. It only sets you up for failure. On the other hand, getting rid of recreational expenditure from the draft can push you to spend higher than you should be. It’s best to include an allocation for leisure activities. This way, you can stay motivated to pursue the goal.
After you’ve examined all the expenses and made sure that they are driven by your goals, it’s time to create a plan to destroy the student debts. This process should never be rushed. Allow yourself enough time to figure out the most practical approach. Basically, make sure dedicate a suitable amount of cash towards the various loans. Most importantly, understand how much time you need to repay the debt.
Final words
If you have outstanding student debts that make budgets a nightmare, you are not alone. It’s normal to feel overwhelmed. The good news is that people are clearing their student loans in a few years and you can too. All you need to do is commit to a great plan and you’ll be getting closer to debt freedom.
This is a guest post by Gibson Kinyua. He is a freelance writer for hire with a specialization in finance, entrepreneurship and business. He enjoys working with B2C and B2B companies creating engaging pieces that converts viewers into royal customers. When not writing, he’s actively looking for ways to grow his start-up. Connect with Gibson on LinkedIn for more information.
