If you ask financial experts how much of your monthly salary should be spent on housing, you’re likely to get a quick answer: 30% or less.
So, in an ideal budget, how much of your salary should you spend toward student loans each month? While there are no hard and fast rules, as there are for housing, the answer is no less crucial to understand.
After more than 40 months of suspending interest accrual and Student loan payments, the Student loan moratorium is coming to an end
According to the recently published article from Money Group, it’s an excellent opportunity for borrowers to consider how their loan payments fit into their broader financial picture. Let’s go through the broad guidelines that do exist. Experts frequently advise students not to borrow more than 8% to 10% of their projected gross monthly income or 20% of their “discretionary income.” However, the Consumer Financial Protection Bureau (CFPB) advises students not to borrow more than their expected starting gross monthly income one year after graduation.
So far, the challenge has been that many students borrow without understanding their gross monthly income potential or the distinction between discretionary, take-home, and gross monthly income. They may not grasp the extent of their student loan burden until they graduate.
Begin by calculating your budget based on your gross monthly income.
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Discover the budgeting guideline that works best for you
In a recent article from Nadasq, Inc., once you’ve determined your gross monthly income, you can divide it in a variety of ways. The 50/30/20 rule is a typical one, and it provides a starting point for some financial planners when developing budgets.
However, in order to manage higher debt, both student loan and credit card debt, experts advise you’ll likely need to cut costs in order to locate at least 15% of your gross monthly income to pay for debt. It might mean cutting variable spending, or if your housing costs are excessive, it could mean moving to a less expensive location, taking in a roommate, or even going back home for a while. If you are unable to reduce your spending in your gross monthly income, another alternative is to engage in a side hustle to supplement your income.
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In this article: Finance News, Student Loans, Gross Monthly Income, Monthly Income
