So, should you budget to pay off your student loans or not? It seems like a reasonable idea — after all, out of all the traditional personal finance wisdom out there, creating a budget has to be among the most common.
But experts realize charting expenses doesn’t tickle every borrower’s funny bone. That’s why there are how-tos for tricking yourself into budgeting, disguising it as a spending plan and even making one you won’t hate.
If it’s this much of a drag, is making a budget really worth it? And what are the situations when making a budget to pay off student loans isn’t such a good idea after all?
Here then are the pros — and cons — of budgeting your student loan repayment.
Pro: Cutting expenses to make (bigger) loan payments
Through budgeting, you’ll learn exactly how much money you have coming in every month — and where it’s going.
By purposefully allocating every cent of your paycheck and other income toward your routine and not-so-routine expenses, you’re more likely to spend wisely and avoid bad habits.
When scanning line-by-line items, for example, you might realize that you have a few entertainment subscriptions among wasteful spending that could be cut.
The more you trim, even temporarily, the more you should have left over to pay your student loan bill’s minimum amount or even go above and beyond it.
Pro: Avoiding overdrafts for automatic payments
Because budgets serve as a record for all of your money’s comings and goings, it decreases the odds you’ll be left without the money you need to meet your student loan payment.
Your payment amount will be a line item right alongside other monthly bills for rent, electricity, water and the like. You could always increase your payment when you have the cash to do it.
But having a solid plan for your money nearly guarantees you’ll never miss a loan payment. As long as you don’t suffer a budget-busting emergency, like a sudden hospital stay, you’ll be able to autopay your education debt with your mind at ease, leaving overdraft fees behind.
Pro: Measuring your repayment progress
If you’re like most Americans burdened by student loans, it’s going to take a lot more than a few monthly refreshes of your budget to pay off student loans.
But your budget can be more than a roadmap — it can also serve as a progress bar.
Say you plan to be aggressive about your loan repayment — you might aim to carve out larger and larger payments month to month to attack both the interest and principal of your debt.
By looking back at your budget’s evolution to see how your payment amount has (hopefully) increased over time, you might stay motivated to keep the streak alive and end your debt as soon as possible.
Con: Time and effort required to build and maintain
Like many financial moves, a budget is only worth the amount of effort you put into it. And let’s face it, there’s a sizeable time investment involved if you’re budgeting as a beginner.
You might find it difficult to find and keep records of your income and expenses, tracking down your bank account information and learning to review your credit card transactions more critically. And if you live with family and share expenses, you could be hard-pressed to get everyone on board with each budgeting decision, like cutting cable or going out to eat less often.
At least much of this hard work is over once you’ve created your budget — you’ll already know where and how to input your monthly income and expenses. Still, you’ll continue to be on the hook for some data entry and analysis.
Con: Treating it as the only solution could stall your repayment
If you go to the trouble of building a budget to pay off student loans, you might think you’re now completely set for a successful repayment.
However, by treating your budget as the be-all and end-all, you could fall into the trap of forgetting to focus on your income.
After all, you can only shrink your budget so far. Once you’ve become the most efficient spender possible, increasing your monthly loan payment amount would only be possible through income-building. (Plus, earning more money would also help you increase your savings to build a cushion for those budget-breaking emergencies.)
Con: Might be unnecessary if your repayment is under control
A budget to pay off student loans might sound like the best solution for a troubled borrower, but what about more successful borrowers who are cruising through repayment?
It’s possible a budget could slow you down.
Maybe you’re a shoo-in for a federal loan forgiveness program and have the cash-flow to make the minimum payment before your debt is eventually wiped away. Or perhaps you’re naturally budget-conscious, resourceful and driven to attack your loan balance.
There are many scenarios like these where a budget might not hurt, but it certainly won’t help you as much as it would others.
Weigh the pros and cons before choosing a budget to pay off student loans
Although it’s a nice-to-have tool that could chart out your repayment (and other financial goals), budgeting isn’t for every student loan borrower.
Before you adhere to experts’ directives to create your first budget or fine-tune your existing one, weigh the pros and cons. Ask yourself if it could help you reach the end of your student loan debt faster.
If your answer is a resounding yes, choose the best budgeting method for your situation.
And if you’re not so sure, consider other strategies which could help you pay off debt faster.
Interested in refinancing student loans?Here are the top 7 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 6, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 09/06/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.19% effective August 10, 2019.
6 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
7 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 08/01/2019. Variable interest rates may increase after consummation.
|2.14% – 6.79%1||Undergrad & Graduate|
|2.14% – 7.84%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.43% – 7.60%4||Undergrad & Graduate|
|2.14% – 8.01%5||Undergrad & Graduate|
|2.06% – 8.93%6||Undergrad & Graduate|
|2.74% – 7.24%7||Undergrad & Graduate|