How I'm Budgeting to Pay off My Student Loans

Originally posted to my blog.

I just spent the past two hours looking at the student loan debt I owe. It’s a hefty amount—but not as much as most people have to pay. Since I make money on a more consistent basis now (and even started budgeting with each bi-weekly check), I need to start budgeting for paying down my ONLY debt I owe—my student loan debt.

Now I’m not going to disclose how much I owe BUT I am going to go through my budgeting process, using Jordan Page’s (of the YT Channel “Fun, Cheap, or Free”) budgeting method of living off of 70 percent of your income every paycheck. Since I get paid bi-weekly, I usually reconfigure my expenses and spending allowance twice a month.

If you don’t know about Jordan Page’s budgeting method, I wrote all about it in this post so please go check it out.

My Loans

So my big student loan is broken into three different loans, and all three of them have separate annoyingly large interest rates. So I’ll break them down for you:

LOWEST PRINCIPLE — 5.3 percent

MIDDLE PRINCIPLE — 5.8 Percent

HIGHEST PRINCIPLE — 6 Percent

I did some math (Thanks to the awesome people of the student loans subreddit) and calculated that all three in total are accruing $100 a month. #Yikes

Honestly, doing the math and seeing how much I need to be spending to get ahead of my accretion so I can finally pay down the principle really helped me get motivated. Before this week, I hadn’t checked my student loan in months. Now I plan on checking it at LEAST twice a month when I get paid.

Are you curious at how much interest you’re accruing? It’s a really simple calculation. So get a pen, paper, and calculator and buckle up.

Calculate Your Accretion

Make sure you know what your principle is. The principle is the amount that you borrowed (NOT the interest). And make sure you know the interest percentage (the rate percentage that your debt is growing).

• Look at the interest percentage number. Take that number and turn it into a decimal (ex. 5.4 percent —> .054).
• Take that decimal and divide it by 365.25.
• Take THAT number and multiply it by your Principle amount.
• The answer is how much interest you are accruing PER DAY.

I’ll demonstrate. Say I have a $2,000 principle debt that I owe on a credit card. Mind you that the $2,000 principle is how much I borrowed outright without the interest that has grown (or is growing) on it.

Say that the interest rate percentage is 6.4 percent. That means the debt of $2,000 is getting money tacked onto it at a rate of 6.4 percent of what the principle is (that is — 6.4 percent OF $2000).

First I turn the percentage into a decimal —–> 0.064

I divide that by 365.25 ——> 0.064/365.25= 0.00017522

I multiply THAT by the principle —-> (0.00017522)(2000)=.3504449

I would be accruing (rounding obviously) about 35 cents PER DAY on that loan.

So how do I get ahead of it? Pay down more than your interest accretion. You have to essentially beat the interest growth at the race to the finish line.

Now that you have that “per day” number, you can manipulate it any way you want. This works for credit cards, student loans, personal loans, even clothing store cards.

You want to know how much interest you accrue every week? Multiply the “per day” value by 7.

Every month? Multiply “per day” by 30 (or 31).

So in our example, we are accruing $0.35 a day (Jesus). Multiply .35 by 7 and that’s $2.45 a WEEK we’re accruing. Do you get paid twice a week like I do? Calculate two weeks! That’s $4.90!

So every time you get paid, make sure you’re paying MORE than $4.90 toward that targeted loan, and you’ll know you’re getting ahead of it. How MUCH ahead depends on how much above $4.90 you want to pay back every time you get paid.

But the calculation makes it feel, if not more manageable, then a lot less confusing.

The Plan

So Jordan Page, in her budgeting method, suggests that one use no more than 70 percent of their income for spending. Where does the other 30 percent go? Typically savings/bills/etc.. I’m going to do her one better and try to cut at least 30 percent more right off the top (after taking out taxes and bills) and put that all towards paying off these loans.

Also—my budget’s even tighter this month. I looked at how much I’ve spent in the past two weeks and if I skipped eating out (gotta love brunch), I would have saved about $70. That’s literally my phone bill.

I’m going to only allow myself $50 a week for “groceries/food” and $5 for my “other” spending. I know, right? Crazy. But I went to Trader Joe’s for this week’s groceries and only spent realistically about $32.

Whatever money I have leftover is going to go straight towards my debt again at the end of the month.

I haven’t calculated how long this will take me to complete because I get paid irregular amounts every two weeks (contracted job). However, I’m really motivated to pay off these loans so I can start INVESTING for crying out loud!

Are you being swallowed by debt? Have you tried the calculation? How do YOU plan on getting ahead?