For the average person with a limited source of income, budgeting is a necessary albeit challenging task. It can be even more difficult when you have to balance paying off loans or debt like credit card loans, student debt, or your mortgage.
If you find yourself struggling with finding the right balance for your budget, here are some tips to help you plan out your monthly budget and build a plan that works for your needs. ;
Find the Right Mortgage Options
On average, a person’s rent or mortgage should be equivalent to less than 30 percent of their income if they want to avoid going into debt. This is because those who tend to spend a larger percent on their housing may become financially unstable.
When browsing for options for your mortgage in your city, it’s important to know that you have flexible and multiple loan options that suit your financial needs. It’s important to really examine your household’s financial situation to see if you are taking a mortgage that won’t go south because of your inability to pay. ;
Pay a Bigger Down Payment
Not only does it make the installment payments smaller, but you’re paying less in the long run. When you have to make necessary large purchases like buying your first house, the interest you pay along with your installment payments can begin to add up and result in paying more even if you can pay more with less time. ;
Sure, a small down payment, small payment plans, and a longer payment time can seem more convenient and easier on your wallet. But that interest will accumulate into a significant amount you could have spent elsewhere. ;
Financial advisors recommend bigger down payments when you make a big purchase. This provides you with lower interest rates and lower monthly payments. This may decrease your funds for contingencies, but if you can pay more initially, you’re cutting down your additional debt. ;
Follow the 50-30-20 Rule
This is a budget plan coined by U.S. Senator Elizabeth Warren which should help you plan and manage your spending. The 50-30-20 rule of thumb is that, after taxes, every paycheck must be spent accordingly: half or 50% will go to your needs; 30% will go to your wants, and 20% will go to debt repayment and savings.
But here’s the catch: some people with debt might think that this is impossible because their debts cost more than 20% of their income. But paying off the minimum payment of any debt or loan should be considered a need, so the minimum payment will eat part of your needs’ share. So, the 20% you’re left with will go towards either saving it or paying for additional debt. ;
The goal of this rule is that no matter how much debt you’re in, there should always be money set aside for a rainy day.
Apply for Loan Modification
If you find yourself struggling to pay your debt, it’s important to talk to your loan provider as soon as possible. If you try to ignore the situation, your provider will be forced to find ways to recover their losses, which could include you defaulting and losing your assets. ;
What lenders really want when it’s clear that you are struggling is to recoup as much of their losses as possible. So, instead of ignoring the problem, it’s much more beneficial for both you and your lender to come up with a solution. And this is usually done through loan modifications.
Through this process, the lender will change the original terms of your loan. The amount you have to pay monthly will be decreased into something you can afford to pay, but expect that you will have to pay for much longer than original until you can repay your debt in full. ;
Being on a budget means sticking to what you can afford. If you find yourself struggling to stay financially afloat, consider these options to help budget your expenses and minimize the effects your debts will have on your financial situation.