Follow This Basic Rule To Get Out Of Student Loans And Credit Card DebtBy Chris Brandt, UniversityHerald Reporter
Two types of debt that are considered very burdensome to young professionals are student loans and credit card debts. That's because the accumulation of these debts are slow and unmonitored. More so, they come in small purchases which fool a lot of people who make them. If you are one of the people who are weighed down by student loans and credit card debt, here is a very basic rule that can be easily applied to your finances and help you out of debt in no time.
The basic rule that can help you get out of student loans and credit card debt is called the 50-20-30 rule of budgeting, which became popular two years ago but is still relevant today.
The 50-20-30 rule acts like a pie chart and helps you categorize your money easily. The 50 in the rule represents the necessities in your life which includes your house rent, food, clothing, transportation, and utility bills. According to financial experts, these necessities should not exceed 50 percent of your take-home pay.
If you have a car loan, this also goes under the 50 percent allocation of your finances.
The second part of the rule is 20 which represents your financial priorities, such as your long-term savings as well as the other payments you need to do including your debt repayment, taxes, insurance, and 401(K) contributions. The short-term savings, such as your vacation, should not be part of this.
Lastly, the 30 percent of the rule goes to your lifestyle choices which include entertainment, eating out, vacation, gym, hobbies, your cell phone plans, and other expenses that are not really a necessity.
As much as the 50-20-30 rule sounds nice, it will be useless if there is no change in the mindset. Why are you doing what you're doing? A lot of people think it's all about the job - work hard, earn a lot, spend more, and save a little.
However, when you begin to think about financial freedom instead of just the job, putting the 50-20-30 rule is going to be a breeze. After putting it to work for you, you will soon see that you are decreasing the debts you are repaying and bulking up on your savings.