I am trying to learn personal finance and needed some guidance. In around 250 wo

Question

I am trying to learn personal finance and needed some guidance. In around 250 words could someone please help me explain the following:

Let's use a fictitious scenario...

If you have $23,000 in student loan debt upon graduation, the average loan amount for graduates, and your budget is already fairly tight as you enter your first job on a “starter” income, what changes will you have to make in your budget to make payments? How would you go about making budget changes to meet your loan repayment obligation. Please include the amount of your monthly payments, how long it will take to repay the loan, and specifically what you would cut back on to make the payments. Remember this is fictitious but please be practical! I am trying to learn

Thanks!

Explanation / Answer

Under the personal finance there are a few important points to be considered while taking up a loan especially when it is an education loan. As far as the banks are concerned, the education loans are the cheapest loan which they provide, this loan amount do attract the interest which do range between 2% to 4%.

To establishing the monthly payment of the loan will require your capacity to take away money from your day to day requirement for your personal use and your earnings. The monthly installment should be fixed based on these facts. Normally, the banks will allow at least 10 years to repay the education loan. So, on the loan of $23000, an installment will come out at $200 per month along with the interest, which is spread over a period of 10 years i.e. 120 installments (EMIs).

Thus, you have to manage your monthly income and expenditure in such a way that it will be having enough money to pay your EMI on the due date. It is right that the for the starter it is very tight to take away the EMI amount from its limited earnings and that after incurring all personal expenditure. But you can cut your certain entertainment and some of travelling expenses to cater the EMI.

Moreover, you may take up opportunity to switch over to some other low interest scheme of different banks at any time of you repayment schedule, it will not only reduces your interest but allow you to repay the loan by adopting higher principle of loan repaid per EMI. Finally, it is always better to repay the loan as early as possible, so that you able to live your normal life.

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