Budgeting for a monthly loan payment

The best time to make sure a loan payment fits your budget is before you apply. A few minutes with your bank statements can save months of stress.

1. Start with take-home pay

Use what actually lands in your account each month after tax and deductions. If your income varies, use an average of a few lower months rather than your best month.

2. List fixed costs

Rent or mortgage, utilities, insurance, phone, transportation, childcare, and the minimum payments on any debts you'll keep.

3. Estimate flexible spending

Groceries, fuel, household items and personal spending. Your last two or three months of statements will show realistic numbers.

4. Leave a buffer

Unexpected costs happen. Leaving some room each month — and building a small emergency fund if you can — makes it much less likely a surprise causes a missed payment.

5. See what's left

Take-home pay minus fixed costs, flexible spending and your buffer is what you can comfortably put toward a new payment. Use a loan calculator to find an amount and term whose payment fits inside that number.

Tips

• If the payment is tight, consider borrowing less or choosing a longer term — but remember a longer term usually means more total interest.
• Set up a reminder a few days before each due date.
• If you're consolidating, include the payments you'll no longer be making.
• If something changes and you think you'll miss a payment, contact your lender early.