Are you on the lookout for a new apartment? Whether your current lease is up or you want to upgrade, you need to know just how much rent you can afford while achieving other financial goals, like debt reduction.
Managing Rent and Debt Reduction
Typically, rent is a large portion of a person’s fixed expenses. According to Financial Community Guidelines, housing should take up to 35% of your income. This figure includes housing-related expenses such as rent, insurance and utilities. 35% is just a baseline. If you have other financial priorities, like lowering credit card debt or growing a savings account, these goals must be factored in as well.
Calculating How Much Rent You Can Afford
Let’s say your income is $3,000 a month. We need to calculate what 35% of $3,000 is. So 3,000 x .35= 1,050. The most money you can spend on all your housing expenses is $1,050 to stay within the recommended guidelines. (We will focus on housing but apply the same principles to the rest of your budget.)
Right now you are working to eliminate credit card debt. You are making monthly minimum payments of $160 on $4,000 worth of credit card debt with an 18% interest rate. Using the Debt Payoff Calculator, here is what it will take to eliminate the credit card debt:
It will take 32 more payments or 2.7 years to pay off the remaining balance. Interest will amount to $1,051.
Instead of using that entire $1,050 for rent, take $150 of it towards debt reduction. Here’s what will happen:
It will take 15 more payments or 1.2 years to pay off the remaining balance. Interest will amount to $479. This represents savings of $572 in interest. You will also pay off the credit card 1.4 years sooner.
You can’t argue with that! Lowering your rent budget by $150 is certainly worthwhile since it cuts the repayment time in half and results in significant savings.
How to Save on Rent to Help With Credit Card Debt
Rent in many housing markets can be competitive. Try some of these tips to save on rent so your credit card debt can be paid off quicker.
- Live with roommates
- Negotiate the lease terms
- Choose an up-and-coming neighborhood
- Move in the winter- owner may be more willing to negotiate
- Have a great credit score- makes you a top option if there is competition
- Bundle rental insurance with auto insurance for discount
- Use less energy and water to lower utility bills
- Offer to do maintenance for partial rent reduction in the building if qualified
- Choose a place that is a step down in quality or amenities
- Research competitive utility providers to save on utilities
Simply put, you may need to pass on the fancy loft apartment with exposed brick this time around. Once you eliminate your credit card debt, you can rework the budget to accommodate a better housing option. Until then, find savings everywhere and stay on budget.
To speak to a credit counselor today about budgeting and managing your finances, call 800-769-3571.