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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Kiyoshi Hijiki/Getty Images May 24, 2021 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Sean Jackson is a creative copywriter living in Florida. He’s written articles for Realtor.com, CNET and ZDNet. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Bankrate logo The Bankrate promise
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. What is discretionary income
Discretionary income is the amount of money remaining after you pay essential bills such as your mortgage or rent, groceries, utilities and other necessary expenses. How to calculate discretionary income
To start, add your after-tax income for the month, which can include your job, tips, the income you make from side hustles and other revenue streams. Next, add up all of your necessary expenses and then subtract that total from your earnings to give you your discretionary income. Say, for example, your disposable income (the amount you earn after taxes) is $3,000 per month. You pay $2,250 per month in necessities. Your monthly discretionary income would be $750. How discretionary income impacts your budget
Discretionary income can be a barometer of how well your finances are going. If you have a healthy balance after your necessities, you can use a portion of this to invest, save money, and have “fun” money for such expenses as travel, streaming services and entertainment. If, however, you have minimal discretionary income, it means you need to retool your expenses. To further cut expenses or reduce other spending, consider or creating one if you don’t already use one. Also, a can help give you a fresh perspective on how you spend your money. You can also to categorize your spending transactions, identify ways to cut back and improve your financial health. Discretionary income and income-driven repayment plans for student loans
If you have student loans, there are you can use that cap your payments at a specified percentage of your discretionary income. And if you’re not earning much income, you can qualify for zero-dollar payments that count toward your repayment term. The U.S. Department of Education has a you can use when determining the amount of your loan payments. Other income-repayment solutions include: : With this option, you have a 20-year repayment term, where you allocate about 10 percent of your annual discretionary income, divided into 12 monthly payments. : In this plan, you also pay about 10 percent of your annual discretionary income divided into 12 monthly payments, but your repayment term varies. For undergraduates, it’s 20 years, while graduate students get 25 years. Income-Based Repayment Plan (IBR): You pay up to 15 percent of your annual discretionary income which is also divided into 12 monthly payments. If you are a new borrower, your payment will be 10 percent of your annual discretionary income divided by 12. Your repayment period is between 20 years (if you’re a new borrower after July 1, 2014) and 25 years (if you have outstanding loans before July 1, 2014.) Income-Contingent Repayment Plan (ICR): For this option, you pay either 20 percent of your annual discretionary income (divided into 12 monthly payments) or what you would pay monthly under a 12-year repayment term, adjusted by how much you earn. Repayment terms under this option are up to 25 years. One of the benefits of income-based repayment plans is that if you make timely payments throughout your repayment term, the government can forgive any balance remaining after the repayment period ends. However, it should be noted that the forgiven amount may be considered taxable income. If you encounter an economic hardship, the government offers programs to keep your loan current while lowering or deferring repayment. The government calculates your discretionary income by subtracting 150 percent of the poverty guideline for your state and household size from your annual income. For Income-Contingent Repayment Plans, it’s 100 percent of the poverty guideline. The U.S. Department of Health and Human Services provides for 2021. You must also recertify your income and family size with your loan servicer annually. They will send an income-driven repayment application for you to complete. Discretionary income vs disposable income
There is a distinction between discretionary and : Disposable income is the money you have available to spend after your employer withholds taxes from your paycheck. It doesn’t account for any necessary bills you have like rent or car payments. Discretionary income is your remaining money available after subtracting necessary bills from your income. SHARE: Sean Jackson is a creative copywriter living in Florida. He’s written articles for Realtor.com, CNET and ZDNet. Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Related Articles