Personal Finance
May 17, 2019
By Mary Beth Eastman

When You Get A Raise But Have Huge Debt: 3 Tips

Simple. Thrifty. Living.

Receiving a raise is always a good thing and something to truly celebrate. But, you should remember that money has work to do. If you are given a raise, you need to consider your current budget and financial goals before spending any “extra” money. If you have a lot of debt, your pay increase can help you take care of it.

When you are given a raise, it’s hard to not treat it as found money and spend it all. But too often, people over-estimate the difference their raise will make to their take-home pay. You need to calculate how the raise will affect your annual tax obligation. In some instances, a raise will actually put you into a higher tax bracket. You may be slated to get $500 more a month, but you won’t see that amount. In addition to the tax bite, a percentage of your raise will go to your 401K and any other scheduled deductions that you have. That $500 may be whittled down to $150 each paycheck or less.

While you may yearn to buy a sportier car or take a trip to Disney World, paying down debt is the best thing you can do for your financial health. If any bill is past due, pay it immediately. Then concentrate your efforts on reducing or eliminating your high-interest rate loans or credit card balances. Get serious about paying off your student loans or that personal loan you took out to tide you over in a tough time. If you do, your credit score should increase along with your net worth. Reducing debt also reduces stress, which affects your quality of life.

You can simplify your finances and reduce the interest you pay by refinancing your mortgage or your student loans. We think these are the best student loan refinancing companies. They’ll help you determine if your loan is eligible for refinance and reduce your monthly payments.

If you need professional help attacking your debt (and many people do), look into a debt relief company. They will partner with you to reduce or consolidate your debt, getting you closer to financial freedom. One great company for debt relief is Freedom Debt Relief. They have a five star rating and are an excellent pick for people looking for a cheaper company with excellent service.

Many people live paycheck to paycheck and can see their security wiped out by a job loss or a medical emergency. You should have enough savings to carry you through a rough patch. Experts agree that you need enough money to cover three months of your bills socked away in an emergency savings account. Life constantly throws financial challenges at you, and an emergency fund can help you survive them. Should you save first or pay off debt first? Why not do both. Saving up this amount doesn’t have to throw a wrench in your plans, either. It’s possible to save for an emergency fund without really trying.

None of the above ideas sound like much fun, but they help you meet your financial goals, which makes life much more enjoyable. Still, there is nothing wrong with buying yourself a modest treat to celebrate your success. Splurge on some new clothes, take a weekend away, or buy something (small) that you’ve long wanted. Just be sensible about it and put most of your raise to good use.

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