Got A Raise? CA Nitin Kaushik Shares 4 Steps To Manage Your Extra Income

A salary hike can increase your monthly income, but the additional money can quickly disappear into a larger equated monthly instalment (EMI) on car, credit card spending, and lifestyle upgrades. CA Nitin Kaushik, in a post on social media platform X (formerly Twitter) has highlighted how an additional Rs 25,000 a month could instead be used to manage existing debt and improve one’s financial position.

How Can A Salary Hike Get Spent?

Kaushik wrote in his post on X, “The most dangerous part of a salary hike is that it feels like free money.” He said an additional Rs 25,000 every month can quietly go towards a larger car EMI, more credit card spending, EMIs on new consumer goods, buy now pay later (BNPL) purchases and lifestyle upgrades. At the same time, existing debt continues to accumulate, he wrote.

Kaushik highlighted the interest rates associated with different forms of borrowing, including credit cards, BNPL and instant loans, personal loans, car loans, and home loans.

According to the rates shared in his post, credit cards can carry interest rates of 36-42 per cent, while BNPL and instant loans can carry rates between 24 per cent and 36 per cent. Personal loans can have interest rates ranging from 11.50-18 per cent. Car loans can carry rates of 8.50-10 per cent, while home loans can have interest rates between 8.20 per cent and 9.50 per cent.

How Should You Use Your Salary Increment?

Kaushik suggested paying the minimum amount on every outstanding debt while directing additional money towards the debt with the highest rate of interest. Once that debt is cleared, the monthly cash flow freed up can then be used to increase investments, he said.

He also pointed to the difference between relatively low-cost home loans and expensive revolving credit card debt. According to Kaushik, there is little logic in aggressively prepaying a relatively low-cost home loan while carrying revolving credit card debt with a rate of interest of around 40 per cent.

Kaushik said, “A raise should first improve your balance sheet,” adding that lifestyle upgrades can come after that. A salary increment, therefore, can provide an opportunity to reduce expensive debt and free up monthly cash flow before increasing investments or taking on additional lifestyle expenses, he said.