Increase the Impact of Your Tax Cut By Paying Down Debt
Millions of Americans are about to finally get a pay raise. But here's the really surprising part - millions aren't even going to realize it until the money's all gone.
If you haven't already heard, President Obama signed a payroll tax cut into law in December. Starting this month, just 4.2 percent--instead of the typical 6.2 percent--will be withheld from your paycheck for Social Security. That means you'll get to keep the extra 2 percent--or about $1,000 for a person earning $50,000 a year ($2,000 if you also have a spouse who brings home 50K). But because the money will be divided throughout the year among your paychecks, chances are most people won't even notice the increase--and therefore won't spend it wisely, say Atlanta bankruptcy attorneys.
Let's say you get paid every Friday. When you break down one thousand bucks by week, you're looking at just $19 more a month. It's easy to look at such a small amount as free money, an excuse to stop by Starbucks a little bit more or be a tad more careless with your budget at the mall. But with a little effort and planning, you could make your pay raise feel a lot larger than $1,000.
Let's say you apply your pay increase towards a $4,000 credit card balance at 20%APR. By the year's end, you'll be paying $600 in interest annually instead of $800 - that's a 25% decrease. The lower your debt, the easier it will be to pay off in the future--and the more money you'll have to apply towards other obligations, like your mortgage.
We all like to think our lives will be better when we someday have more money, but in reality, when that time comes, chances are we'll spend our paychecks much like we did before. It's not the size of your paycheck that counts, but the way you use it. There's no way to stretch your dollars farther than by paying down a high-interest debt. Not only will you lower your balance, but you'll lower the interest you pay on your balance, and the number of years over which you'll be paying. Are you concerned that you're so deep in debt that a pay raise won't make a dent? Get a professional's advice for free when you attend one of DebtStoppers' community financial workshops. And find out how bankruptcy can make lowering nearly any debt a reality with a free personal debt analysis with an Atlanta bankruptcy attorney.