4 Reasons You Shouldn't Get a Big Loan Right After a Raise

It is every working person’s dream to receive a raise. Having more money makes you less worried, after all. Plus, you will have some leeway to buy the things you’ve always wanted. You may even be more confident in taking out big loans, thinking you now have the means to repay it easily.

Before you decide on borrowing from a licensed money lender, think first about why you should not. Here are four compelling reasons to reconsider taking out a big loan after a raise.

You might go over your budget

Wise use of money requires lots of planning. That means when you get a raise, you need to reconsider your budget. What will you do with the bigger income? Is there a set of expenses that you want to add to your budget?

If you’re considering a big loan like an auto loan, property loan, or business loan, evaluate if it will fit your budget first. The monthly repayments for these kinds of loans are huge, so make sure you can really pay for them consistently. Keeping up with your monthly repayments is great for your credit score.

But if you are not sure you can make those payments for the entire tenure of the loan, think twice. Constantly going over your budget because you are chasing repayments is never a good idea.

You are prone to making emotional decisions

Imagine your boss just told you that you’re getting a pay raise. You would most likely feel excited, leading you to think of all the new stuff you can buy. You may even think of getting that home loan or auto loan because you now have the money to make the downpayment.

But hold that thought. This is exactly the time you should not make that kind of decision. Each time you feel an intense emotion, whether that’s anger, fear, or excitement, avoid making a decision. More often than not, you will end up regretting those decisions influenced strongly by emotions.

Instead, give yourself a lot of time to calm down and think. This way, you can be more certain if taking out a large loan is worth it.

You’re not yet sure if your raise will last

You may be given a raise now, but you never know how the industry and your company will turn out. Something might happen that will cause a mass layoff, so what if you suddenly lose your job? Also, what if circumstances force you to take a pay cut?

If the raise does not last long, taking out a large loan is not a good idea. You will have a lot of trouble keeping up with a large, long-term financial commitment.

Focus on increasing your savings and investments

The best thing to do with a raise is to use the added money to build wealth. Put more money into your savings. Invest more money in tested investment vehicles like real estate, stocks, or mutual funds. You can even use the money as capital for a business idea you’ve been waiting to start up.

When you use the money to invest, you make the money work for you. The money you invest will earn more money for you. In the long run, you will become wealthier.

Conclusion

When you get a raise, you need to be wise with what you’ll do with the extra money. Don’t rush into getting a big loan, as it might lead to financial ruin if you’re not careful. Think and consider your budget first before taking out that kind of a loan. Better yet, save and invest the extra money you get from your raise to build wealth.