Got a Raise in 2024? Here's One of the First Things You Should Do With It

Getting a raise at work certainly isn't a given. But if you're starting the year with higher pay, you have a prime opportunity to put that money to good use.

Your first inclination may be to spend your raise since, well, you work hard for it and deserve to enjoy that boost to your paycheck. But if you're still paying off holiday purchases, your best bet really is to use that money to chip away at that debt.

Don't let holiday debt linger

It's easy enough to rack up a small balance on a credit card during a time like the holidays. Between gifts, travel, and other expenses, your regular paycheck may not be able to cover everything.

The problem with credit card debt, though, is that even a small amount could cost you in the form of accrued interest. A $1,000 balance on a card with a 27% interest rate will cost you around $152 in interest if it takes a year to pay off.

That's money that could go into your savings account instead. Heck, it's money you could even use to treat yourself to a concert or a nice dinner -- so why let it go to your credit card company?

What it pays to do if you have holiday debt is set up a monthly automatic transfer to your savings that equals the amount of your raise. Then, use all of that money to pay into your credit card balance until it's gone.

Also tackle those "buy now, pay later" plans

The nice thing about "buy now, pay later" plans, or BNPL plans, is that if you keep up with your installment payments on schedule, you can avoid paying interest and fees on that debt. But still, whenever you're on the hook for one of these plans, there's always a chance of falling behind and getting stuck with added costs.

As such, if you owe money on a BNPL plan, take the same approach as you would a lingering credit card balance -- use the extra money in your paychecks to pay off your debt ahead of schedule, if possible. That way, you won't have to worry about being able to make future payments.

This past holiday season, BNPL plan usage reached an all-time high, according to Adobe Analytics. But another thing to keep in mind about these plans is that just as falling behind on credit card payments could damage your credit score, so too could the same consequence ensue if you fail to make a BNPL payment when you're supposed to. So the sooner you can tackle your remaining balance under one of these agreements, the better.

Extra money in your paycheck is great to have. And it's hard not to spend that money on things you enjoy. But if you owe money in any form as a result of the recent holiday season, then your best bet is to really work on shedding that debt as quickly as you can. Once you do that, if you're all set with emergency savings, you can start spending your raise on the things you love.