Got a salary hike? Your extra Rs 25,000 could disappear without you noticing. CA suggests what to do first after your salary gets credited

A salary hike is usually a reason to celebrate. But a bigger paycheck does not automatically mean bigger savings. The extra money can quickly get absorbed by a larger EMI, more credit card spending or lifestyle upgrades, leaving little improvement in your financial position. CA Nitin Kaushik has shared a simple approach to handling an increment, arguing that the first priority should be strengthening your balance sheet rather than immediately increasing your spending.

CA Nitin Kaushik took to X and warned that the most dangerous part of a salary hike is that “it feels like free money.” An additional Rs 25,000 every month can appear substantial. However, the money can quietly disappear through a bigger car EMI, increased credit card spending, new consumer EMIs, Buy Now Pay Later purchases and lifestyle upgrades.

The problem becomes more serious when existing debt continues to accumulate at the same time. Instead of allowing the additional income to disappear into higher expenses, Kaushik suggests using the increment to improve your financial position first.

High-interest debt should get priority

One of the biggest reasons to rethink how a salary hike is used is the cost of existing debt. According to the interest-rate figures shared by CA Nitin Kaushik:

- Credit cards: 36% to 42%
- Buy Now Pay Later (BNPL) and instant loans: 24% to 36%
- Personal loans: 11.5% to 18%
- Car loans: 8.5% to 10%
- Home loans: 8.2% to 9.5%

These differences matter because money used to repay expensive debt can potentially save significantly more in interest than money directed towards relatively low-cost borrowing. A person carrying high-interest credit card debt, for instance, may want to prioritise clearing that balance instead of directing every spare rupee towards a lower-interest home loan.

CA's advice after a salary hike

CA Nitin Kaushik recommends a straightforward sequence for handling an increment. First, pay at least the minimum amount due on every debt so that obligations remain current. Then focus additional repayment on the debt carrying the highest interest rate. Once that expensive debt is reduced or cleared, the monthly cash flow that was going towards interest and repayments becomes available again.

The next step is to increase investments. In other words, the salary hike should not immediately become spending money. It can first become a tool for reducing expensive debt and creating greater room for wealth building.

Paying off cheapest loan first may not make sense

CA also challenges the instinct to aggressively prepay a relatively low-cost home loan while expensive revolving debt remains outstanding. For example, someone with a home loan charging around 9% but also carrying credit card debt at 40% could potentially benefit more from tackling the credit card balance first.

The logic is straightforward. The higher the interest rate, the greater the financial cost of allowing that debt to continue. So, rather than simply asking which loan should be closed first, borrowers need to consider the interest rate attached to each outstanding debt.

Improve balance sheet first

The larger paycheck can certainly support a better lifestyle eventually. But CA Nitin Kaushik's advice is to first make sure the increment strengthens your finances. That could mean reducing high-interest debt, freeing up monthly cash flow and subsequently increasing investments.

Only after the balance sheet becomes stronger should lifestyle upgrades take priority. As Kaushik puts it, “A raise should first improve your balance sheet.” Lifestyle upgrades, in his view, can come afterwards.