How to Use a Bonus to Solve Your Financial Problems
Dena Standley | August 17, 2022
You worked hard for your bonus. Don't spend it all at once.
Summary: Is Enhanced Recovery Company suing you for a debt? SoloSuit can help you take a stand and win in court.
Have you ever spent your whole bonus within hours or days and wondered if you could have done something better with the money? It is tempting to use a bonus on items you would usually not buy. But using it to deal with your financial problems has long-term benefits.
Ramit Sethi, a financial guru, advises people to consciously spend any bonus or windfall. He suggests that you first figure out how you want to smartly budget the bonus while still considering what you would love to enjoy doing or buying with the money. He urges people to divide the bonus for paying off debt, saving, investing, and spending guilt-free.
A bonus can be a lifesaver if you are in deep financial trouble, such as long-standing debt that the creditor is contemplating entering on your credit report and suing you. Today, we will break down how you can use your bonus to settle a debt. But first, let us discuss other ways you can use your bonus wisely.
How to spend your bonus wisely
You can easily be swayed to spend the extra cash you have received without a strategy. To avoid wasting the money, here are several ways you can use your bonus:
Invest in yourself: You can jump-start or add to your investment for a specific goal, such as retirement. You can also put your money in stocks or mutual funds.
Learn a professional skill: If you have always wanted to learn a valuable skill or get a particular certification, you can use the bonus to pay for this and improve your chances of getting a promotion or climbing your professional ladder.
Increase your emergency fund: Having an emergency fund reduces the need to borrow money for unplanned expenses.
Make extra payments on your mortgage or car loan: If the loan agreement allows you to make extra deposits, the bonus will help you reduce the overall amount and cut back on the interest rates.
Update your necessities: If you have balances on your water, rent, or other minor expenses, pay them first to avoid debt build-up.
A bonus can help you achieve financial freedom, but coming up with a plan is the first step. Make a list of your primary financial priorities and execute your plan diligently.
Use a bonus to pay off debt
A credit card debt or personal loan can be tough to manage; it is even more challenging if you have multiple debts to pay. Having a strategy of paying off your debt with a bonus can help you become financially stable. Two strategies that effectively address multiple debts are the debt snowball method and the debt avalanche method.
Let's explore these two options a little more.
Use the snowball method to settle debt with a bonus
The debt snowball method suggests using your bonus to pay the smallest debt. First, make the required monthly payments for all the debt and use the balance to pay off the smallest debt. If some cash remains, pay the next one on the list.
Start the process by listing all your debts, from the lowest to the highest. If you have a significant bonus, you can pay off two to three small debts at a go. By doing this, you will have decreased the number of bills you have to pay monthly.
Paying off debt using the snowball method gives you a financial and behavioral value because you will have a strong sense of reward when you check off some debt as fully paid.
Debt Snowball Method Pros and Cons
Good for people with several low-interest debts
Not the best option for people with high-interest debt and high balances
Motivates you to pay debt
Takes longer to pay off large debt compared to the avalanche method
Reduces the number of debts
May cost you more (interest rates) in the long-run compared to the avalanche method
The debt snowball method supports a study done by Texas A&M University which showed that small victories, like the one created with the debt snowball method, create intrinsic motivation to complete a task, such as debt repayment.
Use the Avalanche method to settle debt with bonuses
The debt avalanche method prioritizes using your bonus to pay off debt with the highest interest rates. If you pay off the first debt with the highest interest and there is a balance, move on to the next one. This method helps to reduce your most expensive balances, thus reducing your overall interest costs.
The avalanche method may not see immediate results, but it leads to the most debt reduction per dollar. Use this method if you aim to save money in the long run.
Avalanche Method Pros and Cons
Saves you more on interest
Slower progress to start with compared to the debt snoball method
Eliminate your overall debt faster
Not the best method for low-interest debt
Ideal for people with high-interest debts and high balances
May have more debt to juggle only compared to the snowball method
Use your bonus to deal with a debt lawsuit
If you are being sued for a debt you owe, you can use the bonus to negotiate a settlement. Here is the step-by-step process of how to handle it:
Respond to the lawsuit by sending a written Answer to the court and the party suing you.
Negotiate to pay 30–60% of the debt; most collection agencies pay pennies on a dollar to acquire the debt from creditors.
Have the agreement in written form and both parties sign.
Use the bonus to pay the debt in a lump sum.
You do not need a lawyer to settle a debt lawsuit. SoloSuit has all the documents you need to handle the case on your own. Check out this video to learn more about how to respond to a debt collection lawsuit:
What is SoloSuit?
SoloSuit makes it easy to fight debt collectors.
You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.
SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.
Respond with SoloSuit
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
It only takes 15 minutes. And 50% of our customers' cases have been dismissed in the past.
"Finding yourself on the wrong side of the law unexpectedly is kinda scary. I started researching on YouTube and found SoloSuit's channel. The videos were so helpful, easy to understand and encouraging. When I reached out to SoloSuit they were on it. Very professional, impeccably prompt. Thanks for the service!" – Heather