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More Money, More Problems: When Your Debt Increases With Your Income

April 8, 2016
Credit Card Basics, Credit Cards
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Entrepreneur John Rampton of California was thrilled when his salary went from $45,000 to $60,000 a year.

How did he celebrate? He bought a BMW.

“Every time I got a pay bump, I would find a reason to go spend it,” says Rampton, 32, from Palo Alto. “This same process happened for around three years.”

Often when consumers’ income increases, their debt increases along with it. Instead of saving or paying off existing debt, they dig even deeper, always living paycheck to paycheck without an emergency fund or other financial backup. If you’re nodding in recognition, know that you can reverse the trend and start saving for a more secure financial future.

Here, Rampton and two others share how they stopped increasing their debt along with their income — and how you can do the same.

Bigger salary, more spending

Eight years ago, Rampton was living the dream. He had a nice 9-to-5 job, lived in a nice house and drove a BMW. But “I was literally living paycheck to paycheck,” he says.

John Rampton New Bio

John Rampton traded in his BMW in favor of a Ford Focus to cut his budget and pay off debt./Photo courtesy of John Rampton

For Rampton, every penny mattered because he was living so close to the line. For four years, he made just the minimum payment on his credit card, only to discover the balance wasn’t decreasing — his payments were all going to interest.

When he realized the depth of the problem, he started by creating a budget, and he stuck to it. He then sold his BMW and bought a salvaged title Ford Focus, paying off the loan in just two months.

That decision saved him hundreds of dollars a month in loan payments, insurance, gas and maintenance. Rampton then moved out of the house he was renting and moved in with a few other guys.

As a result, he soon had close to $2,500 left over each month.

“I then took that money and reinvested it in myself,” he says. “After paying off my bills I started blogging, started businesses and side projects.” Rampton is the founder of startup, which provides invoicing and time tracking software.

Since then, Rampton hasn’t changed much about his budget, even though he’s married and has a baby on the way.

“Although I make a lot more than I did years ago, our attitude is still the same,” he says. “It’s made my life so much better. It’s made my marriage so much better. We can now breathe. I still remember the day I paid off all my debt. I never want to go back.”

Make more money to pay off debt

Melissa Thomas’ bumpy road from more than $40,000 in debt to a career as a financial coach started with an Elton John concert.

In 2007, she realized she couldn’t afford to attend the rock star’s 60th birthday show at Madison Square Garden. An ardent fan, Thomas was heartbroken. But she and her husband, Jack, were living paycheck to paycheck, with no money in savings and six credit cards near their limits.

Thomas, now 42 and living in southeast North Carolina, was a stay-at-home mom and recalls their solution at the time was simply to make more money.


Melissa Thomas sits at Elton John’s piano. Through budgeting and saving, she was able to go to his concert in New York City./Photo courtesy of Melissa Thomas

“I worked with a direct sales company for a while,” she says. “Jack got promoted and got a raise, and I did odd jobs to earn extra money.” The couple never stopped using credit cards, however, because they figured they’d soon have enough to pay more than the minimum payment.

But they continued to increase their debt load as they earned more money, never making more than the minimum payments because those, too, grew with the debt.

“I just felt like we couldn’t get ahead even though we were making more money, and because we didn’t know better, we couldn’t figure out why.”

Thomas’ turning point was Christmas 2009, when she and Jack had to put Christmas on credit for their two sons, ages 5 and 4 at the time.

“I had three credit cards out in front of me while shopping online,” she says. “We were almost maxed out on all the credit cards, so I had to buy a little on one, a little on another. It was at that moment while sitting at the computer, I realized that this behavior had to stop.”

The couple started following financial expert Dave Ramsey’s Financial Peace University program on Jan. 1, 2010, with $43,500 in consumer debt. First, they stopped using their credit cards. They also created a plan to pay off debt and save more through budgeting. They paid off their consumer debt in September 2013, and in December 2014, Thomas had enough cash saved up to afford a flight, hotel and tickets to see Elton John in concert in New York City.

Thomas is now a financial coach and enjoys helping other people find hope and improve their financial situations.

Thomas’ advice to others in the same situation? “Learn to live as minimally as possible and use extra income to pay off current debt or save.”

Raising their salary — and their debt

Christine Odle, a 48-year-old small-business owner from Norwood, Colorado, and her husband, John, thought they had it made when her mother-in-law turned the family business over to them a year after they married.

“We promptly gave ourselves a raise,” she says. “With that we thought it would be a good idea to buy some real estate and remodel my husband’s home.”

Over the next four years, the couple racked up more than $500,000 in debt, almost four times their annual income.

Christine Odle

Christine and John Odle paid off more than $500,000 in debt over 7 1/2 years./Photo courtesy of Christine Odle

“We both felt like we were ‘rollin’ in the dough’ as we were both making more than we ever had before,” Odle says. But the couple had no safety net.

In August 2001, John saw Ramsey speak on CNN, and he realized the couple’s spending habits could derail their life plans. They immediately signed up for Ramsey’s program and soon began facilitating classes.

It took the couple 7 1/2 years to pay off their debt, and they say they’re much happier because of it. When asked how she keeps an eye on her debt now, Odle responds that there’s nothing to keep an eye on.

“It’s simple,” she says. “If we don’t have the money, we don’t do it. We actively save for huge purchases … and have a huge emergency fund since we are both self-employed. Just because your income goes up doesn’t mean your lifestyle has to follow suit.”

Odle now runs her own coaching business, specializing in financial wellness for individuals, corporations and small businesses.

What you can do

If you find that your debt has increased along with your income, look for ways to cut your monthly spending — and create a budget if you haven’t already. If you have credit card debt, think about how much it’s costing you and consider not using your credit cards until you have your balances paid off.

If you’re in your first or second job, be sure to make healthy contributions to your emergency fund, retirement accounts and other savings goals. When your income gets a bump, send extra money to those first before spending on wants.

Most importantly, the next time you get a pay raise, resist the urge to add more debt to go along with it, regardless of the form it takes. A higher income will enable you to afford something you need, but spending your extra cash on wants can make it difficult to reach your financial goals in the future.

More from NerdWallet
Average credit card debt can create monster interest, one month at a time
How one couple faced reality and paid off credit card debt
What I wish I had known about debt: 4 people share lessons they’ve learned

Ben Luthi is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @benluthi.

Image via iStock.