Why I Took a $12,000 Pay Cut — and Why It Was Worth It

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Why a pay cut is worth it
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There was only one problem with accepting the best job offer I had ever received: It meant taking a $12,000 pay cut.

As attractive as the role was, I had to wrap my head around making such an unconventional career move. In the end, here’s why I decided to switch jobs for less money — as crazy as it sounds.

4 reasons why it was worth taking a pay cut

There are all sorts of natural reasons to take pay cuts. You might be transitioning into a new career field and starting at the bottom of the food chain. Or you might be starting your own business and keeping your company’s expenses low.

More likely, you’re taking a smaller wage because you have to, whether because you need the work in your current city or because you’re moving to a new one.

In my case, there was no single reason for deciding to cut my salary by $12,000. In fact, there were four.

1. I was attracted to a better fitting role

Working mostly in digital media, I have been a producer, an editor, and a content marketing strategist. But I had never been paid to write full time. Tired of jack-of-all-trades jobs, I wanted to jump at this new opportunity because it fit my desire to type words like these on a daily basis.

For me, it wasn’t just about the opportunity to write. It was the opportunity to specialize.

I understood that I’d have to lower my salary expectations. After all, you typically work your way up in pay by taking on more responsibility, not less.

Maybe finding your better fit isn’t about a role but is instead about a better fitting environment. You might be willing to deal with a lower salary, for example, in exchange for rewarding work at a mission-driven nonprofit or for-profit company. Feeling like your work matters might erase your concern about being paid below market value.

2. I couldn’t turn down a unique workplace perk

Often in the case of small companies and bootstrap startups, employers know that they’re offering less money than you can get elsewhere. They’re not fooling themselves. So, they try to make up for it.

In my case, my new company offered me the ability to work from home, from a co-working space, and on the move. I now have colleagues based in every corner of the U.S., Chile, and Russia. A few of them travel the world as they work.

To me, this closed the deal. I’m not the only one who thinks so. The average professional would be willing to sacrifice 8 percent of their pay to work from home, according to 2017 research from two Ivy League professors.

Similarly, a 2017 survey performed by Qualtrics found that 37 percent of millennials would take a pay cut between 6 and 12 percent for flexible work hours.

My company’s flexibility when it comes to location and hours is important to me because it helps me achieve a better work-life balance. The “work wherever” policy allowed me to work from California when my sister gave birth. It allowed me to play beach volleyball on a Wednesday morning before putting in Uber driver-like hours in the evening.

When evaluating job offers, look past the salary to other perks. Decide for yourself if there’s something you can no longer imagine living without. That’s how I feel about working remotely.

3. My pay cut wasn’t as big as I’d thought

As nice as it is for your company to show it values you in other ways, your salary is almost always a primary consideration. At the end of the day, many of us do what we do because we get paid for it.

In fact, 47 percent of employed Americans describe their job as “just what they do for a living,” according to a 2016 report from the Pew Research Center.

Although I have had the fortune of enjoying each of my post-college jobs, I’m like any young professional. I want to keep enough money coming in to pay off debt, cover current expenses, and save for the future.

Thankfully, my big decrease in base salary — $12,259, to be exact — wasn’t what it initially seemed. That’s because my new job offered five financial benefits that my previous one didn’t:

  1. 401(k) matching contributions
  2. No premiums on health care coverage
  3. Stipends for education and wellness expenses
  4. Bonuses for the company’s performance
  5. Annual raises for experience and inflation

Even if you’re math-wary, it’s not difficult to put a dollar figure on all of these benefits.

Imagine the dividends for 401(k) accounts. If your company matches 5 percent of your contributions, you’re essentially giving yourself a 5 percent raise.

Similarly, if a company is offering to cover 100 percent of your health care plan, the arithmetic is simple. I had been paying $85 per month for similar coverage at my previous job, for example. My new job would save me $1,020 per year as a result.

Run the numbers of your potential benefits package. Also, consider other factors like whether you’d be switching to a lower federal income tax bracket.

All told, you might find that your potential pay cut isn’t as significant as it appeared at first glance.

4. I could potentially make up the difference later

The most difficult part about giving up salary is that you could be stunting your long-term salary growth. Enter your information into any lifetime earnings calculator, and you’ll see that what you’re earning now invariably affects what you’ll be making five, 10, and 20 years from now.

All things being equal, giving up $12,000 per year could cost me more than $775,000 between now and my 65th birthday, according to a Calculators.org’s tool.

No amount of benefits — even the disappearance of commuting costs — can change that. But here’s what can: If your new job puts you on a better trajectory to earn more over time.

My $12,000 pay cut, for example, could be lessened by climbing the ladder more quickly. I could eventually get back to my original salary number by excelling in my role or earning a promotion.

Assess whether you might be able to rise through the ranks faster at your next employer. If you have to take a lower salary in the short-term for a better opportunity to advance in the long-term, the decision could pay off.

This is especially true if you move to a company where you can successfully negotiate regular raises.

Don’t always rule out a pay cut

Take a look at your overall financial health before deciding to either take a pay cut or chase a bigger salary by job-hopping. If you’re burdened by student loan payments, for example, maybe you need to put off a better fitting role for a higher paying one.

But don’t rule out a lower paying position in the future. You’ll know the right opportunity when you see it. Sometimes you just have to look past the dollars and cents.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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