Need to pay down debt or save for a big purchase? Five ways to cash in on a three-paycheck month

Five ways to put your extra paycheck to use
Saving for a big future expense
Posted at 1:30 PM, Dec 22, 2023
and last updated 2023-12-22 13:35:21-05

If you're paid every other week, this is a good month for you. For millions of Americans, December is a three-paycheck month. On the heels of all the added holiday expenses, the timing couldn't be better.

Matthew Goldberg is an analyst for Bankrate. To make the most of the extra paycheck, he says you'll need a plan. "Go back and look at your spending and kind of see where you are," Goldberg said. One way to maximize the extra money: make the last few days of the year part of a no-spend week.

"You wanna be strategic and see what makes the most sense for your unique situation."
Matthew Goldberg

To take some of the guesswork out of the equation, Goldberg put together a list of the five top ways to make the most of your extra paycheck.

1. Prioritize Emergency Savings

Saving for the unexpected can prepare you for any surprise expenses or help when money is tight. Unfortunately, many households aren't prepared. Betterment at Work found only half of working Americans have emergency savings. Goldberg suggests using your extra paycheck to either start an emergency fund or add to your existing account.

2. Pay Off High-Interest Debt

Credit card debt soared past $1 trillion dollars this year, a record high. Goldman Sachs now estimates that credit card delinquencies could climb to 9.5% in 2024 as consumers struggle to make payments. If you've racked up a high balance this year, you can use your extra December paycheck to make larger payments.

3. Boost Retirement Contributions

A survey from life-insurance agency Allianz found more Americans are afraid of running out of money than death. "With that third paycheck," Goldberg said. "You might be able to start 2024 contributing a little more." Thanks to compound interest, even adding a small amount of extra can pay off in a huge way down the road.

4. Divide the Paycheck

If you often run out of money in your budget to cover your expenses, Goldberg suggests dividing the extra check by six or 12, so that you have a little extra cash each month. "It can give you a little more money perhaps in your budget all year round," Goldberg said.

5. Save for Expected Expenses

If you have a large expense coming up, this is the perfect time to save a little extra. Goldberg says things like homeowner's insurance, property taxes, and other big-ticket items can hurt your wallet. "You can make a dent in starting to save for that," Goldberg said, "even if you can't afford the entire thing now."

If you need December's extra pay for expenses now, don't worry. You can still plan for the next three-paycheck month. If your first payday of 20-24 is January 5th, you'll get an extra check in March and August. If your first paycheck is January 12th, May and November are your extra pay months.