It happens four times a year and people get to take advantage of it twice a year (four if married). It’s the third paycheck in a month! ‘
So what do you do with it?
Well personally I make a point on basing my budget on the month, which is two paychecks. Many people do not have a plan for this third pay check and as a result end on spending it on an unnecessary item.
As this is one of those magical days, here are my suggestions for what to do with this extra paycheck:
1)Save it. It is a great time to put in an emergency fund for a rainy day.
2)Vacation. This is what my wife and I usually do. With our four checks, it an easy way to save a couple of thousand dollars easily.
3)Major Purchases. This is the one we are doing right now. We are saving for a new roof and this is one of the vehicles we are using to do so.
4)Pay down/Ahead of Debts. This is the one we will focus on given the topic of the blog. When it comes to student loans, the more you pay extra, the faster your principal will reduce. This will allow you to pay less interest over the life of the loan. If you plan to do this though remember your bill will read $0.00 for the following months often times. Keep making your regular payments or more to capitalize on this interest savings and pay your bill off early.
The other option you may want to consider is paying off a smaller debt. Let’s say you have a credit card you pay $50.00 a month to with a $800.00 balance. Your check is $1000.00 bi-weekly. You can pay off this credit card and have money to put towards loans, emergency fund, etc. What it also does is allow you to put this $50.00 a month towards your loans (or another debt) from that point forward. This will cause a snowball effect that will cause you to be debt free much faster.
The key thing to remember is that if you are budgeting your checks monthly, this is almost like “free money” so be vary diligent with it and let it work for you!