Did you know there are five Fridays in January? That extra Friday means that a lot of people will be getting an extra paycheck this month.
"The five-Friday factor could definitely be helpful to those folks who receive a paycheck every week or every two weeks," says Katie Bossler, who served our clients for many years as a credit counselor. "For people who get paid every other week, it's important to note that three-paycheck month will only happen if payday falls on the first Friday of a five-Friday month."
Katie explains that most people on a bi-weekly pay schedule budget based on two paychecks as month (or four paychecks for those paid weekly). As a result, when an extra payday rolls around and you get an "extra" check, you have an opportunity to make some decisions that can improve your financial situation.
"The question becomes what's the best thing to do with that extra money," Katie says. "The answer really comes down to each person and your particular needs."
If you're one of those people with an extra paycheck this month, Katie advises directing that money in one of three ways.
1. Pay off debt: For many people, an extra paycheck can mean a chance to more aggressively pay down debt. Katie's advice is to direct that bonus paycheck to debt with the highest interest rate. This would be in addition to what you typically pay toward your debt during a regular month.
"The extra payday may provide people a chance to breathe a bit," Katie notes. "You may be feeling more confident about your finances and open to the idea of not using credit cards. This might be a good time to consider a debt management plan."
A debt management plan works with creditors to lower interest rates and reduce fees, enabling people to pay off debt faster and save money on interest.
If you are considering a debt management plan, look for a reputable, nonprofit credit counseling agency to assist you. Greatvest can provide a list of free debt and credit counseling, and if appropriate to your situation, can support you through a debt management plan.
2. Build up savings: A bonus paycheck also provides an opportunity to pad your savings account. An extra paycheck can give you a boost for your emergency fund, or any savings goal, like buying a home, saving up for the holidays, buying a car, or retirement.
"It's easier to save small amounts more frequently than it is to save a lump sum at one time," Katie notes. "This is the one exception. If you deposit every "extra" paycheck this year you'll have one month's extra pay saved by the year's end."
3. Get ahead of the bill cycle. The five-Friday month can also allow you to finally get ahead of your bills.
"If you've fallen into a rut where you're paying your rent or mortgage with the first paycheck of the month, you can use this extra paycheck to pull yourself ahead to where you're paying for your bills earlier each month," Katie explains. "This is a great opportunity if you are always a little bit behind to get ahead of the cycle, which can feel really, really great."
If you are worried about your finances, and you would like some advice on how to use that extra paycheck to get yourself on track, we can provide you with free credit and debt counseling. We will help you understand your situation, explain the options, and make a plan for your future.
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