5 smart ways to use your extra paycheck during three-paycheck months

If you’re paid biweekly, you may already be familiar with the “three-paycheck months.” If you budget based on earning two paychecks a month, those third paychecks feel like getting a biannual bonus: Extra money without any extra work. 

For those paid biweekly, as opposed to monthly or twice a month on set dates like the 1st and 15th, the calendar creates 26 pay periods in a year. That typically means two paychecks most months, except twice a year when you’ll see three. These months shift depending on when your first payday of the year falls, but they’re easy to spot if you follow your pay calendar. 

To figure out yours: 

• Look at the date of your first paycheck in the year. 

• Count forward in two-week increments until you reach all 26 pay periods. 

• Mark the two months that include three paydays — those are your three-paycheck months. 

When that extra income lands, it’s tempting to splurge. But the smartest move for three-paycheck months is to put that extra paycheck to work in a smart way that either saves money, earns more money or improves your life in a meaningful way. 

1. Build an emergency fund

One of the most powerful uses of an extra paycheck is building your emergency savings. An emergency fund is money you set aside for true financial curveballs — job loss, car repairs, medical bills. Experts recommend having enough to cover three to six months of expenses. 

Without this cushion, a surprise bill could push you toward credit cards or loans. Non-payment of debt can result in a drop in your credit score, which can impact the kind of interest rates you receive when borrowing in the future. Having cash easily accessible in case of emergencies can help protect your budget and credit report. 

If you’re starting from scratch, an extra paycheck is a great way to seed your account. If you already have some savings, consider topping it off or establishing a rainy day fund on top of your emergency savings. Even a few thousand dollars in emergency savings can mean the difference between a stressful financial setback and a manageable inconvenience.

2. Pay down high-interest debt

High-interest debt — especially credit card balances — can eat away at your financial stability. Making extra payments towards your debt is like giving yourself a raise, because it reduces the amount of interest you’ll pay now and over the long term. 

For example, imagine you owe $5,000 on a credit card with a 20% interest rate and only pay the minimum each month. That balance could take years to clear and cost thousands in interest. If you put an extra $2,000 toward the balance during one of your three-paycheck months, you cut the payoff time dramatically and save hundreds in interest charges. 

If you have multiple debts and aren’t sure which to tackle, consider these repayment strategies: 

• Snowball method: Pay off the smallest balance first for a psychological win. 

• Avalanche method: Tackle the highest interest rate first to save the most money. 

And if juggling multiple payments feels overwhelming, there are multiple methods you can use to consolidate your debt. By combining accounts into a single payment, you could reduce your interest burden, on top of simplifying your payment schedule. Using your next three-paycheck month to pay down or pay off high-interest debt really puts extra funds to work for you.

3. Prepay major expenses

Another savvy use of an extra paycheck is to prepay major expenses. This can free up future cash flow and sometimes even save you money. 

• Insurance premiums: Some insurers offer discounts if you prepay your annual automobile coverage. If you pay homeowners insurance in a lump sum at the time of renewal, you may reduce the amount you owe in escrow each month. 

• Mortgage payments: Making just one extra principal payment a year on a 30-year fixed mortgage can shave years off your loan and save thousands in interest, especially if your interest rate is on the higher side. Just be sure to designate that the payment applies to principal only. 

• Future expenses: If you’re saving for a new car, using your extra paycheck for a larger down payment can help you qualify for a lower interest rate. Or, you might set aside funds for a home project that increases your property value down the road. 

Even if the payoff isn’t immediate, prepaying large bills gives you peace of mind knowing those costs are covered.

4. Grow your savings with interest

If your financial situation is solid and debts are under control, consider putting your extra paycheck into a savings vehicle that pays you back. 

• High-yield savings accounts: These accounts offer much higher dividend rates than traditional savings. If you depend on a high-yield savings account for short-term goals, stocking it with your extra paycheck can accelerate your progress. 

• Certificates of deposit: Locking your money in a certificate can earn a guaranteed return, though you won’t be able to access the funds until maturity. 

• Money market accounts: These often combine higher earnings with the flexibility of unlimited withdrawals. 

You may also choose to more directly invest your paycheck by contributing to a retirement account or investing in the market. Weigh your options before one of your next three-paycheck months to decide where the extra money will work hardest.

5. Invest in your quality of life

Not every financial decision has to be purely practical. Sometimes, spending on things that enhance your life is just as valuable. Using an extra paycheck for a one-time expense lets you enjoy it without derailing your monthly budget. 

That might mean: 

• Funding a vacation or annual family tradition. 

• Covering big seasonal costs like back-to-school shopping or holiday gifts. 

• Paying for “nice to have” upkeep, like a deep house cleaning, car detailing or organizing your garage. 

Even though these aren’t emergencies, they’re predictable expenses that can otherwise lead to credit card debt if you’re not prepared. Using an extra paycheck for them is both responsible and satisfying. 

Making the most of three-paycheck months 

Three-paycheck months only come around twice a year, but if you plan ahead, they can make a real difference in your financial situation. Whether you use that extra paycheck to cover three to six months of emergency savings, pay off high-interest debt, prepay major bills, grow your retirement savings or simply improve your quality of life, the key is being intentional. 

When you give every dollar a purpose, you stretch your extra income further and make real progress toward your financial goals.