Crawling Out Of Debt? Check Your Check!

Credit cards. Student loans. Car payments. YUCK! Debt of any kind sucks but especially consumer debt. If you have made the decision to pay it off, to GET OUT, then you may have read some helpful tips already, such as: get a second job (or just work more in general), sell something of value, and tighten up your budget by decreasing expenses (shut off the cable TV!) thereby allowing more of your income to go toward debt. Some of these may sound extreme, but if you’re serious about getting out of debt – and you should be – then they are worth considering.

Something most people don’t think about though, is examining their paycheck to determine if the net take-home pay can be increased. Here are some tips:

1. Retirement – If you are contributing to your company’s 401k, stop. Yes, I know about the match. I know about compound interest. It’s the best way to become a millionaire. But you can’t fully take advantage of it while you’re in debt. The steps to true financial peace occur one at a time with great, focused intensity. We recommend to stop all retirement savings until you are out of debt and have an emergency fund of 3-6 months of expenses in place. Are you 45 or older? We can have the conversation about staying in up to the match, but that’s about it.
2. Insurance – you absolutely need health insurance, so make sure your family is properly covered there. If you are married and both spouses have plans available, compare plans and costs to make sure you are getting the best for your situation. But, be aware of other gimmicky insurances that may be coming out of your check. For example, short-term disability insurance, legal insurance, and others that, if you are paying for it, is not a good buy. Even if it’s “just a few dollars a month”. This is how you get nickel and dimed into the poor house. (Long-Term Disability is necessary however; short term is usually not because it should be covered by your emergency fund)
3. Withholding – If you get a refund of more than a couple hundred dollars at income tax time, you should meet with your payroll department to adjust your withholding down so that more money comes home each month. You don’t want to owe taxes at the end of the year, but you also don’t want a refund. It’s ALL your money after all, and getting a refund just means you gave Uncle Sam an interest-free loan. Bring more of that money home to use to attack your debt.
4. Life Insurance – I’ve made this its own bullet point because it’s so important. If Life Insurance premiums are being withheld from your check, vs your company paying for 100% of it, you should shop on the open market with a broker such as http://zanderins.com. It’s better to get your term life insurance away from work if you are paying for it. If my company pays for it 100% I’ll take it, but I make sure to carry more outside of work. If for some reason you are paying for it out of your paycheck, make sure the premium you are paying is the lowest possible. And under no circumstances should you EVER leave your family unprotected by not having good term life insurance.

Examine everything that is coming out of your paycheck. The more of these items that you can stop having withdrawn, the more money you will bring home to throw at your debt.