How to Get Out of Debt by Breaking Up Your Paycheck


When you’re trying to learn how to get out of debt, you might find yourself in a ridiculous circle.  You pay down your balance.  But then you suddenly need to pay a surprise bill.  You don’t have money to cover the bill, so you put it on the card.  Now the card balance is nearly as bad as it was before.  So you go back to paying the balance down again.


Especially when you’ve been trying so hard.  You didn’t go out to happy hour with your buddies.  You cancelled your cable service.  Now it feels like all that sacrifice has gone to waste.

Most Americans are in the same boat as you.  We’ve all heard the stats.  The average American owes $15,000 just in credit card debt.

How to Get Out of Debt- Break Up Your Paycheck. Humans are lazy! Use that to your advantage, and pay off debt more quickly.

It’s a pretty common problem that lacks an easy solution.  Otherwise, everyone would be out of debt tomorrow.

Getting out of debt isn’t going to be easy.  But there are definitely some steps you can take to simplify the process a bit.

Our own family has a big goal to pay off debt this year.  It’s our #yearofno.  But that hashtag motto isn’t the only tool we’re using to wage war against credit cards that have taken over too much of our lives.

I’m going to share another way we’re gaining ground in our debt battle with you today.

Here’s how to get out of debt by breaking up your paycheck.

Step One: Your regular checking account

Here comes the b-word, and I hope you expected to see it here: budget.  If you scoff at budgeting, then you might as well cozy up to your credit card and give it a name.  Because you will be life long buddies.

If you would rather break up with that card, then get serious about making a plan for your money.

If you already have a budget plan in place, skip down to Step Two.  Otherwise, read on.

I like to use a spreadsheet.  Both because I’m a control freak, and because it gives me a clearer idea of what’s happening with my money.  I can plan for those months with extra paychecks.  I have flexibility in crazy months like May (with all its extra birthdays, projects, and celebrations).

Here’s what my spreadsheet looks like:

You can view and print it here.

I like to set it up like this, because I can play with the numbers on the bottom part of the chart.  Those numbers are more flexible.  At a glance, I know how much we can afford to spend on gifts.  Or if we’ll need to scale back on groceries for a pay period to cover other costs.

If you aren’t a nerd like I am, there’s plenty of programs that will do the work for you.  I personally have used  I like their trend charts that let me compare my spending now to a year ago.  I can even compare my spending with others in my area.  I love that it’s free.

I’ve also heard amazing things about  Be aware that this option has a fee.  But they teach you how to live on last month’s money while you build up this month’s income.  (Intriguing, right??)  I have not tried this method yet.  If you have, let us know what you think of it.

Step two: The other accounts

That checking account covers our day to day bills as we go through life.  But we never deposit our entire paycheck into that account.  There are irregular bills and expenses that we need to cover.  And it’s important to do that in the laziest way possible.

I’m serious.  Human beings are a lot like water.  At our most basic, we’re likely to follow the path of least resistance.  If you know this about yourself, you can use it to your advantage.

If money is in your checking account, and you have a debit card on hand, it’s going to be tough to resist that impulse buy.  Don’t just leave the money there with good intentions to use it to pay off debt or bills “later”.

Here’s how I use my laziness to my advantage.

The following items are automatically withdrawn from our paycheck (or checking account) on a regular basis.  I never pay much attention to it.  (Aside from an occasional check up.)


Everyone preaches that you should save for retirement, and starting yesterday is best.  But you’ve never had the extra money to do it.

Unless you’ve already cut all your frivolous spending and still have no money left each month, you need to set this up now.  Start with just 1% of your paycheck if you’re nervous about it.  I comes out of your pretax paycheck, so you won’t be missing the entire 1%.  And if your employee offers a match, that’s money you need to take advantage of.


If you have a family, you probably have medical bills each year.  If you know your average medical spending per year, have that money funneled into a special tax free account called a Flexible Spending Account.  Most companies will handle this for you, so ask about it at work.

We never meet the full percentage for deducting our medical bills from our taxes at the end of the year.  With an FSA, there’s no minimum requirement.  So an FSA is our best opportunity for saving tax dollars on medical expenses.

An added benefit is knowing that money is available when we have to go to the emergency room.  There’s always enough to worry about at that time without adding in money troubles.

Be sure to underestimate this amount the first time you set it up.  The money in there is “use it or lose it”.  Meaning that if you don’t spend the whole amount by the end of your company’s fiscal year, the IRS keeps it.  No one wants that!

The Debt Account

Once we decided to make debt payment a priority, we opened a separate checking account.  I made sure that this account wasn’t linked to our usual spending accounts.  We chose to use an online bank called Ally.  We like it because they don’t have fees, and it’s easy to set up.

And also because we have no other accounts there at all.  This debt money is completely separate from our usual spending dollars, both physically and in our minds.  We also opted not to get a debit card to make it even tougher to access this money.

To do this, Hubby filed some direct deposit paperwork at his office.  Now 15% of each paycheck automatically deposits into this new checking account.  Each pay period, I pay our credit card bills from this amount.  I pay the minimum on a couple of cards, and throw everything else at the one main card that we want to pay off this year.

We didn’t change the amount of money he is paid.

We didn’t change the amount we are paying toward our debt.

We simply played a little mental game that requires us to go through a few extra steps to get to this money.  By separating out this cash, it’s no longer part of our daily budget.  That makes the temptation to spend it on other things minimal.

Use your laziness to your advantage!

Other accounts

Having an account to pay off debt was great.  But I noticed that at certain times of the year, we were still adding to the credit card debt.  When we needed to fill our big propane tank, it came with a big bill.  We weren’t always prepared to pay for that.

We already had a savings and checking account with Capital One 360.  (Not to be confused with the credit cards, this online bank used to be called ING.) We love Capital One 360 because you can open several savings accounts to use for different goals.

So we opened an account that I called “Heat Bill”. I set up an automatic withdrawal from our checking account that will deposit into this account every month.

It’s a line item in our budget, but it comes out automatically like our Netflix bill.  So I don’t have to think about it or ponder on whether we can actually afford to save this month.  It’s lazy-proof.

Other accounts that we currently have, or plan to have with future pay raises:

“Extra” paychecks

Hubby receives biweekly paychecks.  So twice a year, we have a month with an “extra” paycheck.

Many people talk about this paycheck like it’s free and clear money.  But that’s not entirely the case.  You’ll still need groceries, gas for the car, and other purchases that don’t stop coming just because it’s “extra paycheck time.”

That’s why I like to use my spreadsheet above.  It doesn’t go by the month, so I can easily locate the check that’s best for skipping our typical bill payments.

I use this “extra money” to pay our car insurance and life insurance bills.  We prefer to pay these bills in one lump sum rather than monthly.  We get discounts for paying this way, and I love not having to come up with the money for them every month.  Any time I can cut a monthly bill, I do it.

Break up your paychecks and take the lazy way out!

Figuring out how to get out of debt is tough.  Take advantage of our tendency to be lazy by setting yourself up for success.  Choose the method above that is giving you the most trouble, and set it up today.

What a sigh of relief you’ll heave when a bill comes in and you have money at the ready to pay.  No more relying on credit cards for you!

Join the conversation on Facebook and let us know which of these tips you will begin with!  And which tips are you already using successfully?

  1. Ah, the good “free paycheck” – I fell into thinking that for a bit, then realized that, no, it’s not, because I still needed food and things to cover those two weeks, ha.
    I would be curious, though, as to how you feel about Ally and Capital One 360 – I’ve heard great things, and then googled for reviews and found some horrendously scathing ones. Granted, I’m sure only the people who are peeved are searching for these complaint sites (to then also complain on) but a lot of people there said they were all of a sudden locked out an account or their money was taken from them because of miscommunication or random fees they didn’t know they would get. I’d like to set up an account like this (a savings account with no fee, and no worries of having to keep a certain amount in it, unlike how it is with my actual bank) but don’t want to deal with it all of a sudden no longer working.
    When I was working and living with my mom, though, I did the split up the paycheck thing. I paid half of my portion of the rent with my first check, and the other half with the second check. It was much easier than having one check a month that didn’t have anything come out of it, only to end up with most of the second check gone as soon as I got hold of it!
    Jessica [Havok] recently posted…A Week of Yoga

    • We have been with Capital One 360 since they were ING Direct. So it’s been several years. I have had trouble with my account a time or two (which wasn’t there one instance I had sent a payment to the wrong account) and they have helped me through it. I have absolutely no complaints about them.

      We’ve been with Ally for a year or two, and have had no trouble with them so far, either.

      I can’t promise you’d never have trouble with them, but I can say that my own experience with both banks has been great.

      • Woo, thanks! Like I said, the bad reviews were on the kind of sites people have to go to find complaints, and then take the time to write, so more than likely *just* angry people are going to be there, for the most part, but all the reviews I’ve read online just cover what they do and how the writer has set up an account, etc, not that they’ve been using it for x-amount of time and did this or that with it.

  2. I used You Need A Budget (YNAB) before I got married and loved it. (Now my husband ussd his super awesome spreadsheet for our budget.) About the month ahead concept: it takes awhile to get saved up to that point, but it is awesome. We are going to try to do it once our collective debt is paid off next summer. It is straightforward of you have a regular weekly or biweekly paycheck – budget all your regular expenses, including the amount you want to save, or “roll over” to the next month. Continue until you have a month’s worth of expenses saved away, in your checking account. This is where the YNAB software shines, as it automatically does this for you, and helps you visualize all that extra as your cushion, rather than awesome free play money (ahem.) Hope this is helpful!

    • Yes, that is helpful! We’re super interested in trying it, but have decided to put trying it out on hold in the #yearofno. Maybe next year we’ll give it a shot.

  3. You always have the best advice. We are trying to live a debt free life right now. It is hard work but it can be done.

  4. Ah the ‘extra’ paycheque… it’s such a mind trip! We currently pay our mortgage biweekly so it always seemed so disappointing when this ‘extra’ money would disappear.

    We use YNAB and I absolutely love it. We used a cash envelope system for many years but I felt like it meeting our needs in terms of tracking the money spent. I also like to divide things into sinking funds and I found YNAB was the best way to do that while keeping the money in one spot instead of many accounts. I also love the living on last months income part- it’s been a major stress reducer for us.

    We have YNAB 4 which is a one time fee. I did a full review of it here:

  5. We use the same system, but it never occurred to me to use are extra bi-weekly check to pay our auto insurance in full – that’s genius! And it would be one less bill to avoid. I think the next one we get is later on this year and I’m going to use it and finish paying off our premium. Hopefully, that will allow us to catch up before the next premium is due and receive that discount. Thanks for sharing this with us, you think your system is working fine and then you learn something new!

  6. Great advice. I really need to do more of this. My family has hit rough times the past few years and we’re just starting to come out of it. We opened a 2nd bank account but I think the idea of a 3rd account specifically for debt payments sounds great.

  7. This is brilliant. I never thought about breaking up my paycheck to take care of certain things through each account. We don’t have any credit card debt at this point but the medical debt that we have and the co-pays are killing us. We definitely need to look into the medical savings FSA. This could really save us some money. Thank you for always coming up with great ideas and for sharing them so that we all can get to a good financial status.

  8. Some great tips here! Luckily I don’t have any credit card debt, but I’ve been stuck in my bank overdraft for years. My goal is to get out of it so I’m not constantly paying interest on it.

    Thanks so much for sharing over at #FridayFrivolity

  9. Awesome advice! We do this too and it saves us so much and we are debt free except for our mortgage! Thanks for sharing at #lifeislovely

  10. I needed this, thank you so much for these steps. I’ve been struggling with a credit card debt since last year and its killing me. I feel like I’m getting no where with it. I’m hoping this will help me a lot. So glad I came across your post on #WayWow

    • Our family is battling our way out of credit card debt this year, too. There’s lots of info here about how we’re getting out of debt. So happy I could help you out!

  11. I spreadsheet, but on paper. I divide each check into about 20 categories. (Water, gas, electricity, car gas, entertainment, vacation, repairs, church, drivers ed, insurance, gas, groceries, home improvement, savings, gifts, etc). I take the amount needed for the year and divide it by 26….for each paycheck. There are no external checks. Each payday a certain amount goes into each category. Monthly bills are multiplied by 12 then divided by 26. Other amounts are estimated, like repairs, figure $1000 so $38 goes in each time. It’s all in a savings account. I transfer the amount needed based on bills into my checking account. I adjust the amounts a couple times a year, based on budgeted amounts for gas and electricity and if I discover other accounts that are needed, like drivers ed or graduation which I just created. $3 goes into each of those 26 times a year to hopefully have enough when my kids are there.

    • This is a neat idea. I especially like putting $3 in for misc. expenses. It’s small so it won’t hurt as much as paying that larger bill when it rolls in.

  12. This is what I do too, but without the extra bank account because my office doesn’t offer direct deposit. So I spend about 45 min-an hour every quarter reviewing my spending plan and debt payoff strategy, and then auto-scheduling payments to come out of my account the day after every pay day (when the check clears). Then it’s like I never even had the money and the bi-weekly payments make me feel like I’m making progress!

  13. Awesome advice! Getting out of debt can be a nightmare but with the right software and money management it is totally possible. Thank you for sharing this advice!