As part of 2020’s final farewell send-off, millions of Americans have by now received stimulus checks to help deal with the challenges posed by COVID-19, and word is that another round will be on its way soon.
And while the $600 payout may not be a life-changing sum by any stretch, if used wisely it can help make a difference in your current financial situation.
We’ll get into that in just a few, but first, here’s what went down with this latest round of stimulus:
- At the end of 2020, an additional $900 billion for emergency economic relief was passed by Congress and approved by the Senate. To help offset some of the hardships caused by the coronavirus pandemic, the package included this second round of stimulus checks (officially called Economic Impact Payments or “EIP”).
- The IRS began issuing payments on December 29, 2020, via mailed checks, direct deposit, and prepaid debit cards. Those who qualified could receive up to $600 each based on the adjusted income from their 2019 tax return (or up to $1,200 for joint filers), as well as another $600 per qualifying child.
- The $600 payments are only half of what was issued in April 2020 with the original CARES (Coronavirus Aid, Relief, and Economic Security) Act, but the per-child payment amount increased by $100. President Joe Biden’s $1.9 trillion coronavirus relief plan proposes another round of $1,400 stimulus checks on top of the $600 payments, bringing the total to $2,000 for most Americans. Though at this point, it’s unclear when that relief package would pass.
So, now what?
Whether you’ve already received your payment (and haven’t yet spent it) or are still expecting it to arrive soon, you might be wondering how to spend your stimulus check. Read on for tips and suggestions on ways to maximize this latest round of economic stimulus.
What are the stimulus checks intended for?
First, let’s touch on the purpose of the payments. In more normal times, stimulus checks are issued to taxpayers by the government to boost the economy. The general idea is to put money in consumers’ pockets so they spend it, which, in turn, supports economic growth.
The economic impact payments distributed by the IRS this past March and December, however, were primarily issued to alleviate financial hardships caused by the COVID-19 crisis. Ultimately, this approach also helps to stimulate the economy, as it allows more people to pay their bills, buy groceries, and afford other essentials.
How to spend your stimulus check
Since the onset of the pandemic, many families have found themselves in similar situations. Some people have been out of a job, some have been reduced to part-time schedules, and others have had to hire childcare or tutors during school closures. Some people have used up their emergency funds, while many have struggled to pay rent on time.
While the financial implications of the pandemic have been widespread, there’s no one-size-fits-all answer for how to use your stimulus payment. It really depends on the state of your job, your savings, any unpaid expenses, how much debt you have, and whether you’re in a position to spend it on non-essentials. Here’s a breakdown of a few options for how to spend your COVID-19 stimulus payment.
Pay your living expenses
First and foremost, it’s a good idea to prioritize making sure that your living expenses get paid. This includes rent or mortgage payments, a car payment, auto insurance, health insurance, utilities, and your phone and internet bill. It also includes expenses that may fluctuate in price each month, like food, gas, or childcare.
Some protections were passed to protect people from getting evicted during the coronavirus pandemic. Additionally, some mortgage and utility companies have allowed payments to be deferred.
That said, staying current on these payments will help you from experiencing further financial problems down the line. Keeping up with them will help you to avoid paying twice as much the next time you receive a bill, plus any potential late fees and impact to your credit score. If you do need to skip a payment or pay something late, be sure to contact the company as soon as possible. They might be able to work with you on a payment plan or penalty-free deferment that won’t affect your credit.
Paying down debt with your stimulus money
If all other bills are paid, you might consider putting your economic relief payment toward your student loans or credit card debt.
Roughly half (47%) of adults in the U.S. currently have credit card debt—a 4% increase from early March at the onset of the COVID-19 crisis. Additionally, about 15% have student loan debt. Both options will help minimize interest paid over the life of the loan, plus making larger payments can potentially help improve your credit score.
Credit card debt
Whether you incurred balances before or during the pandemic—or even took on debt this holiday season—paying off credit card debt is an excellent way to use your second stimulus check. With high-APR (annual percentage rate) credit cards, your best bet is to pay the balance in full.
If you’re unable to pay it off completely, try to make larger payments to minimize the amount of interest you’ll pay or consider a debt repayment tool like Tally.
Student loan debt
The CARES Act allowed for temporary forbearance with a 0% interest rate for federal student loans. This means you don’t have to make a payment until February 2021. With this, you won’t accumulate any interest in the meantime, and it also won’t hurt your credit.
Putting off student loan payments to ensure you can pay for other living expenses might be a good option. Having said that, the temporary 0% interest rate also allows you to pay down your loans quicker and reduce the interest you’ll owe later.
Building your emergency fund
The coronavirus crisis resulted in a sudden financial hit for many households, and if you found yourself lacking for some extra financial cushion, this could be very troubling. For this very reason, an emergency fund is often viewed as a primary component of financial wellness. While the concept isn’t new, a lot of people have realized just how crucial it is to have emergency savings, with the average American savings rate reaching a 20-year high in 2020.
If you don’t already have an emergency fund or had to drain yours to cover financial hardships in 2020, you may want to use your stimulus check to build up your savings. Many previously booming industries were affected by the pandemic, and we’re still facing economic uncertainty in 2021. Even if you’re currently employed and able to pay your bills, it’s still a good idea to have enough saved up to cover at least three months of living expenses—six to 12 months is even better.
How to spend my stimulus check to boost the economy
If all of your essential expenses are paid, your bills are current, and you’ve got a sufficient financial cushion, you can spend your economic impact payment on… well, anything that’s of interest.
It’s always smart to save money, especially if you’re building an emergency fund. In fact, saving should be paramount. However, if you’ve been able to ensure your living expenses and other staples are covered, there’s nothing wrong with spending the money on some non-essential items or experiences. In fact, putting the funds back into the economy helps everyone — including yourself.
For instance, using your stimulus check on a home renovation project can provide construction jobs and support home improvement suppliers while also potentially providing you with a higher resale value. If you want to support your local economy, you could purchase items from small businesses in your area, order takeout from restaurants, or buy gift cards to give away or use later. You could also put your money toward one of your New Year resolution ideas for 2021, such as learning a new language or staying in shape.
How Tally can help you become financially healthy in an uncertain economy
We know that managing finances doesn’t come easy for everyone, and it can be particularly tough in an uncertain economy. If you’re having a hard time keeping track of your credit cards or want to know how to pay off debt as quickly as possible while potentially minimizing your interest, Tally can be a helpful solution.
Tally can help compile all your credit accounts and suggest a monthly payment amount based on the account information for each card and your spending habits. Ultimately, Tally’s user-friendly debt repayment tool can help guide you on the path to becoming debt-free and financially healthy.
Download Tally today to get started!