Should I Use My Stimulus Check On Debt? 3 questions to ask


The final round of coronavirus stimulus testing will soon land on many of our bank accounts or mailboxes (if they haven’t already).

Should You Use The Money To Pay Off Debt?

Our Penny Hoarder philosophy is usually a resounding “yes!” If you take advantage of a financial slump to contain your debt, you can throw money away on sky-high interest payments – and it has helped many people do just that.

Many Americans cannot shop, travel, or dine out as usual and have used the money they saved to pay off debts. Credit card balances were $ 108 billion lower in late 2020 than they were in late 2019 – the largest year-over-year decrease since the Federal Reserve began tracking in 1999.

But should you use your stimulus check to contain your debt?

We spoke to some financial professionals about whether you should use your Stimulus Check to pay off debt.

3 Questions To Ask Before Using Your Stimulus Check To Pay Off Debt

Whether you are receiving the $ 1,400 stimulus cash for yourself or for multiple family members, figuring out what to do with your stimulus check should be one of your financial priorities.

Much like a tax refund, it can be easy to think of this as “free money” to use for small retail therapy or additional take-away orders. That is understandable.

But even with the prospect of vaccines providing a light at the end of the tunnel, it could feel like we’re stuck in pandemic mode forever. Your priority should be to survive and show up on the other end without ruining your financial future.

But is debt settlement the best use of your check? Here are three questions to help you decide.

1. Have you lost your job or think you might?

If you’re among the estimated 10 million Americans unemployed as of February 2021, your first step should be moving onto a bare budget – and that includes cutting additional debt payments.

But what if you haven’t lost your job yet?

If you work in an industry where layoffs were frequent before the pandemic, or where your employer has already cut hours and staff, prepare for a possible layoff, advised Ariel Ward, Certified Financial Planner at Abacus Wealth Partners.

“In the shoes of your own mind, you’ve lost your job,” she said. “What are the things you need to cover in terms of monthly expenses that are non-negotiable?”

Even if you have cash right now, it’s best to hold on to it if you are at risk of losing income in the near future.

Cash still offers more flexibility, noted Todd Christensen, an accredited financial advisor at, a nonprofit debt relief program.

I can understand my wanting to get rid of an extra debt payment, but if there is a real concern about losing a job I’ll say have as much cash on hand as possible.

Even if you spend it on an additional debt settlement.

2. Do you have an emergency fund?

If your job is pretty secure, it is now the time to put this stimulus check towards credit card debt?

According to Ward, not if you’re living from paycheck to paycheck.

“If you don’t have at least a three-month emergency fund – even if you think your job is safe – I’d put your money in this area,” she said.

I can understand my wanting to get rid of an extra debt payment, but if there is a real concern about losing a job I’ll say have as much cash on hand as possible.

If three months seemed too steep, Ward recommended building up at least enough cash to cover a month’s expenses.

“That would buy you some time if you lost your job before unemployment benefits came into effect,” she said. “If you only have $ 500 in your emergency fund, my goal is to hit that month-long point.”

3. Will this improve my monthly cash flow?

You have a stable job. You have an emergency fund. Now Can You Use Stimulus Check To Pay Off Debt?

May be. However, turning off debt – without stepping into your emergency fund – should also improve your financial situation.

“If paying back your credit card debt is going to make a difference in your monthly cash flow, paying it back is probably a good idea,” Ward said.

Pro tip

When you’ve cashed out a credit card balance and can rest assured that you won’t use it unnecessarily, keep the line of credit open just in case of an emergency or sudden job loss.

If the strategy of eliminating the smallest debt sounds familiar to you, say hello to your old friend, the debt snowball method. Here, eliminating the smallest debt may not mean paying off the highest interest rate debt – that’s the debt avalanche method – but it does offer the financial and psychological benefit of getting rid of a credit card bill.

Bringing in overdue accounts could be your first priority, even if that doesn’t pay off the debt in full. By putting your money in these accounts – perhaps the ones that let you slip in the past year when you struggled to pay bills – you reduce the fees associated with overdue accounts. In addition, pulling your accounts out of crime can help you get your credit back.

Making a dent in a larger balance can indeed be a good idea when you’re paying sky-high interest rates and have the money you have to spare.

Keep in mind, however, that while economic conditions appear to be improving, there are no guarantees of the turbulence of the past 12 months.

So if you have any questions about your immediate financial future, consider keeping at least some of the money on the business review a little longer, or ditching a monthly payment from your budget to free up extra cash.

Just in case.

Tiffany Wendeln Connors is an associate and editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.


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