Should I Use My Stimulus Check for Debt? 3 Questions to Ask

But keep in mind that although economic conditions appear to be improving, there are no guarantees amid what has been a turbulent past 12 months.
The latest round of coronavirus stimulus checks will be landing in many of our bank accounts or mailboxes soon (if they haven’t already).
If the strategy of knocking out the smallest debt first sounds familiar, then say hello to your old friend, the debt snowball method. It’s where knocking out the smallest debt might not mean paying off the debt with the highest interest rate — that’s the debt avalanche method — but it does provide the financial and psychological advantage of freeing yourself of a credit card bill.
I can understand wanting to get rid of an extra debt payment, but if there really is a concern about losing a job, I’m going to say have as much cash on hand as possible.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.
You have a stable job. You have an emergency fund. Now can you use the stimulus check to pay off debt?

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

But what if you haven’t lost your job… yet?
If three months seems like too steep of an ask, Ward recommended starting to build up at least enough money to cover one month of expenses.
Putting a dent in a larger balance may indeed be a good idea if you’re paying sky-high interest rates and you have the money to spare.
“That would buy you some time if you did happen to lose your job before unemployment benefits might kick in,” she said. “If you only have 0 in your emergency fund, I would set your goal as getting to that one-month point.”

1. Have You Lost Your Job or Think You Might?

Ready to stop worrying about money?
So if there’s any question about your immediate financial future, you may want to hold onto at least some of the stimulus check money a little while longer or wipe out a monthly payment from your budget, allowing you to free up additional cash.
Our Penny Hoarder philosophy typically would be a resounding “Yes!” Using a financial windfall to put a dent in debt can save you from throwing away money on sky-high interest payments — and it has helped many people do just that.
Maybe. But knocking out the debt — without dipping into your emergency fund — should also improve your financial situation.
Source: thepennyhoarder.com
Similar to a tax refund, it can be easy to see this as “free money” that you can use for a little retail therapy or extra takeout orders. That’s understandable.
But even with the prospect of vaccines offering a light at the end of the tunnel, it may feel as if we’ll be stuck in pandemic mode forever. Your priority should be surviving and emerging on the other end without wrecking your financial future.
But even with the prospect of vaccines offering a light at the end of the tunnel, it may feel as if we’ll be stuck in pandemic mode forever. Your priority should be surviving and emerging on the other end without wrecking your financial future.
Bringing past-due accounts might be your first priority, even if it doesn’t wipe out the debt entirely. By putting your money toward these accounts — perhaps they’re the ones you let slide amid this past year if you were struggling to pay bills — you’ll reduce the fees associated with past-due accounts. Additionally, pulling your accounts out of delinquency can help you rebuild your credit score.
Even if you have cash right now, it’s best to hold onto it if there’s a danger you’ll lose income in the near future.

3. Will This Improve My Monthly Cash Flow?

Not if you’re living paycheck to paycheck, according to Ward.
“If paying off the credit card debt is going to make a difference in your monthly cash flow, it’s probably a good idea to go ahead and pay it off,” Ward said.
Whether you’re receiving the ,400 in stimulus money for yourself or for multiple members of your family,  figuring out what to do with your stimulus check should be among your financial priorities.

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If you’re among the estimated 10 million Americans out of work as of February 2021, your first move should be to switch to a bare-bones budget — and that includes cutting extra debt payments.
“If you don’t have at least a three-month emergency fund — even if you feel your job is safe — that would be the place I’d put your money,” she said.
If you pay off a credit card balance — and can trust yourself not to use it unnecessarily — keep the credit line open, just in case of an emergency expense or a sudden job loss.

Just in case.
Even if you’re spending it on an extra debt payment.
But is debt paydown the best use of your check? Here are three questions to help you decide.
“Put yourself in the shoes that you have lost your job,” she said. “What are the things you’re going to need to cover in terms of monthly expenses that are non-negotiable?”



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