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  • Here’s What To Do With Your Stimulus Payment

    Here’s What To Do With Your Stimulus Payment

    Extra funds can be overwhelming. Here’s how you can best spend your government money based on your financial situation 

    Some 80 million Americans received their coronavirus stimulus payments from the government last week — with another 60 million still waiting. For many, these funds will put food on the table and keep the lights on. For others, it will pad their emergency funds. But, depending on your personal financial circumstances, there are plenty of other things you can do to get the most out of the money you receive from the IRS. Here’s what we suggest.

    Prioritize your bills. We’ve all got them — and some people have more than they can keep up with right now. So, how do you prioritize? Go through your bills and see which ones you can defer without accruing interest, says consumer savings expert Andrea Woroch. “Many lenders and monthly service providers are allowing customers to defer payments, some may continue charging interest and that means you could owe more down the road, so you have to do some research,” Woroch says.

    Then put needs before wants. This means rent or mortgage, electricity, water, and anything else you absolutely need. If you’re working from home, be sure to keep up with wifi and phone bills so you can continue doing your job effectively.

    Top up (or start) an emergency fund. “Forty percent of Americans do not have enough savings set aside to handle more than a $400 emergency,” says Bruce McClary, Vice President of Communications for the National Foundation for Credit Counseling. Your $1,200 stimulus payment (along with any tax refund you’re expecting) can be the good start or supplement to this stash. Aim to accumulate three months (for dual income households) to six months (single income households) of what you’d need to cover your fixed expenses (i.e. what you have to spend not what you usually spend.)

    Attack credit card debt. Once you’ve satisfied your emergency needs, you should start looking at where you get the greatest return on your money. Putting money into a 401(k) that allows you to capture more matching dollars than you’re getting now is a good move — a 50 cents on the dollar match is a guaranteed 50% return on your money. Similarly, paying off high interest rate credit card debt provides a solid return. Forty-three percent of Americans have some credit card debt that they carry month to month, says McClary. Even if your stimulus check isn’t enough to clear the slate, having a lower balance going forward means less interest accrued.

    Fund a refi that will save you later. If the interest rate on your mortgage is close to 4 percent or higher, there’s a decent chance that you can save yourself significant money by refinancing your loan. But there is a cost to that transaction — often 2 percent of what you’re borrowing. Woroch suggests using your stimulus payment to cover those costs. To figure out if it’s worth your while divide the cost of the transaction by the amount you’ll save each month, then look at the answer in terms of months. If you’ll be in the house more months than the answer, it’s worth stepping up.

    Donate if you can. If you are doing well financially and have enough in your savings account to last 3-to-6 months, it’s time to consider giving back. Plenty of places need extra funds to operate right now, such as food banks and homeless shelters, Woroch says. Or use the money to support local businesses you want to make sure stay around for the long term. Every dollar counts.

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