Here are 5 terrible ways to use your stimulus check.
Here’s what you need to know.
The $ 1.9 trillion stimulus package – the US rescue plan for 2021 – includes stimulus check at $ 1,400 for individuals, $ 2,800 for married or co-applicants and $ 1,400 for qualified relatives. That means a family of four can earn up to a $ 5,600 stimulus check. Before using your third stimulus check, however, be sure to avoid the 5 worst ways to use your stimulus payment:
1. Not paying your essential bills
It sounds incredibly simple, but it really is first priority. That stimulus check is intended to help people who are struggling financially in the wake of the Covid-19 pandemic. From unemployment to housing and food insecurity, stimulus checks are meant to create an economic bridge, especially for vulnerable Americans. That is why it is important to use your stimulus check first on significant bills such as housing, food and utilities. Make sure your finance house is in order.
2. No repayment on debt
If you can cover your significant monthly expenses, your next financial move should be to pay off debt. This includes student loans, mortgages, personal loans and credit card debt. There are several ways to pay off debt, including refinancing or just a one-time payment with some or all of your stimulus checks. If you want to make a lump sum, inform your lender, credit card issuer, or student loan provider (preferably in writing) that you are making a one-time payment, and this should apply as an additional payment to be credited now (and should not be applied to next month’s payment) ). This way you can save money on interest rates. Use your stimulus check to your highest interest rate first (to save the most money), or alternatively you can start paying off on your lowest dollar balance (to get a psychological gain). You can also refinance student loansyour mortgage, or get a personal loan and consolidate credit card debt.
For example, let’s say you want to refinance student loans and use this refinancing calculator for student loans. Let’s also assume you have $ 80,000 in student loans with an average interest rate of 8% and a 10-year loan period. If you can refinance your student loan at a 3% interest rate and a 10-year repayment period, you can lower your monthly student loan by $ 198 and save $ 23,776 in total.
3. Not to build an emergency fund
There are many economic experiences from the Covid-19 pandemic. One lesson is that change can happen quickly. Right from your employment status to the health of your loved ones, your happiness can hit an occasional speed bump. That is why it is important to build one emergency fund. Most people have heard of an emergency fund before, and simply ignore the advice because they think they will never need it. Do not be most people. Open a separate bank account and start paying the part of your stimulus check that you can afford. Keep adding to your balance every month. Whether it’s $ 5 or $ 100 or another number, the goal is to have at least 6 to 9 months (preferably a year) of saved expenses in the event of an emergency.
4. Investing your stimulus check in the stock market
Do not invest your stimulus check in the stock market. You may not like that advice, especially if you have invested before and your portfolio has skyrocketed over the past year. Unless you are an experienced investor, or you have already paid significant bills, paid debts and built up an emergency fund, do not risk your stimulus payment. Why? If you need your stimulus check now or in the near future, there is no guarantee that you will make money in the stock market – despite the success stories you have read or how your investment portfolio has performed. If you just need to invest your stimulus check in the stock market, you need to understand that you may lose some or all of your stimulus check.
5. Bet your stimulus check on March Madness
If you’re a college basketball fan, you know that now March Madness is the highlight of the college basketball season. You can have a tournament bracket where you pick the winners and losers and the ultimate national champion. Here’s the thing: Do not bet your stimulus check on March Madness. Yes, you may have an ability to predict the future, or you may be a complete sports gambler. However, March Madness has already had its fair share of disruptions this year, and if you think you can pick a winner, be aware that there will likely be more disruptions. For example, Oral Roberts beat Ohio State, Oregon State beat Tennessee, Wisconsin beat North Carolina, and North Texas beat Purdue. If you chose all four disorders, then you might get a postponement. Otherwise, you must first pay your significant bills, pay off debts and build an emergency fund.