What to do with Your Stimulus Check
The Coronavirus Aid, Relief, and Economic Security Act (CARES) provides needed assistance to businesses, expansions to unemployment insurance, and direct relief checks to many Americans.
December 2020 Relief
Congress passed an economic relief package in late December of 2020 with a new round of stimulus payments. These payments include $600 per qualifying individual—adult and/or child. Here are some things to keep in mind with the most recent round of direct payments:
- Single individuals will need to earn less than $75,000 to qualify for the full amount.
- Married couples will need to earn less than $150,000 to qualify for the full amount.
- The amount individuals receive is reduced by $5 for every $100 above the income threshold.
- Stimulus checks will be phased out entirely for single people earning over $87,000 or married couples earning more than $174,000
- Individuals claimed as dependents that are older than 17 will not qualify for the checks (such as some college students or seniors that are claimed as dependents).
- Because the stimulus is based on 2019 tax returns, children born this year will most likely not receive payments.
If you qualify for a stimulus check, you may be wondering what to do with the money—or what the wisest thing to do might be. Here are a few things to consider.
Fill in Financial Gaps
Many Americans have found themselves struggling financially due to the Covid-19 pandemic. Those who have had their hours cut or have been laid off or furloughed have been particularly affected. For anyone caught by surprise or financially underprepared, the stimulus checks can provide a huge lift.
Before anything else, the money should be used to cover essentials for you and your dependents. The first thing to do is make housing payments, pay utility bills, buy groceries, and secure other necessities. Other things that may not be absolutely essential at the moment but are likely worth investing in include emergency kit items such as food with a long shelf life and medical supplies.
Supplement Your Emergency Fund
While it’s possible that more relief checks will be approved in the future, nothing is certain. It’s best to assume that this will be the only financial boost that you’ll receive and to plan accordingly. Strongly consider saving part or all of the money to extend or create an emergency fund. Ideally, you would have enough money available to support yourself and your dependents for at least 3-6 months, should you need it. If that’s not possible in your current situation, you can still give yourself a cushion to fall back on. It’s possible that the unemployment rate will continue to rise, so preparing for the worst is vital.
Pay Off Debt
If you have well-funded emergency savings, it’s a good idea to pay down, or better yet, pay off high-interest debt. Minimum payments and high interest rates can add stress to an already difficult financial situation. If you’re able to pay off that debt, you’ll save on payments throughout the coming months, giving you a long-term boost.
For some people, a one time check won’t be enough to truly make a difference with their payments. If you’ve found yourself unable to make debt payments due to the pandemic, consider reaching out to your lender. It’s likely that they’ll be willing to work with you. The last thing you want to do is hide from your payments and rack up additional late fees or penalties on top of your regular payments.
Boost the Economy
If you find yourself in a stable financial situation, meaning you have no consumer debt and well-funded emergency savings, the next best thing you can do with your stimulus check is to spend it— but spend it wisely. Economists have predicted that the effects of Covid-19 will send America into a large recession. These relief checks give everyday Americans the power to help mitigate the damages before the economy falls too far.
As you use your funds, consider supporting the areas that have been hit hardest such as small businesses, local restaurants, and other companies forced into temporary closures. Of course, donating to relief funds and legitimate charities is also a great way to use some of your stimulus check.
The amount that you choose to spend is up to you, though it's wise to reserve at least part of your stimulus check to add to an emergency fund—even a robust one—should your financial situation unexpectedly change.
Some stimulus checks have already been deposited and others will continue to come in the following weeks. Carefully consider where that money will have the biggest impact and how you can most effectively utilize the funds before spending them.
Stay Alert to Fraudsters
As the first wave of payments hit bank accounts this week, we want to take a moment to warn you about fraudsters who hope to make your money their own.
Fraudulent activity we saw last year included:
- Robo calls
- Fake cures/test kits
- COVID-19 fumigation/sterilization scams
If you get a call, email or message from someone telling you that you need to provide them with personal information or money in order for you to get your stimulus payment, do not respond! The IRS will not call asking you to provide anything as a condition for releasing funds.
Here are some signs the AARP has suggested you watch out for:
- The caller or emailer uses the words “stimulus check” or “stimulus payment.” The term that government officials are using is “economic-impact payment."
- You're asked to sign your check over to the caller.
- You receive an email, text or social media message saying that you need to verify your personal and/or banking information to speed up your stimulus payment.
- The individual offers to get you your payment faster.
- You receive a fake check, and then the sender tells you to call a number to verify your personal information in order to cash it.