The good news is that Congress is very close to passing a second COVID-19 relief package. It will include a second stimulus check for eligible taxpayers. The bad news is that amount may be about half of the $1200 we got in the first stimulus. However, this does not mean it can’t make a meaningful difference to your financial health. That is, if it is used the right way.
So what should you do with your check?
If you have credit card debt, start by using the stimulus check to pay that down, says Roger Ma. Ma is a financial planner and author of Work Your Money, Not Your Life. Those accounts can often come with huge interest rates of 20% or more. So, knocking down high-rate card balances will give you an immediate return.
“It becomes a slippery slope when that’s accruing every month and the balance just keeps getting bigger,” Ma said. “The sooner you can extinguish that, the stronger your financial position will be.”
If you are not drowning in credit card debt, you should throw your savings a lifeline. The rule of thumb is to have three to six months in cash in an online savings account that you can quickly access. During the Covid-19 pandemic, however, you likely want to strive to have even more set aside — up to 12 months worth of living expenses — in case your income suddenly runs dry. You probably won’t go from two months to 12 months in savings immediately. So, you might also want to think about cutting some expenses to help get there, Ma explains. However, applying that stimulus check is a good start.
And finally, if you are one of the lucky few who is not in serious financial distress due to the pandemic, your debt is under control, and your savings are intact, then think of using your stimulus to invest in stocks or retirement savings.
What will you be spending your second stimulus check on? Please reply using the comments below.