It’s that time of the year again—tax refund time. But as an added bonus, millions of Americans recently qualified for a stimulus check as part of the American Rescue Plan. If you’re one of the many Americans who have been negatively impacted financially by the coronavirus, you might want to consider carefully how to best use this temporary flow of cash.
While paying down debt with a refund or stimulus check may seem like a good idea, financial experts advise people to consider the bigger picture. That is, if you’ve lost your job, been furloughed, or your business is failing, you may need to direct the extra dollars toward everyday expenses, including groceries, bills you might be struggling to pay such as utilities and insurance, and of course, any regular debt payments. Additionally, now is the time to take care of any pressing household or car repairs.
Experts also advise that starting an emergency fund with your tax and stimulus money can help provide financial security in the event you are strapped for cash in the future. If you suspect you may be out of a job soon and will lose your income, starting an emergency nest egg can help alleviate additional struggles. At the same time, if you can begin to pay down high-interest loans like credit cards or personal loans, using the extra cash flow to do so is a good financial move.
If you find that you’re still struggling with debt even after tax refunds and the stimulus check comes through, it may be time to look into a debt management plan. Credit counselors will work with you and credit card companies to consolidate your debt on unsecured loans, including credit debt, medical bills, personal loans, and more. This will ensure that you have an affordable monthly plan and can pay off your debt in three to five years.
With your tax refund and/or stimulus in hand, and with the knowledge that there’s a way to pay down your debt, even without these additional avenues of cash, you’ll be in better shape to guide yourself through the pandemic and put your fiscal misfortunes behind you.