Your second stimulus payment likely will arrive any day now — if you haven’t received it already.
The IRS started sending these cash payments of $600 per person to eligible Americans last week, as we detailed in “3 Overlooked Reasons Your Stimulus Check Might Be Late.” So, it’s time to decide how to spend your stimulus money.
Following is a slew of smart options for what you can do with your payment.
1. Use it to live
Hopefully, this is obvious: If you need the money now — to pay rent or utilities, or simply to buy groceries — take what the government gives you and spend it.
Perhaps there are ways to avoid this option. Ever since the pandemic made its unwelcome appearance, many banks have expressed a willingness to work out plans that give customers a little financial breathing room with their bills.
So, if you can work out something like this with lenders, it might be worth doing. That way, you can keep the government cash in savings in case you need it later.
But if you need to spend the check right now, do so.
2. Build an emergency fund
You would be hard-pressed to find an event that better defines “emergency” than the spread of COVID-19, the disease caused by the coronavirus. If you already have an emergency fund — or simply want to start one now — putting your government check into such a “rainy day” account might be a wise move.
It’s true that we are in the midst of a “rainy day” right now, but it still can make sense to add to the emergency fund in case things get worse.
Wondering where to store that money? Check out “The 3 Best Places to Park Your Emergency Cash.”
3. Pay down debt
Whenever possible — even in good times — you want to avoid carrying debt. But debt is especially dangerous when times turn tough.
So, if you already have a fat emergency fund and feel comfortable that you can use it to ride out a lengthy downturn, consider using the money you get from the government to pay down credit card debt. Or, you can even make an extra payment on your mortgage or auto loan.
Just remember that staying flexible is key during tough times. If you don’t have a lot of savings already, it might make more sense to skip paying down debt with that government cash and to put the money in an emergency fund until the crisis has passed.
4. Put it toward refinancing costs
Homeowners may be better off using their check to help cover mortgage refinancing costs rather than to make an additional mortgage payment.
Mortgage rates are hovering near historic lows. The average interest rate for a 30-year fixed-rate mortgage was 2.67% as of Dec. 31, down from 3.72% one year prior. The average rate for a 15-year fixed-rate loan fell from 3.16% to 2.17% during the same period.
So, many homeowners stand to save a lot of money by refinancing their mortgage at a lower rate. That assumes that their savings would outweigh the cost enough to make refinancing worthwhile, but that is more likely if Uncle Sam’s check is helping cover those costs.
To find out what rates you could qualify for, check out Money Talks News’ mortgage refinancing rate search tool.
5. Blow it on fun stuff
Spending what is supposed to be an emergency check on something fun sounds like a stupid idea. And for millions of people, it clearly would be a boneheaded move.
But again, if you already have money to burn and want to spend a little on something nonessential to take your mind off troubled times, be our guest. In fact, the government probably would see you as a team player, since spending that money will help keep the economy afloat as it sails through very rough seas.
6. Donate it
Finally, these are sad, scary days. But we’ve seen worse: from the Civil War to the Great Depression and two world wars.
We don’t need to recite the litany of other historical challenges America has overcome, many of which were on par with the difficult moment we face now. It is our ability to unite and to help our neighbors that has gotten us through countless crises before and that will do so again this time.
So, if you don’t need the money, give it to a good cause. Consider the donation your contribution as a foot soldier to the wider war effort. When we finally lay this pandemic to rest, you’ll feel good having done your part to help.
Plus, you’ll stand to qualify for a tax deduction when you file your 2021 tax return next year, as we recently reported in “2 Charitable Tax Breaks Have Been Extended for 2021.”
Looking for a great charity? Check out “21 Top-Rated Charities Fighting the Coronavirus.”