5 Worst Ways To Spend Your Stimulus Check

These are 5 terrible ways to spend your stimulus check.


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The $1.9 trillion stimulus package — the American Rescue Plan of 2021 — includes stimulus checks of $1,400 for individuals, $2,800 for married or joint filers, and $1,400 for qualifying dependents. That means a family of four could earn up to a $5,600 stimulus check. Before you spend your third stimulus check, however, make sure you avoid the 5 worst ways to spend your stimulus payment:

1. Not paying your essential bills

This sounds incredibly simple, but it really is the first priority. The 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 intended to provide a financial bridge especially for vulnerable Americans. That’s why it’s essential to spend your stimulus check first on essential bills such as housing, food and utilities. Make sure your financial house is in order.


2. Not paying off debt

If you can provide for your essential monthly costs, your next financial move should be to pay off debt. This include student loans, a mortgage, personal loans and credit card debt. There are several ways to pay off debt, including refinancing, or simply a lump-sum payment with some or all of your stimulus check. If you want to make a lump-sum payment, inform your lender, credit card issuer or student loan servicer (preferably in writing) that you are making a one-time payment, and it should apply as an extra payment that should be credited now (and should not be applied to next month’s payment). This way, you can save money on interest. Apply your stimulus check to your highest interest debt first (to save the most money), or alternatively, you could start paying off your lowest dollar balance (to get a psychological win). You can also refinance student loans, your mortgage, or get a personal loan and consolidate credit card debt.

For example, let’s assume you want to refinance student loans and use this student loan refinancing calculator. Let’s also assume you have $80,000 of student loans with an 8% average interest rate and 10-year loan term. If you can refinance student loans at a 3% interest rate and 10-year repayment term, you can lower your monthly student loan payment by $198 and save $23,776 total.


3. Not building an emergency fund

There are many financial lessons from the Covid-19 pandemic. One lesson is that change can happen rapidly. From your employment status to the health of your loved ones, your good fortune can hit the occasional speed bump. That’s why it’s essential to build an emergency fund. Most people have heard of an emergency fund before, and simply ignore the advice because they think they’ll never need it. Don’t be most people. Open a separate bank account and start depositing whatever portion of your stimulus check you can afford. Keep adding to your balance each month. Whether it’s $5 or $100 or some other number, the goal is to have at least 6 to 9 months (preferably one year) of expenses saved in case of an emergency.


4. Investing your stimulus check in the stock market

Don’t invest your stimulus check in the stock market. You may not like that advice, especially if you’ve invested before and your portfolio has skyrocketed over the past year. Unless you’re a seasoned investor, or you already paid essential bills, paid off debt and built an emergency fund, don’t risk your stimulus payment . Why? If you need your stimulus check now or in the near future, there’s no guarantee that you will make money in the stock market—despite the success stories you’ve read or how your investment portfolio has performed. If you simply must invest your stimulus check in the stock market, understand you could lose some or all of your stimulus check.


5. Betting your stimulus check on March Madness

If you’re a college basketball fan, you know that now is March Madness, the highlight of the college basketball season. You may have a tournament bracket where you pick the winners and losers, and the ultimate national champion. Here’s the thing: don’t bet your stimulus check on March Madness. Yes, you might have a knack for predicting the future, or you’re a consummate sports gambler. However, March Madness has already had its fair share of upsets this year, and if you think you can pick a winner, know that more upsets are likely to come. For example, Oral Roberts beat Ohio State, Oregon State beat Tennessee, Wisconsin beat North Carolina, and North Texas beat Purdue. If you picked all four of those upsets, then maybe you get a reprieve. Otherwise, first pay your essential bills, pay off debt, and build an emergency fund.


By Zack Friedman, Contributor

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