How to Use Your Stimulus Check to Pay Off Your Debt

If you received a stimulus check and have outstanding debt you need to pay off, using your newfound funds to improve your financial situation can be a smart money move. In particular, you could start paying down student loans, credit card debt, or similar bills — especially if the pandemic forced you to rely on debt to stay afloat for a bit. Here's how you can use your stimulus check to get out of debt.

Which Debts Should I Pay Off?

Before looking at your debts, check on your bills and see if you have anything left to pay off. If you're behind on any bills, focus on them first. After that, you should concentrate on debt that doesn't earn you a return on your investment and often comes with a high interest rate.

Credit card debt is an excellent example. If you've been carrying a credit card balance for months, you can put your stimulus check toward that balance to save on interest. Personal loans are another type of debt you can reduce using your stimulus check. It may not have quite the same interest rate as your credit card, but if you took out the personal loan for spending or travel, paying it down with your stimulus can save you on interest.

What About Mortgages, Car Loans, and Student Loans?

Mortgages, car loans, and student loans all stake a claim on your paycheck, but no need to go after these first if you have higher-interest debts to pay off. These debts often come with much lower interest rates than credit cards and personal loans. Also, student loans are currently in forbearance per the government's orders. But if you're struggling to make minimum payments on these types of loans each month, you can use a portion of your stimulus check to cover them.

If your student loans are private and you don't have credit card debt or personal loans to pay off, consider putting your stimulus check toward this debt. Private loans have fewer deferral and forbearance options and tend to come with higher interest rates.

Improve Your Financial Health with Your Stimulus

Using your stimulus check to get ahead financially is a wise move. Doing so can help you prepare for the future and ultimately improve your financial health. Make sure to focus on the necessities first, like bills and emergency savings. After that, attack your high-interest debt such as credit cards and personal loans. Go for mortgages, auto loans, and student loans only if you're clear of "bad debt," and keep in mind that federal student loans are in government-ordered forbearance.

One last tip: it may be a good idea to consolidate and refinance as many debts as possible to streamline things if you can get a lower interest rate. From there, you can attack your new debt while cutting interest costs.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: COVID-19, Debt, Personal Finance, Stimulus Check