Should You Use Your Stimulus Check to Pay Down Debt
Congress recently passed a $2 trillion stimulus bill that provides money to city and state governments, as well as loans and grants to businesses. The law also requires that the Treasury cut a $1,200 check to adults who make less than $75,000 ($150,000 combined for married couples). Those earning more should receive smaller checks, and children will qualify for $500.
One question many people have is what they should spend the money on. If you have immediate unmet needs—such as rent payments, medical care, or food—then people should spend the money on that. However, those who are still employed might wonder whether they should use the money for debt repayment.
Pay Off a Small Debt
There are no hard-and-fast rules about what you should spend your stimulus money on. However, if you have a very small debt, then now might be the time to clear it. We certainly don’t recommend filing for bankruptcy if you owe only a few hundred dollars on a credit card, so you will need to repay it eventually. Now is as good a time as any.
Some creditors are freezing payments and waiving penalties or late fees for their debtors during this crisis. However, it takes time to request this relief. If your debt is small, then you might just go ahead and pay it off. This will save time and money and provide peace of mind.
Save Most of Your Check
Very few people have any sort of emergency fund to tide them over, so we recommend using the stimulus check for that. Of course, if you need essentials, then by all means spend the check on them. However, if you have some money left over, we recommend saving it.
Even if you have a job right now, your employer might be laying people off soon. There is also no guarantee that Congress will continue to fund the generous unemployment benefits that they included in the $2 trillion stimulus bill. You might find that you need this money in the future.
Work with Creditors for Larger Debts
If you are struggling to pay your debts, then you should contact your creditor to ask about forbearance. This is an agreement to delay or reduce payments temporarily. Some creditors aren’t offering forbearance but have alternate payment plans that will help you stay current.
Again, this makes sense if you have large debts that you can’t easily pay off. If your debts are only small, then using a portion of your stimulus check to clear them makes more sense. Otherwise, coming up with an alternate payment plan can keep you out of default.
What if You Are Struggling?
The stimulus check might not be enough to tide you over, even with the unemployment benefits Congress authorized. Many people in South Florida were struggling financially before the current pandemic, and any reduction in income could make it impossible to continue with debt repayment.
Please contact Nowack & Olson PLLC if you have questions. Our Plantation bankruptcy attorneys have helped over 20,000 people just like you go through the bankruptcy process. We can help you every step of the way and clear up any misconceptions or fears that you have.