BY PRACHI BHARDWAJ from Money Magazine

APRIL 3, 2020
As you’ve probably heard, the U.S. government is about to put some extra cash in American taxpayers’ pockets.

To provide much-needed relief in the midst of the coronavirus pandemic, lawmakers approved a multi-trillion-dollar stimulus package that includes checks of up to $1,200 per individual. The checks are expected to go out in the next several weeks, mostly via direct deposit, to help make up for the economic insecurity that the pandemic has caused.

What you do with it will be up to you, though. Once you’ve taken care of necessities like food and medicine, these are the best ways to use your relief check, according to financial experts.

Save it

“If the money is needed to pay immediate necessities like food, utilities, rent, etc., then that should be priority number one,” says Knoxville-based certified financial planner Jonathan Bednar. “The second priority should be to add it to your emergency fund in case this pandemic lasts longer than anticipated.”

Planners have long recommended keeping three to six months’ worth of savings in a high-yield fund for emergencies — a sort of safety net for a hypothetical rainy day. But in the days of COVID-19, that emergency has arrived for many families. Even Americans who have the resources to pay their bills right now would do well to keep their rainy day fund filled with at least six months’ worth of savings, especially if their income has any chance of changing.

“If you aren’t sure about your job security, you may want to keep that money on hand if you unexpectedly get laid off, especially if you’re a one-income household,” says Alexander Koury, a certified financial planner based out of Phoenix.

One certified financial planner, Charles Sachs from Miami, also emphasized the need to contribute the money to an IRA “There is no more responsible way to spend your stimulus check,” he says.

Pay off bad debt

The experts also agreed that now is the time to take care of debt with a high interest rate, if possible.

“High-interest debt compounds quickly, and can threaten your financial stability,” says certified financial planner Daniel Trumbower, who’s based in the metro-Washington D.C. area. “Consider putting the cash toward paying down your debt and putting yourself on a more stable path.”

That means paying off credit cards and other consumer loans whose high interest rate compounds. There’s one caveat to this advice, however: if you’ve lost your job, first try to negotiate a lower interest rate from your creditors before paying off your original, high rate. Credit card companies are working with borrowers affected by the coronavirus pandemic.

Other types of debt fall lower on the list of priorities.

Pay off good debt

Now you can look to your remaining debt balance, or “good debt,” which includes things like student loans, car loans, and mortgages.

“Assuming the recipient has an adequate emergency fund, I would use the proceeds to pay down any consumer debt or student loans,” said Dallas-based certified financial planner Clark Randall.

If you have funds left over, it would be worth reducing or removing your lower-interest debt, in case things take a turn for the worse.

“Being debt free in a recession is a significant advantage,” said Randall.

Spend it on a good cause

Say your bills are paid off and you’re feeling confident in your savings. There are ways to spend your money that can make a difference — and no, impulse buying on Amazon does not count.

“If you have your necessities in order and a fully funded emergency fund then consider donating the money to a charity or to someone who may need the funds to support their family,” says Bednar. “We are all in this fight together.”

Buying gift cards from restaurants to be used at a later date is a great way to support your local economy. If you want to do more, there are plenty of opportunities online — like this crowdfunding group called FrontlineFoods, which funnels your money to local restaurants so they can turn around and feed local hospital clinicians. Two birds with one stone!

You could also consider donating to a charity or a non-profit of your choosing, like food banks, diaper banks, or a community-supported agriculture group, suggests Potomac-based planner Marguerita Cheng.

But prioritize your personal funds before you get to this point.

“Make sure your own financial position is stable during this crisis, so you can come out the other side strong and able to provide financial support to others.”

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