Coronavirus stimulus checks are on everyone's minds—here's the fine print and what you should do with yours when it comes.

By Kristi Pahr
April 07, 2020
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In the wake of mass job loss and record-high unemployment due to the coronavirus pandemic, for many families, there is a small light at the end of the tunnel—the government stimulus checks that many Americans should receive in the coming months.

According to the Internal Revenue Service (IRS) website, direct deposit payments will begin going out in April to taxpayers with a bank account on file with the department from their 2018 tax filings. But for those who do not have a bank account on file, the IRS says they are working on an online registration system so people can avoid the more uncertain timeline of waiting on a physical check in the mail.

In addition to shoring up unemployment benefits, the landmark bill also includes a provision for Americans to receive $1200 per adult and $500 per child under the age of 16, to max out at $3400 per family. The stated amount will be a considerable windfall for families who've weathered job loss and an unpredictable financial future.

What to Do With Your Family's Stimulus Money

But what should families do with their stimulus money? Pay off debt? Invest? Bury it in the backyard? According to Ken Lin, CEO and founder of Credit Karma, it all depends on your particular situation. "There are a number of things you can do with your stimulus check, depending on where you and your family stand financially," he says.

"Every family’s financial decision is different, and it’s important to make a realistic plan for your money so that you don’t put your family in financial jeopardy," explains Lin. For families who are struggling to pay rent and other bills, the stimulus check can go towards housing costs. And for those who are lucky enough to be able to stay up to date on their necessary bills, stowing the money in a savings account might be the best choice, and the same goes for any tax refunds you may be expecting.

"Once you’ve decided on the best use for this money—whether that’s paying rent, making a credit card payment, or buying groceries—this check may help you do things like replenish a low checking balance or buy something essential for your family," says Lin. "If you’re fortunate enough to have the necessities taken care of, and if your credit accounts are current, consider putting that money in savings so you can preserve as much cash as possible."

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Covering Additional Expenses

Unfortunately, for many, $1200 is not enough to cover a month of rent and bills, but some lawmakers in Congress are discussing the potential for additional stimulus as the pandemic crisis continues. Similarly, many banks and mortgage lenders are allowing customers to defer payments on home and auto loans as well as credit card payments. If your family is in a sticky financial situation because of coronavirus, calling your creditors to discuss options is a smart choice.

What about mortgages and credit card debt?

According to  Northwestern Mutual financial advisor Ashley Russo, "If you are unable to make your monthly mortgage payment, your first step should always be to call your bank. They are prepared for times of hardship and are there to help make sure your cash flow is protected while you focus on getting through these difficult circumstances." Most banks offer at least a 60 day grace period, Russo explains. Though interest will likely continue to accrue on your loans, deferring payments for a few months might be the best way to increase your cash reserves.

If you're concerned about a deferment having a negative impact on your credit score, don't be. "Deferred payments as a result of the COVID-19 pandemic will not have a negative impact on credit," explains Russo. "However, it’s important to keep an eye on your credit score to make sure human error isn’t overlooked. As expected, all companies are overwhelmed at the moment, so it is important to stay on top of your finances just as you would under normal circumstances."

Similarly, some credit card companies are waiving late payment fees for the duration of the crisis. But you should contact your credit card company to understand the fine print and make sure a missed or deferred payment won't affect your credit score down the line.

Should we use savings or investment accounts to pay bills?

The temptation to cash out your savings or investment accounts to keep debt accounts current is probably high if you're weathering a job loss, but you should fight that urge. Though having at least a six-month financial cushion emergency fund is the gold-standard, this isn't a possibility for many families.  "My recommended approach is to defer payments as much as possible and save in the meantime, rather than depleting the financial backbone you have established through your savings or investment accounts," says Russo. So call your creditors, defer those payments, and sock as much of that cash away as possible.

Saving as much as possible, budgeting wisely, and monitoring spending habits are more important now than ever to help ensure you and your family have what you need and come out on the other side of the crisis with your finances intact.

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