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 and Libby Ryan
Updated January 06, 2021
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After months of scraping by during the coronavirus pandemic through mass job loss and record-high unemployment, the second round of government stimulus checks are on their way to families across the country.

According to the Internal Revenue Service (IRS) website, direct deposit payments began going out on December 29 to taxpayers with a bank account on file with the department from their 2018 tax filings. But the funds became available on January 4.

For those who do not have a bank account on file, the IRS says they will receive checks or pre-loaded debit cards in the mail starting later this month.

Americans will receive $600 for individuals or $1,200 for married couples and up to $600 for each child. If you earn less than $75,000 as an individual or less than $150,000 as a married couple, you would likely qualify to receive the full amount.

This stimulus payment is significantly less than the amount of the payments in the spring ($1200 per adult and $500 per child), and with many families struggling with bills or food insecurity, it can be difficult to know where the money would be most useful.

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."

Credit: 10'000 Hours/Getty Images

Covering Additional Expenses

Unfortunately, for many, $600 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 into a new year. 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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