For millions of Americans, living with a surplus of debt is not new. However, for many the pandemic exacerbated it, causing stress, depression and sleepless nights. With hopes of a new stimulus around the corner you may consider taking the money and using it to reduce debt. Thankfully, you have other options allowing you to keep the check and use it where it provides the best benefit.
High Credit Card Balances
Having five or more credit cards with high balances can consume a large portion of your monthly budget. Unless you can pay the full card balance monthly, you’ll accumulate interest. If you only pay the minimum amount required the balance on your credit cards will continue to increase. In the end, you can expect to pay two or three times more than the actual cost of your original purchases.
To reduce balances on your credit cards you may decide that using the stimulus check is a good idea. However, the stimulus will only make a small dent in the debt and still leave you in the same situation. Thankfully, you have a few other options.
If you own a home and have equity, you can refinance the loan and use the money to wipe out your credit card debt completely. If this is not an option, you can apply for a debt consolidation loan. It will give you a single payment due monthly at a lower interest rate making it more manageable and affordable.
Get Caught Up With Tax Refunds
If you need another form of financial relief, your tax refunds offer a practical solution. Depending on your household income and expenses as well as dependants and credits, you could receive a sizable refund from the federal and state governments. Tax professionals can assist Americans in receiving the maximum refund. Instead of dipping into your stimulus check, you can use your tax return to pay down debts.
Make the Most of Your Stimulus Check
The idea behind giving needy Americans a stimulus check is to boost the economy. After a year of hardship, many people need to stock up on the basics like food and essentials. It’s also in your interest to start an emergency fund. Use a portion of the money to open an account and then work in small weekly payments. Ideally, having at least enough money to cover three to six months’ worth of your bills to survive any unforeseen financial crisis.
The pandemic came without notice, leaving many Americans unprepared financially. With nearly two-thirds of the workforce living paycheck to paycheck, the impact of losing a job or business hit hard and swift.
The take-away is that emergencies happen and you need to practice preparedness and work towards becoming financially independent. A household budget is an essential tool necessary to help you achieve your goal. Thankfully, creating one is easy. The hard part is sticking to it.
Advantages of a Budget
There are several advantages to having a household budget. First, you get a clear view of your finances. Second, you learn to control spending resulting in better money management. Third, you set achievable goals for things like buying a home, sending kids to college and your retirement.
It’s easy to spend money when you have it. However, life happens and it doesn’t always work in your favor. Becoming financially independent means making smarter decisions regarding spending. Indulging in extra-curricular activities such as eating out, entertainment and hobbies.
Lifestyle expenses can consume much of your budget. For example, if you dine out once each week at the cost of $100 that’s over $5,000 annually. The lockdown opened your eyes to the real cost.
Taking on Debt
There’s a price to pay for taking on debt that most people disregard. Today, however, with many still hoping for a return to life as normal, they have a better understanding of the effects of having too much debt. Before taking on debt, weigh the pros and cons carefully. Then, if the benefits outweigh the downsides, it’s a good choice.
The past year hit many Americans hard in their wallets. The good news is there’s hope of a new government relief package with a sizable stimulus check for struggling Americans. Use that money to stock up on food and essentials and create a financial safety net. Adopting a household budget, reducing debt, and eliminating wasteful spending will help you achieve your financial goals and weather any short-term emergency.