Many Americans already have their third stimulus checks in their bank accounts, or will soon receive them via mail or direct deposit. These payments are for $1,400 per eligible adult and dependent.
If you owe money on a credit card or other high-interest debt, what to do with your funds may seem obvious: Use the money to reduce your balance. However, while that can be a good use of the funds, it’s not the right choice in every situation.
In fact, there’s one circumstance in which you could regret paying off debt with your stimulus funds.
Paying off debt isn’t the best choice if this is true
You could regret repaying debt with your stimulus check if you do not have any emergency funds and you use the entire amount to reduce your debt balance.
When you have nothing in your bank account to pay for surprise expenses, even a minor financial setback can turn into a major calamity. Sometimes, expenses come up that can’t wait, from an appliance that stops working to an unexpected medical issue. Without an emergency fund, you’re stuck scrambling to pay for them.
Instead of leaving yourself unprotected against such surprises, put some or all of your stimulus money into an emergency fund. Though it means you will have to pay more interest on the debt that you’re working on…