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Many Americans will get $1,200 stimulus checks—here's the best way to use it depending on your financial situation


The $2 trillion stimulus bill in response to the COVID-19 pandemic was passed by the Senate Wednesday night. The House expects to pass it by Friday.

The plan includes a one-time direct payment to Americans, which Treasury Secretary Steven Mnuchin said should arrive within three weeks. Individuals will receive up to $1,200, married couples will get up to $2,400 and $500 will be added for every child.

There are income restrictions: If you earn more than $75,000 as an individual or $150,000 as a couple, the total amount you're eligible to receive starts to decrease. If you earn $99,000 or more as an individual or $198,000 as a couple, you aren't eligible to receive a stimulus check. The government will look at your 2019 tax returns if you already filed and 2018 information if you didn't yet file.

To help you use your check wisely, CNBC Make It spoke to certified financial planners Andrew Westlin and Kelly Crane about what to do with it depending on your financial situation.

You're out of work or have reduced hours 

If you don't have a consistent income coming in right now, "you should first use this check to cover essential bills and any debt obligations," says Westlin. Essentials include things like food, housing, utilities and insurance.

As for debt, such as a credit card balance or car payment, it's important to pay at least the minimum on your balance. Otherwise, you may owe fees and extra interest, and your credit score could be negatively impacted. If you have money left over after covering your necessities and minimum payments, start chipping away at the rest of your debts, especially anything with a high interest rate. Ideally, you want to make payments in full every month to avoid being in debt longer and racking up additional interest.

To help stretch your stimulus check as far as possible, read up on how to budget the money you have left if you lose your job during the pandemic.

You're living paycheck-to-paycheck

If you're able to cover your necessities and debt obligations with your paycheck, but don't have money left over at the end of the month to save, "use this one-time payment to start, or add to, your emergency fund," says Westlin.

Ideally, you want to have three to six months' worth of expenses saved for emergencies. "Even if you have this set aside already, I'd still recommend putting this one-time payment into your emergency fund if you're living paycheck-to-paycheck," Westlin says. "Any extra breathing room will help."

Don't use it on any discretionary spending, including entertainment, electronics or anything else you don't truly need, Crane says. "If you have enough cash on hand for now, save it for later. During these uncertain times, if you think you may lose your income, hunker down and immediately cut all discretionary spending."

You're living comfortably and have a full emergency fund

If your emergency fund is fully stocked with three to six months' worth of expenses, use the check to start saving toward other goals. 

"If you're sure you don't need it in the near future, either save it or invest it for the longer term," says Crane. "Equities are a bargain now."

Westlin agrees. "This is a great time to be investing money into the stock market, especially if you're younger and have a long time horizon," he says. He advises maxing out your 2019 individual retirement account or Roth IRA, if you haven't already, or getting a head start on your 2020 contributions. You can also invest in taxable brokerage accounts if you want to make sure the funds are still accessible. 

Another option is to donate some, or all, of the money you receive. "We're sure to see a rise in unemployment, and as we enter a likely recession, nonprofits will see a drop in donations," Kelly says. "Give to your favorite charity or those in your community who are positioned to help those less fortunate during a downturn."

Not sure where to donate? A good place to start is your local food bank or a national organization like Feeding America. Many high profile athletes and celebrities are already helping out in the same way.

You can also donate to other local businesses and organizations. "Don't feel that your donation has to be at a national level," Westlin says. "You can be a huge help to family, friends and your local community."

Don't miss: Financial planner: Here's when you should temporarily stop saving for retirement during the pandemic

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