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Update April 15: The first wave of stimulus checks have already been deposited into bank accounts.
Many Americans could expect to receive a $1,200 stimulus check within the next three weeks, according to Treasury Secretary Steven Mnuchin. This news comes after the Senate and the House passed a $2 trillion stimulus package to counteract the negative economic impact of the coronavirus pandemic.
President Donald Trump signed the bill into law on Friday, March 27, granting qualifying taxpayers a one-time check up to $1,200 for individuals, depending on your reported income. If you receive a stimulus check, you should use it wisely. One of the options is to pay off credit card debt — but should you?
Below, Select reviews how much money you can expect to receive from a stimulus check and whether you should use it to pay off credit card debt.
The size of the check you receive is based on 2019 tax returns, if you've already filed, otherwise 2018 information is used. Individuals are poised to receive up to $1,200 while couples may get up to $2,400. Parents will receive $500 for every child.
Not everyone will receive a check since the disbursement is based on your adjusted gross income listed on your most recent tax return. If you earn more than $75,000 as an individual, $112,500 as a head of household or $150,000 if you're married and filing jointly, the amount of those checks starts to get reduced by $5 for every $100 over the threshold.
And once your income reaches the following limits, you can't expect a check at all: $99,000 for individuals, $146,500 for head of households with one child and $198,000 for joint filers with no children.
Americans carry an average balance of $6,194 on their credit card(s), which might make you consider using your stimulus check to pay off some of that debt. However it may not be in your best interest to put your whole check, or even partial, toward your debt.
Here are some situations when it may not make sense:
- You recently got laid off, furloughed or had a reduction in working hours
- Your significant other is bringing home less (or no) income
- You're worried that your job or your significant other's job may be at risk
All of the situations above result in a reduced cash flow, meaning less money is coming in each month. This can cause you to be spending more money than you have on essentials, such as groceries and important bills.
If you fall in one of these situations, rather than using your stimulus check to pay off old debt, consider asking your credit card issuer for assistance and using your check for essential purchases.
"Most of the major credit card issuers, mortgage lenders and utility companies are offering special hardship programs that will give people a break during the next month or two," Bruce McClary, VP of communications for the National Foundation for Credit Counseling, says.
"Those who reach out and request assistance may be placed in those special programs that allow them to use their stimulus check to cover essentials, like food and medicine."
However, it may make sense to use some of your stimulus check to pay off credit card debt if you have a sizable amount in an emergency savings fund. Experts generally advise you save three to six months worth of expenses.
If you receive the maximum $1,200 (and upwards of $2,400 if you're married with kids), it can be in your best interest to put that money first toward essential expenses or an emergency fund, then consider any remaining funds for debt payoff. The stimulus check can help tide you over during these uncertain times.
McClary also states that consumers can turn to nonprofit credit counseling agencies, such as those affiliated with the National Foundation for Credit Counseling, to receive guidance or help creating a realistic budget.
While card issuers are working with customers to provide late payment and interest waivers, as well as extending bill due dates, at the end of the day, your debt isn't going away. If you want a long-term solution, you can consider completing a balance transfer.
Balance transfer credit cards offer no interest for up to 21 months, granted you pay off your balance before the intro period ends. Right now, card issuers are offering short-term relief, so a balance transfer can be a good alternative if you have a good credit score.
With the Citi Simplicity® Card, you can work on paying off debt interest-free for 21 months on balance transfers from date of first transfer (after, 19.24% - 29.99% variable APR; balance transfers must be completed within four months of account opening). This card does come with an introductory balance transfer fee of 3% or $5, whichever is greater for transfers completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5), but the amount you save on interest often outweighs the cost.
Keep in mind that balance transfer cards typically require good credit or excellent credit (scores 670 and greater), and you may not be able to transfer all your debt depending on the credit limit you receive and the terms of the offer.
Check out other ways to pay off credit card debt.