I’m a Finance Expert: Why You Shouldn’t Use All of Your Stimulus Check To Pay Off Debt
Written by
Cindy Lamothe
Edited by
Zuri Anderson
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Your first instinct upon receiving your stimulus check is probably to think of the mountain of debt this will help pay off.
But not so fast. According to experts, using up your entire funds is not your best course of action.
GOBankingRates spoke with Kevin Shahnazari, founder and CEO of FinlyWealth, Melanie Musson, finance expert with Insurance Providers, and Einat Steklov, personal finance expert and CEO and co-founder of Kashable, to discuss the reasons why you shouldn’t use all of your stimulus check to pay off debt.
“Using stimulus checks to pay off debt is generally a good idea, but there are some situations where it might not be best,” said Musson.
Read below for more expert insights.
Consider Splitting Your Funds
Using your entire stimulus check for debt payment might seem responsible, said Shahnazari, but it can leave you financially vulnerable.
“Last month, I worked with a client who wanted to put their full payment toward credit card debt,” he said.
Together, they analyzed the situation and instead split the funds: 60% to debt, 30% to emergency savings and 10% to essential purchases.
“This balanced approach proved crucial when their car needed unexpected repairs two weeks later,” Shahnazari stated.
Think of Immediate and Long-Term Needs
According to Steklov, receiving a stimulus check offers a valuable opportunity to improve your financial wellness while addressing both immediate and long-term needs.
“To make the most of it, start by focusing on any urgent financial obligations, such as overdue bills or essential expenses, to stabilize your financial situation,” the expert explained.
If you’re dealing with high-interest debt, he said to consider using part of the stimulus check to reduce it — especially credit card balances with steep interest rates.
“Doing so can lower future interest costs and boost your credit score over time,” Steklov noted.
Once immediate needs are covered, Steklov recommended prioritizing building or growing an emergency savings fund if you don’t already have one.
Additionally, he said to use this opportunity to establish a realistic budget that balances essentials, savings and occasional discretionary spending.
“By adopting a structured approach to your finances, you can transform your stimulus check into a powerful tool for improving your overall financial stability and peace of mind,” Steklov concluded.
Address Both Debt and Savings Needs
“A family came to me after using their previous stimulus for debt repayment,” said Shahnazari. “When their water heater failed, they had to use high-interest credit cards to cover the emergency, putting them in a worse position than before. Now, we’ve helped them create a balanced plan that addresses both debt and savings needs.”
He said the key is maintaining financial flexibility. While debt paydown is important, having cash reserves prevents new debt from accumulating when unexpected expenses arise.
“This strategy has repeatedly helped my clients build long-term financial stability rather than temporary debt reduction,” Shahnazari noted.
If You’re Self-Employed, Use Funds To Pay Off Taxes
If you are self-employed and pay quarterly taxes or you expect that you’ll owe on your taxes in the next year, Musson said it may be a good idea to put your stimulus checks toward paying your expected taxes.
“That way, you won’t fall behind and get yourself into a hole with the government,” she suggested.
Invest Your Stimulus Money
If your debt is low interest, Musson advised it may be better to invest your stimulus money.
“If your debt is costing you 3% interest, but you could earn 9% interest with an investment, you’ll be further ahead financially if you invest your money and continue making minimum payments on your debt,” she said.
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