If you’re a parent, you might have gotten a pleasant surprise from the IRS in the past week. Thanks to the American Rescue Plan which the federal government enacted earlier this year, many parents will be receiving monthly payments from the government for the next few months.
Getting some extra money each month is never a bad thing. However, once the joy of getting the money has worn off, you’ll probably start wondering about the best way to use that money. Here are five ways you can put your Child Tax Credit payment to good use.
Pay off Your Debts
One of the best ways to use any extra money is to help pay off any debts you have. This can help you save money on interest payments, and if you manage to pay off a debt completely, you can put the money you were using to make payments on that debt toward another debt to pay it off faster.
Put it in Your Emergency Fund
If the past year has taught us anything, it’s been the importance of having an emergency fund during uncertain times. Having at least three months’ worth of salary in your emergency fund will get you through most emergencies, but in the wake of 2020 most financial experts recommend having as much as six months of salary saved up. While you’re setting aside money for your emergency fund, make sure it’s in an account that is not only accessible, but also earning interest.
Put it Toward Your Children’s College Fund
If you don’t need the child tax credit payment for any immediate expenses and you have a healthy emergency fund, you can put the money into a savings account to help your child pay their college tuition. Your best bet is to put the money in a Coverdell ESA account, which isn’t subject to income taxes so long as you're using the money in the account to pay for qualified education expenses.
Finance a Needed Expense
If you have a big-ticket expense you’ve been putting off, like replacing your washing machine or getting your front steps repaired, you can use your Child Tax Credit to help pay for it. Just remember to avoid overspending on the expense.
Treat Your Family
When you get some extra cash, it’s only natural to think about all the fun things you and your family could do with that money. While you probably shouldn’t spend all of your payments on entertainment, let’s be honest—2020 was rough for everyone, and you might want to set aside some of your Child Tax Credit to treat your family as a reward for making it through the last year. You can use some of your payments to take your family out to dinner, to a movie, or even to a trampoline park if you’re feeling adventurous.
Put Your Child Tax Credit Payment to Good Use at First Alliance Credit Union
Getting some extra money like the Child Tax Credit can give your finances a much-needed boost. You can put the money to work for you in several different ways, from paying off debts to investing in your children’s future.
If you’ve got extra money you’d like to get the most out of, become a member of First Alliance Credit Union today. You’ll be able to put your money in a savings account, club accounts, an IRA or even a Certificate of Deposit.
Want more information about how to use the money you get with the Child Tax Credit? Listen to episode 106 of our Good Money Moves podcast, which also talks about smart uses for the Child Tax Credit payments.