Stimulus Update: 5 Ways to Make the Child Tax Credit Work for You

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You make thousands of decisions a day. Why not make one of them the smartest way to use your Child Tax Credit?

As a parent, you know that life comes at you fast, and you probably make about 35,000 decisions a day (the average number of decisions an adult is estimated to make during a 24-hour period). When you first heard that the Biden administration had plans to deposit extra funds into your bank account each month as part of an advance on the expanded Child Tax Credit, you probably spent a good chunk of those 35,000 decisions trying to decide the best way to use the money. If you're still mulling it over, here are five options worthy of consideration.

1. Cover immediate needs

If the drama of the last year and a half has left you in a financial lurch, it impacts your entire family. And, if you've had trouble paying your bills and find yourself worrying about bill collectors, there is no shame in using the monthly Child Tax Credit to cover your obligations, put food on the table, and keep a roof over your family's heads. When it comes to extra money, the smartest move is always to take care of immediate needs. Once you've taken care of the most pressing expenses, you can consider what you want to do next.

2. Pay down debt

Debt is dangerous for a couple of reasons. Compound interest on debts can keep you paying for years without anything new to show for it. And being deeply in debt can keep you awake at night, running through ways to dig yourself out.

First things first. No matter how deeply in debt you are at this moment, it is possible to become debt free. It all begins with a plan and a belief that you can do it. No matter how many dependent children you have or how much you're receiving each month from the advanced Child Tax Credit, these extra funds can make it easier and faster to pay off old debt.

While the advanced Child Tax Credit was initially designed to expire at the end of this year, the Biden administration is pushing hard to extend it until at least 2025. Think about that. That would give you at least three more years of extra funds to use towards jettisoning debt.

Imagine that you owe $10,000 on a credit card carrying an interest rate of 17% and that you're paying a flat $300 per month toward the debt. At this rate, it will take you 46 months to pay the $10,000 off in full, and you'll pay an extra $3,630 in interest.

Let's say you're receiving $500 per month in Child Tax Credits and are using $250 of it toward monthly bills. That would leave you with $250 to pay the credit card off at a faster clip. By adding the $250 to the $300 you're already paying, you would raise your monthly payment to $550. By doing so, the debt would be paid in full in 22 months (instead of 46), and you would pay a total of $1,645 in interest -- a savings of $1,985.

3. Make repairs

Any of us who have ever struggled to make ends meet know how easy it is to put repairs on the back burner. Whether it's your car or home that needs fixing, postponing maintenance can be expensive. Suddenly, a small problem with your car engine becomes a large, expensive-to-fix issue.

Look around and decide if there are any small issues that need to be addressed. If you're not handy, use some of the Child Tax Credit money to pay a professional to make repairs. The least expensive way to deal with maintenance issues of all kinds is to deal with them before they have a chance to become more serious.

4. Plan for less-common expenses

Let's say one of your kids goes to soccer camp each summer and another desperately wants swim lessons. Put some of the Child Tax Credit into a savings account earmarked specifically for irregular expenses.

By the same token, if you have annual HOA fees, insurance payments, or club dues, the funds you put away today can prevent your budget from taking a hit when the bill comes due. And though no one needs to remind you, the holidays are approaching. If you don't have other plans for the money, you have the opportunity to slowly make the purchases you would normally make, without dipping into the family budget.

5. Create a budget -- with your kids

Why not allow your children to help you develop a budget that includes the Child Tax Credit? Doing so can accomplish three things:

  1. With a little preparation on your part, including them in the conversation can teach your kids about personal finances. This includes the importance of planning, saving, and investing.
  2. It can give your kids confidence to learn more on their own and to carry good financial habits into adulthood.
  3. It just might protect your children from abuse. According to the Pennsylvania Coalition Against Domestic Violence, financial abuse occurs in 98% of abusive relationships. It's the number one reason victims stay in an abusive relationship or return after leaving. By taking the time to teach your kids about money -- including how to earn enough to be financially independent -- you could just be giving them the tools they need to get out of an unhealthy relationship when they're older.

It may sound dramatic, but here's the truth, according to the National Coalition Against Domestic Violence: More than 10 million women and men are physically abused in the U.S. each year.

Offering your child tools that will allow them to stand on their own is a powerful gift. If you're not sure how to get started, visit this page on teaching girls about money. You can also check out this page about teaching your kids the right financial lessons. You're likely to pick up tips and ideas that make learning about money fun.

It's rare in life to receive money you did not expect. Ideally, you'll make these "found" funds work for you and your family.

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