Stimulus Update: Here's Why Another Round of Stimulus Checks Could Be Disastrous Right Now

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KEY POINTS

  • Consumer debt rose during the year's second quarter, fueled largely by inflation.
  • Although many Americans could use financial assistance, now's not the time to be giving out stimulus checks.


Another blast of payments won't help solve the problem of inflation.

For months on end, Americans have struggled to make ends meet as inflation has soared. And they've taken on more debt to cope with higher living costs.

During the year's second quarter, total household debt surpassed $16 trillion, according to the Federal Reserve Bank of New York's Center for Microeconomic Data. And while much of that stemmed from mortgage originations, consumers also added to their credit card balances. Specifically, credit card balances increased by $46 billion during 2022's second quarter.

Many Americans depleted their savings early on in the pandemic, when job loss was rampant. And so now, they've had no choice but to rack up credit card debt to cover their higher costs.

Because of the burden inflation has placed on so many people, a number of states are taking steps to issue rebates to residents to help them cope with their rising bills. But there are no plans to dish out similar aid at the federal level. And that's actually not a bad thing.

Another stimulus round won't help right now

Many Americans are imploring lawmakers to send out stimulus funds so that those struggling with bills have a means of catching up. But actually, a stimulus round isn't likely to help the issue of inflation at all. If anything, it could make the problem exponentially worse.

A big part of the reason living costs are so high right now is that Americans received several windfalls last year at a time when supply chains were battered. Not only did March's American Rescue Plan approve a round of $1,400 stimulus checks, but the bill also boosted the Child Tax Credit, raising its maximum value and authorizing half of the credit to be paid in monthly installments.

As such, Americans were flush with cash at a time when supplies of goods were limited. That led to far more demand than supply, which, in turn, drove prices up.

If another stimulus round were to be issued right now, it might only serve the purpose of widening that gap between demand and supply even further. And that could lead to many more months of sky-high costs.

How to cope with inflation

Those struggling to pay their bills right now can try seeking out higher-paying jobs or second jobs to earn more cash. The one positive thing about today's economic conditions is the labor market -- it's strong and loaded with opportunities. In fact, many industries are experiencing staffing shortages, which is why it's actually a good time to fight for higher wages or seek out a better-paying job.

Homeowners, meanwhile, may have the option to tap the equity they have in their properties to drum up cash. Right now, U.S. home values are up on a national level, so it may be easier than usual to qualify for a home equity loan.

Of course, taking on any sort of debt to make ends meet is far from ideal. But in the absence of a stimulus check, a home equity loan is a better bet than adding to a credit card balance -- something countless Americans have clearly done in recent months.

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