If you have kids, it’s possible you started receiving deposits in your bank account on July 15 from the federal government — advance payments of the child tax credit you normally wouldn’t get until the end of the year. As part of the American Rescue Plan Act of 2021, the child-tax credit was expanded to more families and increased (to as much as $3,600 per child) to help boost recovery from the pandemic.
If you qualify for the credit, it’s a nice monthly windfall — but what if you don’t need the money for day-to-day living expenses? Here are a few ideas for what to do with your child-tax credit payment that can also help boost your family’s finances.
SHORE UP YOUR EMERGENCY FUND
Even for the most financially prepared families, unexpected costs like car repairs, medical bills or even job loss have the potential to throw your finances out of whack. That’s why it's a good idea to have about six months’ worth of expenses in a savings account you can access quickly. If you don’t have that amount yet, move some of that cash into your emergency fund to help ensure that a surprise expense won’t become a hardship.
GET RID OF HIGH-INTEREST DEBT
Got credit card debt you’re trying to put a dent in? Use some of that extra cash to knock out or at least reduce your balances. To pay the least amount of interest over time, make extra payments toward the card that charges the highest interest rate. But if you want a quick win that keeps you motivated, you could also pay off a low balance first. Here are a few ways to prioritize paying down debt.
ADD TO COLLEGE SAVINGS
Consider diverting some of the child-tax credit payment into a 529 plan or other college savings account. Thanks to compound interest, you could earn exponentially more on your savings if you start sooner rather than later. And with the cost of college in five, 10 or 15 years a big unknown, it’s probably a good idea to set aside any extra cash you have now.
SET ASIDE SOME FOR SEASONAL EXPENSES
Seasonal expenses roll around every year, but they can add up fast. Maybe it’s the ever-growing list of classroom supplies for school kids, traveling for sports meets or the last-minute holiday gift giving that tends to derail your budget. It could even be a bigger-than-expected tax bill. Whatever the expense, setting aside some of the child-tax credit money to cover it can help keep you from taking on credit card debt to cover them.
PLAN A FUN FAMILY ACTIVITY
Don't discount doing something fun with some of your family’s extra cash. Perhaps it’s a camping weekend, a trip to your favorite theme park or just a special splurge dinner. There’s no reason you can’t use the money for both financial goals and the fun stuff that helps create memories.