Perhaps you’ve heard about the child tax credit funds that many parents may be eligible to receive. Starting July 15, households earning less than $150,000 jointly could qualify for up to $300 per month for each child under 6, and up to $250 per month for children aged 6 to 17.
Did this money land in your bank account? If so, you might be pondering over what to do with it.
UNDERSTANDING THE ADVANCED CHILD TAX CREDIT
The American Rescue Plan, signed by President Joe Biden in March, allows parents to get an early portion of their child tax credit through monthly payments. However, if you prefer a one lump sum, you can opt out.
There are good reasons to opt out, and it’s worth seeking advice from a tax professional or financial adviser based on your personal situation. This article, though, is primarily aimed at those who chose to receive the monthly payments, either those who already received the first wave, or will soon. We list six suggestions for effective use of your child tax credit funds.
1. CARE FOR YOUR CHILD
This is the most apparent use for the child tax credit payments. Parents are expected to meet the needs of their children regardless. If you’re currently dealing with financial hardships due to the pandemic, this extra cash could be a lifeline.
Use it to cover your child’s immediate needs such as clothing, shoes, childcare, etc. If you’ve had to delay certain expenditures due to tight finances, this money can assist you in getting back on track.
2. SETTLE OUTSTANDING BILLS
Another way to get back on your feet financially is to use the child tax credit money to catch up on late bill payments or reduce your debt. This cuts down stress as it alleviates the threat of late fees, shutdown of utilities, or collection activities.
If you normally use your tax refund to pay off bills and debt, these monthly payments could expedite the process, possibly saving you from interest build-up.
3. FUEL YOUR CHILD’S COLLEGE FUND
Have you been intending to start saving for your child’s college fund, but haven’t made any progress? The monthly child tax credits can aid you in starting to save for college expenses.
Notably, students with some college savings are more likely to graduate. Given that the cost of higher education is increasing, it might be a good idea to contribute to your child’s 529 Plan, which offers tax benefits and allows your funds to grow at a fast pace.
4. BUILD YOUR HOME MAINTENANCE FUND
A wise move would be to use part of the credit money for home maintenance and surprise repairs. It’s best to set aside 1% to 3% of your home’s value for such purposes annually. Using this money for repair costs may prevent future debt.
5. SAVE IT
You might want to use this money to create an emergency fund or other sinking funds. A minimum of 3 to 6 months of expenses should be saved in a high-yield savings account. The advance child tax credit payments can boost your emergency funds significantly.
6. INVEST IN A SIDE BUSINESS
If you’ve been thinking of starting a small business, this money can be the capital you need. If you are your own boss, your startup costs may not be that high. Plus, it’s a potentially lucrative investment for your family.
KEEP IN MIND
As a qualifying parent, you have two options: use the monthly checks wisely now, or wait for a lump sum during tax filing. It’s advisable to consult with a tax professional for advice.
Regardless of the approach you take, the decision is ultimately yours. The money is yours either way – so make sure it’s working effectively for you, whether it’s earning interest, being invested in a promising business, or helping you save on existing debt.
