How will you use your economic stimulus payment?

April 04, 2008|By LYNN LITTLE

If you received a large cash payment, what would you do?

Starting in May, the U.S. Treasury Department will begin sending economic stimulus payments to more than 130 million households. To receive a payment, taxpayers must have a valid Social Security number, $3,000 in income and file a 2007 federal tax return. The IRS will take care of the rest.

Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17.

Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must file a return this year in order to receive a stimulus payment.


An online calculator will give you an estimate of the stimulus payment you might be due. Go to and click on "economic stimulus calculator." Just answer a few questions and the calculator will do the rest.

Remember: You must file a 2007 tax return in order to receive the payment.

Once you have an estimate of your stimulus payment, take time to think about how best to use the money. Use the waiting time to plan how you can use the economic stimulus payment to improve your financial situation. It is tempting to think about buying that big-screen TV, but a rush to spend your stimulus payment can erode the value of the payment.

Consider using some of the payment to pay down debts with high interest rates. If you owe $2,000 on a credit card charging 18 percent interest and you pay $50 a month, it will take five years to eliminate the debt. During that time, interest of $1,077 - more than half of the original debt - will bring the total debt to $3,077.

If, however, you use a portion of your economic stimulus payment to pay down the debt and continue to pay $50 a month, you can pay off the balance in less time and save on the amount of interest paid.

Weighing needs versus wants can put the brakes on spending. The family might want a flat-screen TV, but might need more dependable transportation.

As you anticipate the economic stimulus payment and how to use it, ask yourself:

· Do I have outstanding or past due bills?

· Consider paying off your credit cards or a car loan. Put what you were paying each month into a savings plan or mutual fund instead.

· Can I use the payment to clean up holiday bills? Should I set part of it aside to eliminate holiday bills this year?

· Do I have a big expense, such as property taxes, an insurance premium, loan payment or major car repair coming up?

· Do I have adequate emergency funds set aside? Three to six months savings is a goal recommended for an emergency fund. You could consider using a portion of your economic stimulus payment to establish your emergency fund. Once you have established an emergency savings fund, try to put away $5 or $10 a week to continue to build your emergency savings.

· Have I contributed to my retirement account or IRA?

Dividing the economic stimulus payment between checking, savings and investment or retirement accounts might allow you to catch up on bills, treat the family to a night out, build emergency savings and save for a long-term goal such as retirement. For more information on the economic stimulus payments, visit

Lynn Little is a family and consumer sciences educator with University of Maryland Cooperative Extension in Washington County.

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