The best ways to spend your child tax credit money


The first of six monthly child tax credit payments will hit millions of bank accounts on Thursday, giving families up to $ 300 per child. It’s money that many parents might not have budgeted for, making it a great opportunity to improve your family’s finances.

The 2021 child tax credit enhancements raised the maximum amount from $ 2,000 to $ 3,600 for children under age 6 and from $ 3,000 for all other children under age 18. half of each loan being paid monthly between July and December of this year. While there is no limit to how families can use the money, credit is designed to help those most in need of financial assistance make ends meet.

But a family’s financial health isn’t just about making sure you can pay the bills. That’s why we asked financial planners and advisors to give you some advice on how your new child tax credit can be put to good use. Here’s what they recommend:

1. Cover your most urgent needs

If this seems obvious, it’s only because it’s so important: spend that extra money on the biggest burdens in your wallet.

As many parents return to work in person this summer, most expenses are likely to increase. Not only will you have to cover travel costs again, but also the often exorbitant price of childcare: A 2015 study by the Economic Policy Institute found that the cost of infant care was higher than the average cost of state college tuition in 33 states. For the millions of parents whose child care expenses consume a large chunk of their budget, monthly child tax credit payments can be a major source of relief.

Even if you don’t need help paying for child care, the monthly payment schedule to cover your monthly bills can help you avoid the stress of trying to stretch your income until the end of the year. month.

“Determine what are the most immediate needs”, explains Daniel Milan, Managing Partner at Basic financial services. “This [money] is something that can help you in an ordeal when your back is against the wall.

2. Pay off high interest debt

Paying off high interest credit card debt is “like investing in a high guaranteed return,” says Marc Schindler, founding partner of Pivot point advisors.

According to data from the Pew Research Center, the median net worth of the poorest 20% of children has been mostly negative over the past 40 years. Indeed, many low-income families have more debt than assets, which puts these children at a significant disadvantage compared to their higher-income peers, who held 248 times more wealth in 2016.

While this is obviously a difficult feat, the extra help of prepayments can help you get out of debt and help your children achieve better social and economic outcomes in their lifetimes: A study of 9,000 children from the University of Wisconsin and Dartmouth College found that lower debt levels correlated with higher levels of well-being in children.

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3. Finance your family’s savings

Once all of your immediate needs have been met and you have settled any credit card debt, experts agree that your next step should be to put the money from your child tax credit payments into savings.

“For those with an underfunded emergency fund, consider using these payments to shore up that foundation for your family,” says Michelle petrowski, a certified financial planner.

Even before the pandemic-fueled recession underscored just how necessary an emergency fund is, it was already true that Americans were struggling to save money: a 2019 reserve study federal government revealed that four in 10 people do not have enough cash on hand to cover a surprise expense of $ 400.

If you’re trying to figure out where to put that extra cash injection, follow this rough order: build up three to six months of emergency savings first, then make sure you’re saving enough for retirement (eventually you want to save 15% of your income) and then focus on your family’s specific priorities, like buying a house or a better car.

4. Put it in an education savings plan 529

Almost every expert we spoke to mentioned opening or contributing to a 529 plan, which is an investment account that offers parents a tax-efficient way to save for their children’s education. The big advantage is that you can grow your money through investments and then pay for education-related expenses like tuition or housing and board without having to pay federal income tax.

As long as you use the money for qualifying purchases, you’ll get tax-free growth and withdrawals, according to Clark D. Randall, certified financial planner and founder of Financial enlightenment. Plus, you use untaxed money to fund it with child tax credit payments.

“This is a triple benefit that is not available anywhere else in the tax code,” he says.

Parents should note that if they take money out of a 529 plan for payments that don’t qualify, they will eventually face a penalty fee.

5. Plan summer activities

Okay, lift your jaw: if your financial situation is completely in order, then there is nothing irresponsible about using money to spend quality time with your family.

The enhanced child tax credit was included in the US bailout to both help millions of struggling parents and also stimulate the economy by increasing consumer spending. With some of the hardest hit industries like hospitality and entertainment finally on their way back to normal, you can support this growth by planning a weekend getaway or going to a family concert.

But while at Money we are all in favor of using the extra cash to fund exciting and engaging purchases, it’s important to continue to spend responsibly. Make sure all of your other ducks are aligned i.e. the financial goals we outlined above first to avoid spending too much money that you don’t have.

More money :

Child Tax Credit Eligibility: Who Receives IRS Payments This Week?

6 expert tips for navigating the new monthly child tax credit

Update on the Child Tax Credit: You can now change the bank account the IRS sends your payments to



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