Economic Stimulus Package

Got your attention, now bear with me! I will get to the 17% return in a minute.

As most of you are probably aware, the government started direct depositing the economic stimulus payments last week. According to the U.S. Treasury nearly 8 million taxpayers have received their checks, so far. If you are still wondering about the Economic Stimulus Package, check out my post ESP: It’s All Gravy Baby!

So the next question is what to do with your piece of the pie, right? The way I see it, you have three choices:

1. Save it

Depending on your financial situation, this may be the smartest choice, all be it, not the most exciting one. But, if you do not have an emergency fund, usually 3 to 6 months worth of expenses, this could be the opportunity to start one. Hey, Rome was not built in a day, you have to start somewhere. Seize the moment! Start your family emergency fund today!

2. Spend it

Now you’re talking John! I hear you! I can almost taste that HD DVD player! All kidding aside, you could splurge and buy you or your family something. In my opinion, this should only be done if you are carrying NO high interest consumer debt, namely credit cards or adjustable rate loans. I know, I just ruined your day. But before you click the X to shut me up, consider this: If you take your government windfall and spend it, it could have a double negative effect if you are carrying consumer debt. First of all, you will not have it if you need it to pay off loans due to an event such as the loss of a job. Second, and more likely, you will continue to owe “whatever” on the credit card at 9 to 21% interest. Let’s say you owe $1200.00 on credit card “A”. It has an interest rate of 17%. And you are only making the minimum payment. It will take you 10 1/2 years to pay it off. It will cost you $896.00 in interest for a total repayment of $2096.00. If you owe more than $1200.00, the numbers start to become very scary. So, think carefully before going out and blowing your stimulus check!

3. Pay Down Debt

This is the most “Thankless” option. You know it’s the right thing to do, it just hurts to stroke a check for something you received months if not years ago. I know, I’ve been there. Let’s try and look at the situation from a different angle. Let’s say you owe $1200.00 on credit card “A” at 17% interest. If you choose to take your stimulus check and pay off the card, you effectively just made 17% on your money! You saved yourself from paying out the interest, keeping it for yourself. That’s better than any savings account, bond or even the stock market return lately! Every penny paid on your credit cards will give you a 17% return (or whatever your cards interest rate is) on your money, until the card is paid off! Not bad! If you owe any credit cards, I would strongly suggest working towards paying them off.

Of course, depending on the size of your check, you could buy yourself a little something, save a little and pay down some debt. If you don’t owe on any loans, the choice is yours whether to save or spend it! In any case enjoy this little government gift from our lovable, concerned politicians in Washington. Wink, Nod, Wink. And if you are not able to spend yours the way you really wanted to, fear not, it sounds like our friends in Congress are already talking about “Economic Stimulus Package: The Sequel”. Stay tuned!

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