RAISING a child can be a financial challenge – but some are probably wondering what they should spend their child tax credits on.
The child tax credit payments for October are set to hit bank accounts tomorrow, October 15, which will mark the fourth check for most families.
Those with children under the age of six are eligible for monthly installments of $300. For each child aged six to 17, families will get $250.
To qualify for the full payments, couples need to make less than $150,000 and single parents who file as heads of households need to make under $112,500.
Of course, some months might be different than others depending on your family’s needs, but below we show you some ways you can allocate your checks.
Bills and household essentials
These, unfortunately, will be a part of everyone’s monthly needs – but the tax credit payments can certainly help out.
You might need some for your child, whether that’s for clothes, food, or electronics.
Other ways you might need to allocate the money is for help paying off the mortgage or car loans if you’re struggling.
Fortunately, some major retailers have recently kicked off sales events ahead of Black Friday this month.
One that remains ongoing is Amazon’s epic deals.
Paying off debt
A great way to take advantage of child tax credit payments is using them to deal with your debt load.
Large amounts of debt can often prevent you from taking out additional loans or making other financial decisions.
Furthermore, it can impact your credit score.
Some who have thousands of dollars in debt could get significant relief from child tax credit payments.
For the tax year, families with kids under six will get $3,600 in total per child.
Families with kids aged six to 17 get $3,000 for each child.
Savings or an emergency fund
If you don’t already have any savings or an emergency fund, the child tax credits could be a great time to build this up.
The downside of saving in a traditional saving account is that it won’t see much growth.
However, if you put your money into a high-yield savings account, you’ll earn more interest.
Specifically, a high-yield account can pay 20 to 25 times more in interest rates versus a traditional savings account.
Typically, emergency funds are built to save you from a possible financial disaster in the future including losing your job, having a medical emergency, or are facing any other large expenses that your insurance might not cover.
And according to Gordon Achtermann, a Virginia-based certified financial planner, “there is zero risk of capital loss,” because funds of up to $250,000 are insured by the Federal Deposit Insurance Corp.
Investment for your kid’s future
Last but not least, if your financial situation is stable without the tax credit payments, then it might make sense to invest it for the future.
Assuming you’re saving up for your child’s college tuition or something that’s going to positively impact him or her in the future, you can try investing in a fund so it potentially grows down the line.
But keep in mind, as with any investment you’re never guaranteed to make a profit. In fact – the value of your assets can even fall if you’re not careful.
But choosing an index fund isn’t a bad way to start, as these are seen as safer bets when compared to individual stocks.
Index funds can contain holdings of stocks, bonds, commodities, as well as other assets.
The performance of an index fund depends on how well the benchmark its tracking is performing.
For instance, the S&P 500 has returned an average of 11.71% annually from 1990 to 2020, according to a calculation from investing and personal finance website MoneyChimp.
Some S&P 500 index funds include the Schwab S&P 500 Index Fund, Vanguard 500 Index Fund Admiral Shares, and the Fidelity 500 Index Fund.
Plus, we explain whether child tax credit payments will extend into next year and beyond.
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