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5 Smart Ways to Use Your Child Tax Credit Money

5 Smart Ways to Use Your Child Tax Credit Money


Tax credits are traditionally doled out when filing your tax return, but the IRS is allowing qualifying families to receive half of their total credit in advance by way of monthly payments. It translates to $250 or $300 per child for most families, with payments phasing out for married couples who earn more than $150,000 ($112,500 for single-parent families).


CTC payments, which began in July, will end on December 15, 2021. Those who haven’t signed up yet can do so until mid-November and still receive their funds. Now for the $1 million question — what should you do with this found money? Below are five smart ways to spend your CTC money.


1. Pay off high-interest debt.

The average American owes $5,315 in credit card debt alone, according to research from Experian. Credit cards have notoriously high interest rates. The Federal Reserve reports that the average APR is a whopping 17.13%. This can make it very expensive to carry debt. It also makes it harder to break the debt cycle because the bulk of your monthly payment is going toward interest. The same can be said for other high-interest debts.


Your monthly CTC benefit could make a big dent in your outstanding balances. Let’s say you have two children and receive $600 per month. That’s $3,600 after six months.


2. Boost your emergency savings.

Over half of U.S. families have less than three months’ worth of expenses in their emergency fund, according to a recent Bankrate survey. That’s not much of a safety net if you encounter a financial hiccup like job loss or a surprise bill. Your emergency fund is designed to see you through such twists and turns so that you don’t accumulate new debt. Experts recommend building up cash reserves that are equal to three to six months’ worth of expenses. 


Now for some good news. SaverLife research found that parents have been 33% more likely to increase their savings, thanks to CTC payments. You might want to consider funneling your payments into a high-yield savings account to get the best return.

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3. Supercharge your retirement fund.

Experts at Fidelity Investments suggest saving three times your preretirement income by age 40. That can be an intimidating number for lots of working Americans, but the most important thing is to start where you are. You can then increase your retirement savings gradually over time. Treat your CTC payments as a jumping-off point. If you have a 401(k) through work, consider directing these funds right into that account. It could add up to even more if your employer will match any portion of your contributions.


Don’t have a 401(k)? A Roth IRA or traditional IRA are great alternatives. Both come with unique tax advantages to help set yourself up for financial success over the long term. 

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4. Put it toward your financial goals.

Everyone has financial goals that are important to them. This may include saving for a down payment on a home, taking a dream vacation, or building up your kids’ college fund. Your CTC payments can nudge you along in the right direction. Just be sure to separate this money from your regular monthly budget so you don’t inadvertently spend it. When your payments come in, swiftly transfer those funds into the appropriate savings account.


Those who are balancing debt repayment at the same time can split up their CTC funds so that they’re contributing to multiple goals simultaneously.

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 5. Invest in your future.


If your debt situation feels good and your savings account is looking healthy, you might want to use your CTC payments to improve your career path. Ask yourself what steps you can take now to increase your earning potential in the future. Maybe that involves working with a career coach or taking professional development courses that you’ve been putting off until you had more money in the bank. 


You might also think about attending networking events or conferences in your industry. It could be a great way to make important new connections as you move through your career. This is all to say that sometimes the best investment is the one you make in yourself.


In the end, you may decide to opt out of these advance CTC payments and receive a lump sum when you file your 2021 tax return. Either way, DailyPay makes it easy to save a portion of your earnings by providing on-demand access to your earned pay. This, in turn, can improve your financial health.

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