Using the Stimulus Package for Personal Debt

Posted by: Henry B. | Feb 21,2008

I’ve often felt that government stimulus packages were a kind of shot in the dark.  President Bush’s current stimulus package to offset problems in the mortgage and credit industries and help avert a recession will put, on average, $800 in people’s pockets.  If you’re married with two children, you can receive up to $1800.  Not a bad chunk of change.  

The basic thrust of the stimulus package is that it hopes that people put this money back into the economy.  At the same time, with all the doomsaying about a coming recession, many people are going to choose to save that money and lock it away.  Of course, depositing that money into a bank account does help the banking industry, but the idea is to put some money into the overall economy.  I would recommend that people use the money from the stimulus package to pay off existing debt.  No, that’s not exactly fun, but neither is being in debt.  

Consider it your civic duty – and I’m only half kidding when I say that.  Not only will you be helping out your personal debt situation, but you’ll also be injecting some money back into the credit industry that’s been suffering due to lost revenue from defaults.  I know it’s probably hard to feel sorry for billion dollar corporations, but by injecting capital into the credit industry you’ll be helping the overall economy, not just one particular industry.  

That’s the altruistic model.  The more selfish reason is to help get yourself out of debt.  My guess is that when you started out the year, you did not think you’d have an extra grand coming your way.  Because of that, you can put that money right towards your debt without a loss in income.  If you’d really like to use the stimulus money to buy that special toy (fill in the blank what gadget it may be) think of debt reduction as a way to afford a whole lot more once the debt is adequately reduced.

Interestingly, this survey bears me out.  Four in ten people say that they’d rather pay down debt than splurge on something unnecessary.  One of the benefits of economic unease is it forces people to take a closer look at their finances.  While spending close to the vest can have a negative economic affect on some sector’s profits, it’s the credit industry is the most hard hit so it’s good news that people are taking a healthy attitude towards debt repayment.  

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