Americans Spent Their First Stimulus Checks on Everyday Needs, but Now They’re Paying Off Debt With the Latest Round

Last June, two months after the first economic impact payments started to arrive, many Americans were desperate for cash amid the coronavirus pandemic. According to an analysis of U.S. Census Bureau Household Pulse Survey data, 70% of respondents at the time said their stimulus checks were used or would be used mostly for expenses, including food and household supplies.

But for many Americans, priorities have changed in recent months. This March, 19% of respondents said they would put their newest stimulus check toward expenses — a drop of 51 percentage points since June. Instead, Americans have now turned to paying off debt, according to a new LendingTree analysis of the Census Bureau data.

“Paying down debt should absolutely, positively be a priority for folks who are struggling with debt,” says Matt Schulz, chief credit analyst at LendingTree. “People should continue to put stimulus money, if they can, toward paying down high-interest debt like credit cards.”

Key findings

• Americans switched their stimulus check priorities. Just before summer 2020 began — when the Census Bureau first started tracking stimulus check usages — 70% of Americans who had received or were to receive stimulus checks said they had used or would be using their checks mostly for expenses. By the time spring 2021 arrived — amid the third round of stimulus checks — half of respondents (50%) said their most recent payment would go toward paying down debt.
• Paying down debt is the most common use for stimulus checks in all but two states. Louisiana (60%), West Virginia (56%) and New Jersey (56%) have the highest rates of residents who said they used their most recent checks to pay down debt. It was the most common usage for stimulus checks in all but two places — District of Columbia and South Dakota — which instead prioritized saving.
• Some states saw more dramatic changes in how residents planned to use stimulus money. In Louisiana, 78% of respondents last June said they were going to use the stimulus mostly for everyday spending, but that percentage plummeted to 16% this March — a drop of 62 percentage points and highest among all states.
• Despite changing priorities, residents in some states still focus stimulus money on expenses more than others. Minnesota (24%), District of Columbia (23%) and Delaware (23%) had the highest rates of residents who said they used the latest round of stimulus for everyday expenses. Meanwhile, North Carolina, Kentucky and Virginia (all 13%) had the lowest rates.

Half of Americans receiving stimulus checks plan to use them to pay down debt

Debt was the main target for Americans receiving stimulus checks in this latest round. At the national level, 50% of people who received a stimulus check in March 2021 said they used or would use it on debt. In June 2020, when the first stimulus checks arrived, just 16% reported that they planned to use the stimulus to tackle debt. That equates to a 34 percentage point increase between last summer and this spring.

“That’s a huge difference, but it’s a good thing,” Schulz says. “Nine months ago, most Americans were terrified and had no idea what the future held, so they focused on basic expenses and building up savings. Fast-forward nine months, and things have changed a lot. Repeated stimulus and reduced spending means people have more cash in their pockets, and that — combined with the hope spurred by widespread vaccinations — has given them the luxury of paying down debts instead of solely squirreling away cash.”

Despite struggles, Schulz says many Americans will emerge from the pandemic in a financially strong position.

“Make no mistake: It is very, very unusual for people to pay down debts in a massive way in an economic downturn,” he says. “It just doesn’t happen, especially when unemployment is at record highs. The combination of government stimulus and reduced personal spending, among other things, made that possible during the past year, though. Yes, many, many Americans have been financially devastated and may never quite recover, but a surprising number of Americans will emerge from the pandemic in far better financial shape that most anyone would’ve predicted.”

For Americans spending stimulus checks on debt, utility bills and credit cards top the list

More than half (56%) of respondents using the latest round of stimulus checks to pay down debt said they’d put some of the money toward non-housing debt, such as credit cards and student loans. And 47% (respondents could select multiple options) said they’d spend at least some of it on bills, including electricity, cable and internet.

Because many federal student loan payments are suspended through Sept. 30, paying down credit card debt can be a smart move to save money, especially for cardholders with high APRs (interest owed plus fees). [Note: The federal student loan repayment suspension has been extended until Jan. 31, 2022.]

Of the 19% of respondents who said they spent or would spend their stimulus on expenses, 60% cited food — whether that be groceries or takeout — and 41% cited household or personal care products.

Income, race and education impact how Americans use stimulus checks

Higher-earning Americans were more than twice as likely to save their stimulus check money than lower-income Americans. Twenty-six percent of respondents with incomes less than $25,000 saved the money, while 58% paid down debt. Among Americans with incomes of $200,000 or more, 52% saved the money and 28% paid down debt.

When looking at race, our analysis of the Census Bureau data showed 61% of black respondents said debt was the main focus for their stimulus money, compared with:

• 59% of Latino respondents
• 45% of white respondents
• 44% of Asian respondents

Separately, those with a bachelor’s degree were less likely to use stimulus money on debt than those with only a high school diploma. For respondents with a bachelor’s degree, 23% said they spent their stimulus check, 37% said they saved it and 40% said they used it for debt. Those same figures for someone with only a high school diploma were 16%, 30% and 53%, respectively.

Louisiana sees biggest changes in spending, paying down debt

Between June 2020 and March 2021, each state saw a drop in its percentage of residents who said they mostly spent their stimulus money and a rise in its percentage of people who said they mostly saved their stimulus money or mostly paid down debt.

The main outlier was Louisiana, which saw a 62 percentage point decrease between June and March among residents who used their stimulus money mostly on everyday needs and a 49 percentage point increase among respondents who used it to tackle debt.

Mississippi and North Carolina were the only other states with 60 percentage point decreases among those who used the money mostly on everyday spending. Like in Louisiana, Mississippi and North Carolina residents switched from mostly spending the stimulus immediately to mostly paying down debt.

States where people are still mostly spending their stimulus checks

There are some states where residents are still reporting they are using the stimulus on everyday spending needs. Minnesota, District of Columbia and Delaware are the three places with the highest rates of respondents spending their stimulus checks this way.

High cost of living may explain why residents in those states use their stimulus checks to pay for expenses. The five states with the most residents who said they spent their stimulus checks on everyday needs have an average cost of living 2% above the national average.

For the five states with the lowest rates of residents mostly spending their stimulus money, the average cost of living is 8% less than the national average.

But the cost of living, alone, may not explain it. For example, Indiana has a cost of living that is 11% below the national average, yet the Hoosier State is ranked fourth when it comes to residents who mostly spent their latest round of stimulus money, at 22%. (The average across the 50 states and District of Columbia is 19%.)

Choosing a debt payoff strategy when you have extra cash

If looking for a debt payoff strategy with the stimulus money, the debt snowball and debt avalanche methods could be two options.

• With debt snowball, borrowers pay the minimum balance on their debts except for the one with the smallest balance. Borrowers make extra payments on the debt with the smallest balance until it is paid off. Then, they apply those extra payments to the next debt with the smallest minimum (and continue until debts are paid off).
• With debt avalanche, borrowers first need to list their debts from highest to lowest APR. Borrowers make extra payments on the debt with the highest APR until it is paid off. Then, they apply those extra payments to the next debt with the highest APR (and continue until debts are paid off).

Your work isn’t necessarily done once you finish paying down your debt. If you have no savings left, you are one emergency away from being back in debt. That’s why having an emergency fund is equally as important, according to Schulz.

“Too many times, people will focus entirely on paying down their debt, leaving them no money in savings,” he says. “The problem is that once that debt is paid off, you have no financial margin for error. With no cash in the bank, the next unexpected expense like a car repair or medical bill will go on your credit card, and suddenly you’re right back in debt.”

Methodology

LendingTree researchers analyzed U.S. Census Bureau Household Pulse Survey data to find the changes in how residents in each state and the District of Columbia planned to use their stimulus payments.

We compared data from week 7 of the survey — conducted June 11-16, 2020, the first that asked about stimulus checks — to data from week 27 of the survey — conducted March 17-29, 2021 — the latest available data.

Researchers calculated the percentage of people who planned to spend the stimulus immediately, save it or pay down debt in the two periods and compared them. We also looked at how people planned to use the latest round of stimulus checks and broke it down by different demographics.