Checks for families

Payments that could change your financial life

Starting in July, most families with kids will start getting monthly payments of up to $300 per child as part of the American Rescue Plan’s expansion of the child tax credit.

The payments are scheduled to end in December, and it’s unclear whether they will be extended. But even six months of payments could make a big difference in many families’ finances.

A few suggestions on how to use it wisely:

1 Build savings Anyone who doesn’t have an emergency fund should consider starting one, says Jennifer Tescher, founder and CEO of the Financial Health Network, a nonprofit that promotes financial stability for lower- and middle-income people.

A savings account with just a few hundred dollars is often enough to break the paycheck-to-paycheck cycle. Drawing from an emergency account, then replenishing it can smooth out gaps in income and bills, or help with other financial shocks.

2 Address debt Once you have a starter emergency fund, you may want to pay down payday loans, credit cards and other expensive debt, said Robert Westley, a member of the American Institute of CPAs’ Financial Literacy Commission. The less interest you have to pay on debt, the more money you have for other uses.

3 Other savings People also could start or increase their retirement savings, either by contributing to an individual retirement account or boosting their contributions to a workplace plan such as a 401(k). While the tax credit money can’t be directly placed into a workplace plan, you could use it to replace the contributions that come out of your paycheck.

You may want to save money for a down payment, since homeownership is a common way to build wealth. You also could help your children’s future financial health by saving for their education. Contributing to a 529 college savings plan can provide tax-free money for schooling, and many states offer a tax break or other incentives.

4 Health insurance If you don’t already have health insurance, the monthly payments could help you pay the premiums for policies purchased on the Affordable Care Act exchanges at HealthCare.gov. The American Rescue Plan passed in March also increased subsidies, and other improvements have reduced the cost of most policies. Health insurance can help you avoid potentially bankrupting medical bills if someone in your family gets sick or injured.