Use tax rebate to pay down debt, boost savings

"Whether you spend the money on a vacation or simply pay off obligations, both strategies will ultimately have the effect of stimulating the economy. In the case of the vacation, you are putting the money directly into the economy; when you pay down debt or add to your savings account, you are putting money into the country's financial system, which becomes new capital that can be used to grow the economy."

Whew! At least I don't have to feel guilty about not buying a big-screen TV!

Jeff Salisbury, principal at Independent 401(k) Advisors, a fee-only advisory firm with offices in Cache and Davis counties, said his top recommendation for the stimulus money would be to use it to reduce high-interest debt, like that on a credit card.

"Once out of credit card debt, stay out forever!" Jeff recommends.

After that, he suggests starting or adding to cash reserves equivalent to six months of expenses; contributing to a retirement account; paying back a 401(k) loan, if you have one; using the money for a needed home repair; and contributing to a Health Savings Account.

Paul Winter, president of Five Seasons Financial Planning, said he also would advise people to use the stimulus money to either pay down existing debt or to invest.

"Which of these two options (repay debt or invest) is preferable will depend on the type of debts outstanding, and to some extent the risk tolerance, of the individual," Paul wrote in an e-mail. "However, high on the list of priorities should be to repay any credit card or installment debt with rates above 8 percent or so. High-rate student loans (certainly above 9-10 percent) should also be paid down.

"Beyond that, it's debatable whether the government checks should be invested or used for debt service, but either option is better than spending them on non-necessities."

So there you have it. It's probably OK to have a little fun with the stimulus money, but I hope most of us use it to eliminate debt or build up savings. A little self-control now will pay off later — for you, and for the economy as well!

If you have a financial question, send it to gkratz@desnews.com or to the Deseret News, P.O. Box 1257, Salt Lake City, UT 84110.

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E-mail: gkratz@desnews.com