About 35 million U.S. families received the first advance payment of the 2021 child tax credit last month, which was worth up to $300 per child.
So how did most families use the money? About 40% used it to pay down debt, according to the U.S. Census Bureau. Nearly a third of households reported they put the money into savings, and 27% reported mostly spending it.
The high number of parents paying down debt comes as total U.S. household debt climbed to $15 trillion during the second quarter of 2021. That represented a $313 billion increase from the previous quarter—the biggest jump seen in about 14 years, according to the New York Federal Reserve. Much of the increase is due to mortgage balances, although there was a $17 billion rise in credit card balances.
That’s similar to the spending and savings trends seen among Americans who received stimulus payments. Among those who received the third stimulus payment earlier this year, half used the money to pay down debt, while nearly a third saved the money, and 19% spent it, according to an analysis from the Tax Foundation.
Of those who mostly spent their first child tax credit, the most common expenses were food, utilities, and clothing.
The advance payments of the child tax credit will continue to be distributed monthly through the end of the year, with the next payment set to launch on Friday, Aug. 13, 2021.
The enhanced credit is set to pay families up to $3,000 per child for those between the ages of 6 and 17 years old and up to $3,600 per child under the age of 6. The amount of the credit is based on a family’s modified adjusted gross income, with payments starting to phase out for single parents (filing as head of household) earning $112,500 a year or $150,000 among those who are married and filing jointly.
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