The child tax credit can help pay bills, but don't keep spending once that money's gone

If you thought the last few months were exactly what our economy needed to move into a robust recovery, you haven't seen anything yet.

Coming later this month to mailboxes all across the United States, advanced child tax credit checks will offer delight, and for some Americans who get caught in the trap, a really tough 2022.

The child tax credit is not a new concept. Prior to 2021 when preparing your tax return for the previous year, you were able to claim the child tax credit if you qualified, and potentially receive a larger tax refund. However, as you've likely heard, the way the credit works has changed in 2021.

Now, you will be advanced the credit in the form of monthly checks sent by the Internal Revenue Service. A qualifying family will receive $1,800 in cash in 2021 for a child who is 5 years old or younger and $1,500 in cash in 2021 for a child who is between 6 and 18 years old. And then the family, if eligible, will receive a traditional tax credit for either another $1,800 or $1,500 respectively, per child.

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I'm not here to argue today whether this is a good idea or a bad idea. Instead, I'm here to make a disturbing prediction. The advance child tax credit of 2021, while likely quite helpful for millions of families, will create new financial dependencies for millions of other families, thus creating larger amounts of consumer debt in the coming years.

A six-month influx of money is virtually guaranteed to increase consumer spending habits, creating dependencies and obligations which can't be easily shed. Your goal should be to use the following six months to move you forward toward stability without adopting the burden of obligation.

If you will receive advance child tax credits in the form of monthly checks this year, there are (a) few ways you can ensure your temporary fortune doesn't become a permanent misfortune in 2022 and beyond.

First, if you've accumulated any debt, or depleted your savings in the last 15 months or so, use the six months of increased cash flow to make yourself whole again.

Paying off debt and refilling savings are the most obvious examples of creating stability. Come December when the payments stop, all you have to do is turn off the savings or debt elimination mechanism, and you are officially better off than you were six months prior.

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Theoretically, the reason a child tax credit exists is because raising and caring for a child is an expensive venture. By no means are you required to turn around and use the tax credit directly for your children, but it's not a terrible idea in 2021 since the tax credit is an advance.

If you're able, consider injecting the next six months of increased cash flow directly into your child's future. For some families, this could mean making deposits in college funding vehicles, and for other families, this concept can take on an even more interesting approach. Why not fund something like orthodontia or some other large, random expense which generally feels tough to fund?

The alternative to these specific ideas is to do nothing. This is what most people will choose to do. That's the problem. That's the fear.

After studying people's financial habits for more than two decades, I can tell you it only takes a couple of months of increased discretionary income to form a powerful, and often bad, new habit.

When this happens, and then the payments stop just six months later, the spending doesn't immediately stop. In fact, it can take months to not only identify the problem but to then rectify it. And laying in its wake a person will find consumer debt.

The advance child tax credit will absolutely stoke the economy. For those who can afford to leverage this tax credit to their advantage, and then do so, the impact of this tax credit will be magnified for years to come. If you don't need (the) advance tax credit to make ends meet over the next six months, make a choice to stabilize your finances and avoid the dangers which come when new spending habits meet the end of increased cash flow.

Peter Dunn is an author, speaker and radio host and he has a free podcast: "Million Dollar Plan." Have a question for Pete the Planner? Email him at AskPete@petetheplanner.com. The views and opinions expressed in this column are the author's and do not necessarily reflect those of USA TODAY.

This article originally appeared on USA TODAY: Child tax credit: Use it but try not to get into habit of overspending