Almost half of Americans used the $1,400 stimulus checks to pay off debt

• A new paper looks at how Americans used their third stimulus checks.
• A large share, 45%, of Americans surveyed used the $1,400 to mostly pay off debt.
• Claudia Sahm said the checks were used to help families financially but also helped "stimulate the economy."

The third round of stimulus checks helped families with expenses and bills, but in particular helped them pay off debt.

That's according to a new briefing by Claudia Sahm, senior fellow at the Jain Family Institute and a former Fed economist. Sahm told Insider that paying down debt gives Americans more financial security and helps cut ongoing interest payments down the road. The checks not only helped Americans with outstanding bills but boosted the overall economy.

"My research brief argues - contrary to several prominent critics - that the stimulus checks, including the most recent $1,400 payments under the American Rescue Plan (the "Rescue Plan"), provided much-needed relief to millions of families and helped bolster the economy at a critical juncture in the recovery," Sahm wrote.

Sahm told Insider that these checks gave some families a financial cushion that they didn't have before, helping them pay for expenses or whatever else they needed the money for.

"Even in the best of times you have a lot of families in the US that are really cutting it close," Sahm said.

To find out how people used the third round of checks, over 1,000 respondents were asked in a survey by the Surveys of Consumers at the University of Michigan, whether they would use the money to mostly increase spending or savings or mostly to pay off debt.

Based on the results, 45% of families used the $1,400 stimulus check to mostly pay off debt followed by a smaller share, 31%, that said mostly to increase savings. So, the majority of Americans chose to use this extra money to help them financially instead of increase their spending.

Families largely negatively impacted by the pandemic also used it to pay debt. Among those noted as having a "thin financial buffer," 59% said they used the checks to mostly pay down debt.

While more financially vulnerable Americans mostly used the last round of stimulus to pay bills and put money away for future use, high-income Americans who received these checks were more likely to spend them, helping bolster demand for goods and services amid an economic crisis.

"It's clear from the survey that these stimulus checks provided both relief to families, and they helped stimulate the economy," Sahm said, noting in her briefing that these stimulus checks increased consumer spending. Without them, spending would have increased by just 1.4% from February to March instead of the actual 5.0% bump.

Despite most Americans saving their checks instead of immediately increasing spending, they didn't plan to hold on to this extra cash for long. In particular, over half who lost income during the pandemic and said they would mostly spend this money within one to three months.

Sahm said the current moment presents policymakers with "an opportunity to put some resources into building systems, strengthening the safety net in ways that would take some of the very good policies that happened during the crisis, including the stimulus checks, including the extra unemployment benefits, and making them better for next time," there's a recession.