I'd be in a similar situation as you OP if I suddenly got £26k, I work in care, full time and get a small amount of WTC, and CTC as I'm a single parent.
I need the CTC as the ex has successfully swerved his responsibility for years and without it we'd be screwed.
Fwiw if he had been pinned down and made to pay then the 'tax payer' wouldn't have to be my child's other parent financially. I tried and chased but hit brick walls constantly. To reduce the burden on the state, that's one of many things that need addressing, and a question no one seems to have an answer to is why this doesn't happen?
Secondly, in the past I've worked 0 hours minimum wage jobs, that left nothing to play with financially to try and get myself ahead. I'm lucky, I have managed to secure jobs in the last few years that were still low paid, but the hours at least were consistent, but even on 40+ hours a week, it wasn't enough to go round everything and I still got tax credits. Then that left no time to try and dig myself out of this situation, even poor people need sleep and relaxation at some point.
Were I to receive that sort of money tomorrow, I'd pay off my debts and start on a clean slate, which would improve my credit rating (mines shit too) though it would take time, and then drop my hours to enable me to train/go to college/uni and gain a qualification to enable me to earn more for the same hours I'm doing now. I did think savings applied to TC too, but read here it doesn't, but either way that's what I'd do, I'd also pay privately to get the physical problems that could potentially hold me back further down the line (not yet but will only deteriorate) sorted. And yes I'd treat myself.
£26k isn't an amount that could buy you a house and invest in it too so it was in great condition starting with, and I'd feel I was setting myself up for failure if I tried to buy because once the money is gone, I'm back to being skint, so I'd be worried I'd not be able to meet repair bills etc in the future.
If you plan carefully and you take some proper, impartial advice, this money could be life changing for you in a good way.
I do see your point of wanting it to do that, but feeling like it's going to take the place of benefits for a few years and will have been a wasted opportunity because of the situation you're in. It's enough to lift you out of temporarily, but it is not enough, on its own, to do that permanently. So yes I understand that you don't know what to do with it, because you want the best possible option that will improve your situation - and reliance on benefits - permanently. To use it to simply top up your earnings in place of benefits will achieve nothing, it will save the state £10-15k, and then then you'll need to claim again, when it does have the potential to lift you out of this situation forever - saving the state a lot more in the long run.
Good luck with whatever you decide to do with it, but I honestly don't think that you should be able to sit on that money, and claim benefits at the same time. Get some good advice from someone or somewhere impartial and use it to secure the future you want.
And as for those saying that benefits are a safety net and only there for short term help to those who fall on hard times, get real.
There are thousands of people claiming in work benefits, because minimum wage is not enough to live on, to pay all your essential things, and one minimum wage certainly isn't enough to live on when you're single handedly bringing up a family.
The 'tax payers' are paying to allow non resident parents to not meet their obligations and for companies to keep people on zero hours contracts, and pay wages too low to live on in a lot of cases.
And yes, someone in that situation may have the potential to get a better paying job, and let's just say tomorrow, everyone does. Who is going to do all the low paid work that society relies on? The care work? The shop work? The childcare? Who's going to work in hospitality?
These jobs are low paid as they are low status, but with the exception of hospitality, they are essential to a functional society, the people in those jobs need to live, they need to pay bills and if they don't pay enough to do that, then the shortfall needs to come from somewhere. Because otherwise you have people on the street with no way of earning anything at all.
So either things stay the way they are with the state plugging the gaps, or wages and service prices increase so benefits aren't needed so much to live on and therefore less of a burden on the state.
Either way everyone pays for it, either through increased prices or through taxation.