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The 4 Most Financially Responsible Ways to Spend Your Tax Refund

Posted by on Mar. 11, 2016 at 11:04 AM
  • 9 Replies
2 moms liked this

The 4 Most Financially Responsible Ways to Spend Your Tax Refund

Tax refund season was set up to be a Christmas for adults (don't fact-check that), which is great because all we really want as a gift is a lump of money anyway. But as great of a gift as it is, that money really needs to go to a good cause -- especially if you're on a financial mission to improve your credit or reduce your debt.

Thankfully, millennial mom and chief consumer advocate at Credit Karma, Bethy Hardeman, could tell we'd be struggling with saving, and so she jumped in with her tips for getting the most long-term help from your tax refund.

  1. Pay down your debt. "Start by taking a look at your current interest rates on your credit cards and loans so you can focus on the highest rates," Hardeman says. "Most consumers will want to focus on credit card debt because the interest rates are often the highest."

    Hardeman says the average credit card APR is 14 percent, but store credit card APRs can be as high as 28.99 percent, so it's almost always good to tackle debts on those cards early.

  2. Keep the windfall going. Hardeman says that if you use your extra cash to make another payment toward your student loans, mortgage, or car loan now, you could save thousands in the long run. 

    "Putting your refund towards paying down these large loans will reduce your interest payments over time," she says.

  3. Boost your credit score. Keeping credit card debt low is one of the best ways to improve your credit score, Hardeman says. That means putting your tax refund toward any outstanding credit card debt is basically like buying a better credit score.

    "Your credit utilization -- the amount of debt on your credit cards divided by the total of all your credit limits -- is one of the most influential credit score factors," she explains. "Try to keep your credit utilization below 30 percent, although less is better if you can afford it."

  4. Start an emergency fund. If you have any of your refund left over after paying off your debt, Hardeman recommends using that money to start an emergency fund. 

    "If something unexpected comes up, you won't need to put it on your credit card, which will reduce your chances of carrying a balance that you'll have to pay interest on," she says. 

It's so easy to shop or spend tax refunds on fun trips or experiences, and it's probably okay to use a piece of it toward that kind of thing. But you'll be happier in the long run if you're debt-free and flushed with good credit, so tuck your refund away this year and sleep better.

by on Mar. 11, 2016 at 11:04 AM
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Replies (1-9):
michiganmom116
by Rhonda on Mar. 11, 2016 at 12:31 PM

If we received one I would establish the emergency savings then pay down debt.

Alieda
by Silver Member on Mar. 11, 2016 at 5:35 PM
We will use part of it to pay down debt and hopefully part of it to send Jeff to Real Estate School to become a agent.
virginiamama71
by Bronze Member on Mar. 11, 2016 at 6:27 PM

 I save it.

caustinb
by Member on Mar. 12, 2016 at 8:08 AM
Ours was very small :( I put it towards this semesters tuition.
userelayne
by Member on Mar. 12, 2016 at 9:46 AM

I am going to Pay off at least one bill.  Start a small emergency fund.  Do one more project in my home and  will put some in a CD.  I am getting about $2000 back.  

My plan is $500 for home project

$500 for CD

$200 for Emergency Fund

$600 for Debt

$200 for a shopping spree 

MissyB1011
by Silver Member on Mar. 12, 2016 at 5:38 PM
We are going to pay off a little bit of credit card debt. We have some remodeling that needs to be done. We will do the work ourselves, but still need the materials. The rest goes into savings.
lillybug222
by Bronze Member on Mar. 12, 2016 at 8:23 PM
Ours went to savings. We close on our house Monday! Woo! Our renovation loan is for $34,000. Hopefully that's enough. If not, we'll have to supplement out of pocket. Plus, we hope to buy a few new pieces of furniture. And, I'm starting a LuLaRoe business!
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MonarchMom22
by Member on Mar. 15, 2016 at 11:12 AM
1 mom liked this

We don't get a refund. But financial common sense makes paying off cc debt the number one goal. If people did the math on the interest they pay, they would realize that the $30 sweater they bought really costs $48, or $60 after all the payments.  Or more, depending on the rate and if they only pay the minimum.  It is a huge waste of money and drain on your budget. 

If I had CC debt, I would pay that before savings, remodeling or purchases of any kind.  Get yourself free of debt, and then it will be much easier to reach the goal of emergency funds, retirement plans, tuition, etc.


janey548
by on Mar. 15, 2016 at 11:58 AM
1 mom liked this
We put ours into an interest earning savings account that auto withdraws our car payments for the next year. We don't have enough to completely pay them off, plus we figured the payments will establish good credit. We also extended the service warranty on our washer and dryer for a year and there is enough in there to cover our quarterly HOA dues. Feels so boring and responsible lol
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