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The Smartest Thing You Can Do With Your Tax Refund

Many taxpayers prefer to have too much tax withheld during the year, so they get that little extra boost at the beginning of the next year.

The son of one of my co-workers calls it the “Big Money”. So, how are you going to spend your tax refund this year? Are you going to use it to pay down your debt? Maybe you’re planning to put the whole amount into savings. Alternatively,maybe you are planning a vacation or some other large purchase with your refund this year.

It’s something worth considering so that you don’t end up wondering where they money went next month when you have nothing to show for it.

Debt Pay Off

Many people use their tax refund to pay off, or at least pay down their debts. Personally, I think this can be a very good choice depending on where you are financial. If you’re carrying a lot of unsecured credit card debt, you should seriously consider this option.

If you are so far in debt that you have accounts that have been charged off, then you want to use your tax refund to help eliminate those debts once and for all.

  • This is the perfect opportunity for you to contact the collection agency and see if you can negotiate a debt settlement.
  • Once your debt has been charged off, it is usually purchased by a collection agency for pennies on the dollar.
  • What this means for you is, they are usually willing to cut a deal. As long as they get their money back and a small profit margin, they’ll be happy.
  • You can sometimes negotiate a settlement at 75% off the total balance due. If you really want to make some quick headway on getting out of debt, this is the way – and the time – to do it.

Savings

If you do not have any debt, or very little, then the next thing to look at is how much money you have saved. You should always have a little cushion of “rainy day” money set aside for emergencies. If you have less than 3 months of expenses saved up, then this is where I would recommend you put your tax refund.

It may not be the glamorous or fun choice, but it will insulate you from life’s problems and be far more rewarding than a major purchase. An emergency savings fund is insurance against Murphy’s Law.

If your emergency fund is set, take a look at your retirement fund. Are you regularly putting away money for your retirement?

Vacation or Large Purchase

If you have no debt to speak of, and you have a fully-funded emergency savings account, then you may decide it is time to treat yourself for a job well done. Congratulations! You are in the very top percentage of Americans. Very few people can say they are debt free and have 3 months of expenses saved up.

So, how do you stack up against the average American? 43% of us plan to save our refund, 41.9% play to use it to pay down debt, 13.2% plan to spend it on a big-ticket item.

To conclude:

Life was meant to be enjoyed. For more resources on getting out of debt and living debt free, visit www.taxreturn247.com.au.