With nearly two thirds of Americans expected to receive a tax refund this year according to the IRS, many analysts expected to see an uptick in the economy during the first part of 2012. According to a recent survey, however, nearly three quarters of American families who are expecting a tax refund are planning to use it to either shore up their savings or pay off debt. This is a rise of about eight percent over 2011.
The average tax refund can range between two and four thousand dollars. For many families, getting a tax refund is the only time during the year that they will receive a substantial amount of money outside of their paycheck. Because of this, many people use their tax refund check to make major purchases, such as appliances or electronics.
In the past several years, however, more and more people are choosing to use their tax refund check to invest. By placing the money in savings or paying off debt, many families have realized that they can almost instantly create an emergency fund, start their retirement savings, or eliminate some of their bills.
For families who get several hundred or even several thousand dollars in their tax refund, this check can represent the possibility for instant debt relief. As opposed to buying something with a tax refund check, consider putting the money towards high interest debt you already have. With the average credit card debt for a typical family currently around $6,000 a month, applying all or even part of a tax refund check towards paying off credit cards can make a significant dent in the total bill. Some people are even able to pay off their debt entirely.
Any family who has credit card interest rates that are higher than what they’re earning in their savings account should probably use their tax refund checks to pay off their debt before they place it in a savings account. By paying off the debt instead of saving, a family or individual is able to eliminate a monthly bill and save on the interest they would have otherwise paid.
Many financial advisors recommend using a sudden lump sum of cash to pay off debts, then saving the money that would have been spent on making the debt payments. If the refund check doesn’t completely cover the total amount of the debt, then it is recommended that the check be applied on the debt or debts with the highest interest rate first. The payments that are saved from any debts that are paid off should be applied to debts that have not been paid off.
Using your refund check to pay off debt is a good way to eliminate bills and reduce the amount of interest that you will have to pay.
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