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Smart ways to spend your tax refund check

Pay off debt & Improve credit

Experts say the smart way to spend your tax refund check is by paying off credit card debt and building up a savings account to help improve your credit score. It's tempting to think about buying that bigscreen TV or even getting a swimming pool installed -- but a rush to spend your income tax refund can erode the value of the refund, said Carol Young, Kansas State University Research and Extension financial management specialist.

Think it through first

"Weighing needs versus wants can put the brakes on spending. The family may want a big screen TV, but may need more dependable transportation," said Young, who urged taxpayers anticipating a refund to ask themselves:

  • Do I have outstanding -- or past due -- bills?
  • Am I carrying a balance on my credit card?
  • Can I use the refund to clean up holiday bills? Should I set aside part of it to eliminate holiday bills this year?
  • Do I have a big expense -- such as property taxes, an insurance premium, loan payment or major car repair -- coming up?
  • Do I have adequate emergency funds set aside?
  • Have I contributed to my retirement account or IRA (Individual Retirement Account)?

"Adding $500 a year to an Individual Retirement Account can yield $68,100 in 30 years. Increasing your contribution by $25 each year could yield up to $113,800," Young said.

"People sometimes think of a tax refund as forced savings, yet, in reality, the taxpayer has provided a loan to the government without earning any interest," Young said. "If a refund is substantial, check with the human resources department at work to adjust withholding to better match your tax liability."

Don't have an emergency fund?

"Three- to six-months savings is a goal recommended for an emergency fund, but one that may not seem easily attainable," Young said. "To begin, try to put away $5 or $10 a week to build emergency savings." Still feel the urge to splurge?

After paying down debt and adding to savings for short- and long-term goals, set aside a small amount as a reward -- spend it on something you or your whole family will enjoy!

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