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.
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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:
"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!
Get more tax smarts:
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