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Save or spend? The smartest ways to use your tax refund

Lori Wilson is a SheKnows.com Home & Living columnist, as well as a freelance writer in Los Angeles, who after a lifetime of enduring harsh Michigan winters, relishes the warmth year round.

Save or spend?

The deadline for filing your income taxes is just weeks away, which means most of you have probably already had them taken care of. For you procrastinators out there, you better get a move on! The estimated average return is around $2,500. With that in mind, what will you do with that extra cash?

There are many temptations to receiving that much money at once, but there are also many financially sound things you can do to make your situation a little better.

spend it

This may seem like bad advice, but just like with dieting, you don't want to completely deprive yourself. However, you don't have to spend it all either. As MSN Money recommends, spending ten percent of your windfall will help you be responsible with the rest of it. Take that $250, or whatever your ten percent equals and buy a new pair of shoes, splurge on a trip to the spa or take your significant other out for a fancy meal.

pay down your debt

Let's face it, most Americans have credit card debt looming over them. Wouldn't it be nice to get out from under at least one card? If it covers it, use your tax refund to pay off your lowest balance, or if it's not enough, use the money to lower your balance on the card with the highest interest rate.

SAFETY NET

Doesn't the thought of having $2,500 in the bank for emergencies give you some peace of mind? When you file, you have the option of using direct deposit, so you will never have to physically touch that check and be tempted by it. Don't put it in your checking account though, because you are sure to spend it that way. Instead, set up an account you will only touch in case of emergency.

invest in your future

With that extra money, you might be able to up your 401(k) contributions or top off the maximum you can put in your IRA for the year.

improve yourself

Is there a class you've been wanting to take in order to improve your employment skills, or a conference you'd like to attend that will further your career? Now is the time to do it. Take your refund and invest in yourself.

Give it away

If your extra two grand or so is just a bonus in your already financially stable world, then give it to someone who really needs it. Donate to a charity or to someone who could really use the extra dough and write it off on next year's taxes!

Get more tax smarts:

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