Talk to a debt counselor toll free:800-300-9550
Our Clients Rate Us Excellent
Based on 3234 reviewsTrustPilot Reviews
Now that we have April 15 a few weeks behind us is a good time to think about the coming tax year and whether you want a bigger paycheck or a big refund. While the answer to this question may seem easy it's actually more critical than you could guess. While the majority of us elect to get a nice check from the government in April the fact is that a huge tax refund might not really be so terrific. In fact, some experts say it's better to give up that big refund in return for getting additional money in each paycheck as this would give you more control in maximizing your income. Of course, there are other financial gurus who say that this is an idealistic approach to saving. The harsh reality is that some of us, including you, may not be trusted to put the extra money in a savings or investment account instead of spending it.
There’s no doubt about the fact that the logical thing to do is give up that large tax refund and get control of your money. But then you may not always be logical. Given that there are few options today to maximize your savings, plus the fact that you may not be saving hardly anything at all, then a nice large check from the IRS might be your only chance to build a nest egg. And no, the government isn’t going to pay you anything on that “loan” but it’s also not going to pay you anything on your savings. Until interest rates change don’t feel bad about getting a big refund this year. Just make sure you save some of it.
The case for using your refund to pay off credit card debt
One of the best ways to use that big refund check is to pay down or pay off your credit card debts, especially if you’re carrying a large balance. Most credit card interest rates these days are at 15% or higher. For the sake of an example let's suppose you owed $5000 at 15% and your minimum monthly payment was $112.50. If this were the case, it would take you 266 months to pay off the $5000 and would cost you $5729 in interest – or more than the actual balance. Use your tax refund to pay off this debt and you would not only save $112.50 a month, you would save $5729 in interest – which is a lot more than you could ever earn by saving or investing the money.
If credit card debt is a big problem for you and you can't pay if off with a tax refund there are some other good ways to take control of it. Here's a short video, courtesy of National Debt Relief, that explains three of them.