Getting your tax refund check might be the biggest payday you get all year. When the money arrives, most people feel inclined to use it for a major purchase or take a luxury trip.
But keep in mind: this money was yours all along. Getting a refund means you overpaid in taxes and are claiming what’s rightfully yours, not being gifted by the government with extra spending money.
When you get your refund check, consider it an opportunity to take control of your finances. Here are five smart ways to use your hard-earned tax refund like a responsible adult:
#1 – Buy Your Financial Freedom
High-interest debt hanging over your head (namely credit card debt) can be a vicious cycle. That interest compounds against you each month, making it harder to dig yourself out of the red.
Paying off debt is the single best investment you can make with your tax refund money. Even if your check doesn’t cover your entire debt, it can help you get closer to the black. Pay off as much as you can, then try to roll over your balance to a credit card with a lower interest rate.
#2 – Build Peace of Mind
If you have money left over after paying off your debt, consider stashing it away for an emergency fund. CNBC recently revealed that 55 million Americans have nothing saved for emergencies, while just 26% of Americans have about six months’ worth of expenses in savings.
It’s a scary thought. Just one emergency could cripple your finances if you have nothing stored away. Do yourself a favor now and start building an emergency fund, even if it’s just a little every year at tax time.
#3 – Put a Down Payment on a House
Not all big purchases are big wastes of tax refund money. For example, you could use your lump sum to put a down payment on a house. There are many programs now available that help with down payment assistance as well. Some are up to $7,500 if your credit score is high enough to qualify. To receive mortgage down payment assistance score of 640 will be required at minimum. Not sure where you stand?
You can check your credit for free in this 7-day free trial to see how is your credit score looking like. Another service is IdentityQ, which costs just $1 to access and review your credit information in the first 7 days. Both of these sources are great for future home buyers since they let you access all 3 credit bureaus. When shopping for home lenders go off middle score out of the 3 bureaus.
Those are great resources to track your credit prior making any type of purchase or loan application. We strongly recommend reviewing your credit on monthly basis since there are errors in 70% of the reports.
#4 – Restore Your Credit
If you’re struggling to improve your credit, plan to spend some of your refund on getting back on track. You need good credit to get a car, house, or other loans at a reasonable interest rate. In addition, many employers run credit checks before hiring employees. Poor credit may be keeping you from getting the job you want.
Most tax refund checks range in in the thousands, while credit restoration only costs a few hundred dollars. Use a small portion of your refund now and enjoy the benefits for years to come.
Contact us for a free consultation and credit analysis by clicking this link.
#5 – Plan Ahead for Next Year
Getting a tax refund might make you smile, but keep in mind it was your money to begin with. It’s like giving the government an interest-free loan, when you could have used that extra money all year long to reduce your debt or invest in savings.
Take a look at your taxes and see how you can adjust your with holdings for next year. If you can have less taken out of your check, your refund will be lower, but you will have that money on hand to avoid credit card debt or missing out on savings opportunities.
Prime Credit Advisors is here to help you take control of your credit and finances.
Schedule a free consultation and take back your financial freedom this year.