3 Smart Ways to Use Your Tax Refund

By Deborah Nayrocker

Dear Deborah: My husband and I will get our tax refund soon. We decided that this year we aren’t going to spend it all on a vacation. We’re looking forward to having a little extra cash and we’d like to consider our options for smart ways to use our refund. – A Reader

Answer: When deciding how to use your refund, consider what would benefit you and your family most now. Have you been putting off an important financial move? Here are some options:

Pay down high-interest debt. Whenever possible, eliminate outstanding credit-card debt. A big factor in your total credit score is the amount you owe vs. your credit limit amount. Get to the point where you are able to pay off your balance each month.

Money managers say paying down on your credit-card balance that has a higher interest rate is like getting the same return on your money.

Add to your emergency fund. A general recommendation is that you keep at least three months’ worth of living expenses in liquid savings or a money-market account.

Also, considering that certain jobs may be in jeopardy, it’s beneficial to have adequate funds set aside to cover the temporary loss of income.

Within the last few years we have seen more families take from their retirement accounts before they reached their intended retirement age. Already ill-prepared for retirement, families are placing themselves in a worse long-term situation.

Deposit your tax refund in a retirement account. First, check to see what your maximum contribution amount is for this year. Eligibility to contribute depends on your age, whether you are single or married, and your income.

Consider having your tax refund deposited directly into a Roth IRA account, as recommended by Kiplinger’s Personal Finance. This will create future tax-free income.


Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.

Copyright by Deborah J. Nayrocker. All rights reserved.



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