Paying back a government loan
Consumers looking for fast cash should use their tax refund wisely. When consumers get a tax refund they are receiving a government repayment made up of the principal of a year-long loan. Interest isn’t part of payment and many people pay too much over the year. The way to manage this is to adjust withholding at times when a situation changes, i.e. a home purchase, sale, marriage, etc. Taxpayers that get a good tax return should be shrewd with the extra money and put it too good use.
Paying off debts with a tax refund
By far the most important thing to do with a tax refund is to pay down debt. Since the recession led many to debt, more people than ever before were saddled with high interest rates. The accumulating debt needs to be paid down if anyone is to get out from under financial stress. Using a tax refund to pay debts is a great idea. That doesn’t mean only credit card debt, but also mortgage, car loans or student loans. For example, paying one double mortgage payment a year can shave the loan’s lifespan by two years.
Building an emergency fund
Tax refund money can also be used to build up an emergency fund. One thing consumers learned throughout the recession was that cash reserves are the only sure-fire thing to count on. Credit lenders closed their doors when the economic downturn was the most difficult. People that had one emergency credit card squirreled away were surprised with lenders closed the cards or slashed their limits.
The lesson to be learned was that liquid assets are crucial for every consumer to have. Tax returns can be used a good way to start a nest egg of sorts. This can guard against emergencies and disasters that need immediate cash. It is suggested that people should have three to six months of expenses in savings as emergency money at all times.
Putting a tax refund towards a retirement savings
Fast cash from a tax refund can also be channeled towards retirement savings. Saving for retirement needs to be a priority for everyone. As Social Security winds down to oblivion, more people are going to have to take their retirement plan in their own hands. Experts warn other priorities ought not to take primacy. Mark Zandi of Economy.com said, “Too many young parents prioritize their children’s education fund before their own retirement. The bottom line is – education can be funded through loans, grants, scholarships and part-time work. Retirement can’t.”
Start an education fund
On the other hand, if a consumer has their own retirement fund on track, using a tax refund for education may be a wise idea. It is never too early to start saving for college and the cost is expected to rise. There are plenty of savings plans, like ESA plans and 529 plans. Though there is the sacrifice of putting cash into the account now, it will save money in the long fun and a good education will be critical in years to come.
Tax refund funding
Gone are the days when consumers viewed a tax refund as fast cash to spend frivolously. In today’s market, it’s crucial to manage money wisely. It’s especially crucial to manage money that comes to consumers in hefty amounts. As Zandi added, “Substantial amounts of money don’t come to consumers that often, so a tax refund is something everyone should be ready to take advantage of, and use in the most beneficial way possible.”
