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10 Brilliant Ways to Think About Using Your Tax Refund If You Have Debt

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Barbara DelinskyGuest Blogger
January 17, 2017 · 1.6k Views

Sometimes it gets difficult to decide how to use the tax refund money. The decision gets even more challenging when one is trying hard to deal with one’s debt and other important financial obligations. What do you think?

Well, whether you want to spend it or save it depends on your current financial situation. If you’re still thinking how to use your tax refund money, you’re on the right place. Here, you will get ample ideas to choose from, regarding how to use your tax refund wisely when you’re in debt.

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brilliant ways to use your tax refund

pay off any high interest debt

The first thing that you should do with your tax refund money is to pay off your high interest debt. Why will you waste your precious dollars by paying unnecessarily on the interest rates? Go through your financial papers and find out the highest interest debt that you have. Consider repaying that debt with this extra money.


pay off student loan debt

Student loan debt is the most debated issue of the year. If you have a student loan debt, use your tax refund to repay it as soon as you can. First, pay off private student loan debt because it has high interest rates. It’ll add more to your principal loan amount and you might find it difficult to repay the increased debt amount later.

Even if you don’t have private student loan, repay your federal student loan. If you can continue paying it for a certain period, then the remaining student loan debt amount will be forgiven.


pay off credit card debt

Credit card debt is common to almost every individual in the country. Are you struggling to pay off your credit card debt? If so, then use your tax refund money to repay it. By this way, you can save money on the interest rates and become debt free soon. Once you’ve paid off your credit card debt, you can use the money, that you were paying on the interests,  toward something fruitful.  


repay or prepay mortgage

Do you want to get the full ownership of your dream home? Yes? Then, use your finances smartly. If you have received a large tax refund, utilize the money to pay off your home loan as soon as possible. Or, you can pay extra on your monthly mortgage payment with this money. This way, you’ll have the opportunity to save more dollars on interest rates.


pay off car loan

It’s good if you have just received your new car. You can use your tax refund money to satisfy a portion of your car loan; that is, make principal-only car payment if your lender allows you to do so. The reason being that a less principal amount means you have to pay less toward your overall debt. It'll help you save money on interest rates.

feed your emergency savings account

What's better if you can put a bit more dollar toward your emergency savings account. If you don’t have excessive debt burden on your shoulders, you can use the tax refund money to fatten up your emergency savings fund. It’ll help you cope with unexpected emergencies.


fatten up your retirement savings fund

While you are saving for retirement, remember, the more you save, the better will be your retired days. If you have saved money to meet your basic needs for the coming few months, consider putting the tax refund dollars toward your retirement savings account. Never push yourself too hard to make the retirement saving if you have less than 3 months of living expenses.


do smart investments

Who doesn’t want to grow his/her money? I’m sure everyone wants that. If you’re debt free and don’t have any debt obligations, consider investing your tax refund money to get greater returns. If not the whole amount, use a small portion of that money (which won’t hurt your finances if you lose it) to invest in stocks and bonds.


get an insurance coverage

A life insurance policy is your security for future uncertainties. If you don’t need the tax refund money to pay off your debts, use it to get a life insurance. If you haven’t invested in any insurance policy, consider investing the dollars in a life insurance or health insurance policy.


make a tax-deductible donation

If your financial condition is not stable, this idea is a big “NO” for you. But, if you have the confidence to handle your financial situation well without the tax refund money, consider making a tax-deductible donation. Don’t forget to get the receipt from the charity so that you have the evidence of the donation.

This idea has a couple of advantages like - (a) you can write off the donation on your tax return the next year and (b) you are helping someone who is in more need of the money.


The above ideas are all suggestions. There is no hard and fast rule that you have to use it. Whichever idea you choose to use your tax refund money, try to analyze your financial situation first. Be responsible toward your debt and don’t make impulsive decisions that can hurt your financial life further.  

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barbaradelinsky profile picture
Barbara Belinsky has written for many blogs. She has expertise in writing personal finance articles and is an active participator on social media. While she is not writing, she spends most of her time exploring new places, people & their culture. Get in touch with her on twitter @DelinskyBarbara or you can mail her at bdelinsky00@gmail.com
stayhungryJan 17, 2017
good article

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