Ways To Wisely Use This Years Tax Refund
Since we are in the midst of tax season, many people are probably making plans on what they are going to do with the money that they will be receiving back from the government.
Some people are probably planning on going on a trip, a shopping spree, or buying a new car while others are planning on paying it down on some debt or invest in a safe market. However, studies have shown that most consumers, even when given the opportunity to pay off personal debt, do not.
So, here are a few options for using your tax refund:
PAY OFF SOME HIGH-INTEREST DEBT
Whether it’s department store credit cards, a car loan, or even a student loan, try to pay off some debt with this year’s tax return. If you are still trying to pay down some holiday debt, knock those balances out immediately. Department store cards’ interest rates are on average 10% higher than commercial credit cards. It would be in your best interest (pun intended) to leave the plastic at home and use cash instead.
PUT MONEY ON THE BACK HALF OF YOUR MORTGAGE
With one extra payment per year, you can reduce the life of your fixed-rate 30- year mortgage by up to seven years. Not only will you be making one extra payment a year, but you may also get an extra month’s worth of mortgage interest deductions that will benefit you during the following year’s tax season.
If you do not own a home, take this opportunity to start saving for one.
ESTABLISH AN EMERGENCY FUND
Every family should have an emergency fund with at least 6-9 months’ worth of living expenses for a two-income household and a 12-month safety net if your family is being supported by one income.
If the breadwinner in the family loses his or her job, this cushion will allow enough time for one to do a thorough job search versus settling for a position due to time constraints. In an economy where the average American stays in his or her position for less than 5 years, having cash on hand is an absolute necessity.
SEEK OUT ASSISTANCE
If you are unsure whether or not you are making wise decisions with your money, seek out assistance. Someone there will be glad to work with you to develop a plan for your financial goals.
The IRS offers the Volunteer Income Tax Assistance (VITA) program. This is free tax help for individuals who are making $54,000 or less, for individuals with disabilities and taxpayers who speak English only limited and who need help in preparing their tax returns. Volunteers who are certified by the IRS will be providing income tax return preparation at no charge to qualifying persons. More information is available here.
Besides the VITA program, the IRS also offers the Tax Counseling for the Elderly (TCE) program. Free tax help is available to taxpayers, specifically those individuals who are over 60 years of old, and who need assistance to deal with questions about retirement-related issues and pensions, usually unique to senior citizens. IRS-certified volunteers (often retirees that were employed at IRS grant-receiving non-profits) will provide counseling at no charge. Click here for details.