Americans receive some serious money from tax refunds. In fact, the average federal income tax refund is more than $3,000! And, more than 75% of federal tax returns result in a refund – meaning most people get a fairly sizeable check when tax season rolls around!
But, what should you do with your tax refund?
Some people use the money to pamper themselves with a tropical vacation, a new car, or a shopping spree. Other people use it to pay for everyday expenses like groceries, gas, and the electric bill.
But there are plenty of better ways to spend your tax refund. In fact, by doing one of these 4 things, you can make the most out of your tax refund check:
1. Pay off your debts.
If you can’t pay off all of your debts with your refund check, start with the debt that has the highest interest rate. For most people, this is credit card debt.
By paying off your high-interest debts now, you can save yourself a ton of money in interest later. After all, it’s not uncommon for credit cards to have interest rates as high as 20% or 30%!
2. Make an extra mortgage payment.
When it comes to your mortgage, additional payments are credited right to the principal – meaning you’ll save money on future interest. Plus, paying off more of your mortgage now means you’ll get more equity in your home as soon as the check clears.
3. Save it for when you need it.
You never know when your car is going to break down, when the kids are going to need braces, or when a pipe is going to burst inside the wall of your bathroom. Life has a funny way of throwing us some expensive curveballs!
If you have a savings account, put your tax refund money in there – instead of your regular checking account – so that it can gain some interest. If you don’t have a savings account, consider your tax refund the perfect excuse to go open one!
4. Take on some repairs and upgrades.
By spending a little bit of money to take care of your home or car now, you can prevent bigger expenses later. If, for example, you’ve been putting off that engine flush in your car, now is the perfect time to do it. Or, spend your tax refund on some new tires, so your car rides smoother and uses less gas.
Or, if you plan on moving soon, use your tax refund to upgrade your kitchen. After all, most prospective homebuyers say a modern kitchen is very important. Some new appliances, new countertops, or a new floor can make your kitchen look more modern – and can increase the value of your entire home!