Q: I will be receiving a tax refund. What suggestions do you have to maximize use of this money?
A: Do you spend weeks each spring eagerly anticipating your income tax refund? When the money finally comes in, is it gone tomorrow?
If so, you are not alone. Many consumers view tax refunds as unplanned bonuses, but it makes more sense to plan for that new chunk of change so it does not go to waste.
Making smart decisions with your money is a great way to reward yourself for all the hard work you did to earn it. It is very easy to get caught up in the excitement of unplanned or extra cash, but you will be glad you saved some of it for a rainy day when the time comes to use it.
Whether you are in need of debt relief, a tax refund provides the opportunity to improve your financial situation. BBB and Clear Point Credit Counseling Solutions recommend the following tips for tax refund recipients:
• Pay down your debt. Refund checks
usually arrive when many consumers still are struggling with holiday bills. Use your refund for some much needed debt relief: pay off your credit card.
If you have an outstanding balance on more than one credit card, you can either try to pay off the lowest balance card first (good for motivation) or direct the funds toward the card carrying the highest interest rate (wiser from a financial perspective). Or, apply your refund toward other debts, like a car loan or a home equity loan.
• Consider your financial goals. Are you trying to save for a downpayment on a house or car? Do you hope to contribute to your child's college tuition one day?
Consider applying your tax refund toward these goals. If you do not have a set of short-term and long-term financial goals, put some together. You will be more conscientious about how you spend your tax refund, or any other extra money that comes your way.
• Save it for a rainy day. Why not give yourself an even bigger return on your tax refund by putting the money into a savings account -- or an emergency savings account, CD or retirement fund? Your tax refund will continue to grow if you put it into savings or invest the money.
Plus, it always is helpful to have a savings account to draw from when a major car repair bill, medical emergency or other unexpected expense comes along. That way, you do not have to borrow money and add to your debt load.
• Keep things in perspective. Working your way out of debt can seem like a daunting task. Perhaps you assume that a small tax refund check will not make enough of a dent in your debt.
Think again, every little bit helps. Paying down debt takes time, but steadily increasing your monthly payments does have an impact. Just stay focused on the end goal. It may take years to pay off your debt, but your ultimate reward of being debt-free will be well worth the effort.
• If debt is a continuing problem, consider a credit counselor. Certified consumer credit counseling agencies can assist people who are facing financial challenges and are looking for debt relief. BBB has information on more than 2,000 credit and debt counseling firms, including hundreds of accredited businesses providing these services. BBB Business Review Reports are available free at www.bbb.org/search.
• Consider investing in your home or in others. Even if your finances are in good shape, your refund check provides the opportunity to improve your life or the lives of others.
Use the money to spruce up your home or make it more energy-efficient. Improve your career opportunities by taking a class or training course.
Use your refund to teach your older children how to handle money. Give them a portion of the refund and help them budget for school, clothing and entertainment expenses and savings.
Finally, you may want to donate your tax refund to a charitable organization. You will help improve the lives of others, and your charitable gift may reduce next year's tax burden. Check out BBB Wise Giving Alliance at www.bbb.org/charity for more information on trustworthy charities.
Get answers to your questions each Friday from Jim Winsett, president and CEO of the Better Business Bureau Inc., which serves Southeast Tennessee and Northwest Georgia. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN, 37401-1447, or by e-mailing him at dflessner@ timesfreepress.com.