FAIRFAX, VA - January 23, 2008 — Consumers who overpaid their taxes in 2007 are anxiously awaiting the end of this month when their employers hand out their annual W-2 earnings statements so they can file their taxes and get a refund from Uncle Sam. In fact, some are so eager to get their refunds that they succumb to the refund anticipation loan advertisements promising quick, easy money.
"We recommend that consumers avoid refund anticipation loans because they are a costly way to get money that is already due them," says David Jones, president, Association of Independent Consumer Credit Counseling Agencies (AICCCA). "The Internal Revenue Service actually does a really fine job of refunding money in a very timely manner, especially if consumers take advantage of e-filing."
Not only do some consumers fall prey to these refund anticipation loans and pay a hefty price to do so, often they are lured into buying things they may not really be able to afford through these types of loans and lose out on the opportunity to make better use of their refund.
AICCCA advises consumers to look closely at their financial situation before deciding how to use their refunds. Consider these options:
Pay down debt. Rather than buying a new HD TV, or any other item that would fall in the "want" category as opposed to the "need" category, consider using at least part of the refund to apply to existing debt. The savings in interest alone can be substantial, not to mention the fact that you will be working on getting yourself out of debt.
Save for the future. Consider saving the refund either for a specific goal, like a summer vacation, or for emergencies. Having six months of expenses saved
in an emergency fund will allow you to have money on hand when your car breaks down or you need to replace an appliance, without having to resort to using credit and adding to your debt load. An income tax refund can be a great way to start building this fund or to set up a college fund for your children or grandchildren or open an IRA for your retirement. Everyone can benefit from adding to any of these types of savings.
Have a little fun and do it all. AICCCA understands that you work hard for your money and if you have always used your refund for fun, you don't have to give it all up. Divide your refund three ways so that you can pay down some of your debt, save some and also blow a little. You may not be able to afford that HD TV, but you can certainly find something fun to do with the money and not feel guilty about it because you will have done something constructive with most of it.
Take a look at your exemptions for 2008. If you routinely receive large refunds, consider changing your exemptions so that you can bring home a little more money every pay period. Be sure that you are still having enough taken out of your check to cover your taxes so that you will not owe taxes next year. A painless way to save is to figure out exactly how much more you will be bringing home and arrange to have that amount automatically added to your savings account. It is money you have not counted on and you will earn interest on the money all year, something Uncle Sam does not do for you. And next year at this time, you can look at your savings account and see how your "refund" has worked for you all year.
Founded in 1993, Association of Independent Consumer Credit Counseling Agencies (AICCCA) is a national membership organization, established to promote quality and consistent delivery of credit counseling services. AICCCA and its members are focused on improved creditor relations, efficient processes and advanced technology to best serve clients and creditors. AICCCA members are independent nonprofit agencies that advocate for debtors, counsel millions of consumers annually nationwide and provide debt management services to consumers with excessive unsecured debt. For more information or to contact an AICCCA member office call 866-703-TRUSTAICCCA (866-703-8787) or visit www.aiccca.org.
