AICCCA Says Just Say No to Refund Anticipation Loans

FAIRFAX, VA - January 25, 2012 — Consumers who overpaid their income tax and are anxious to get their refunds are the prime target for the refund anticipation loan advertisements that flood the airwaves this time of year. The Association of Independent Consumer Credit Counseling Agencies says it is a bad idea. Consumers should resist the temptation of these loans and instead focus on the best way to use their refund money for their personal financial situation.

The hook used by the refund anticipation loan advertisers is that consumers can get their money "right now." While it is true that it takes about six weeks to get a refund for those that send paper returns via mail, consumers who file electronically and choose direct deposit can cut that time to 10 to 14 days. The fee charged to get your money a few days sooner using a refund anticipation loan can be the equivalent of a whopping 250 percent annual interest rate.

"Consumers pay a premium by using refund anticipation loans that essentially just gets them their own money," said Dave Jones, president, AICCCA. "These consumers would be much better off exercising patience and creating a plan for the most effective use of their refund dollars."

AICCCA offers three suggestions to use your refund wisely:

1. Pay down credit card debt. Look at your credit card accounts with balances due and determine which card has the highest interest rate. If you apply your refund toward that account, you will reduce and maybe even eliminate the amount you owe and you will not have to pay future interest payments or late payments on the card. Or, calculate how many cards you could pay off, regardless of the interest rate and eliminate those bills from your monthly obligations.



2. Establish an emergency savings cushion. For many consumers, the reason for their high credit card debt is that they did not have the cash on hand to take care of emergency expenses, like car repairs or appliance replacement. If you don’t have a savings or emergency account, start one with your refund check. The recommended goal of the emergency account is three to six months of bare bones living expense.This amount would cover your expenses if you lost your job, had to take a leave of absence from work or if you became seriously ill. It will also enable you to take care of emergency repairs and replacements as they occur without incurring debt.



3. Invest for the future. If you already have an emergency account, think about investing your tax refund into longer term, better paying investments. It is never too soon to start saving for your retirement or for college for your children. Use this opportunity to make savings a priority, so that you regularly pay yourself and watch your savings grow.

Additionally, an annual review of your W4 form is a good idea if you regularly receive large refunds. Refunds give Uncle Sam an interest free loan every year. Decrease the amount you are withholding by increasing your deductions and earn that interest for yourself. Target this extra money for your savings account and check back in one year for the "refund" you won't have to wait - or pay - for.

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.