AICCCA Says Just Say No to Refund Anticipation Loan
Fairfax, VA - February 5, 2007 —
The commercials for refund anticipation loans make it seem so easy. Businesses have gotten in on the act, too, offering to file your taxes for you as an easy way to get whatever they are selling, from new furniture and electronics to new cars. Resist the temptation and save the money instead.
"Refund anticipation loans in general are not a good use of resources," said Dave Jones, president, Association of Independent Consumer Credit Counseling Agencies (AICCCA). "The IRS has been using the money interest free and then consumers will pay additional interest to get their own money more quickly - not a smart move."
It takes about six weeks to get a refund for those that send paper returns via mail. However, filing electronically and using direct deposit cuts the time to 10 - 14 days. Refund anticipation loans allow consumers to get the money right away; however the cost in fees and interest to have access to the money on the spot can be the equivalent of a 250 percent annual interest rate.
AICCCA advises that consumers save at least a part of any income tax refund they receive. Following are three suggestions for consumers to use their refunds wisely:
Pay down credit card debt. List all 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. Another alternative is to see how many cards you could pay off, regardless of the interest rate, thus eliminating those bills from your monthly obligations.
Establish an emergency savings cushion. For many consumers, the reason they have high credit card debt is because 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. You will probably not earn great interest rates in this account, but consider the amount saved in credit card interest payments.
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 college for your children or for your retirement. It is also never too late. Use this opportunity to make savings a priority, so that you regularly pay yourself and watch your savings grow.
Finally, an annual review of your W4 form is a good idea especially 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 you can watch your savings grow painlessly.
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 (800) 450-1794 or visit www.aiccca.org.
