FAIRFAX, VA — March 2, 2004 - For some taxpayers a tax refund is considered as unexpected income and a great opportunity to spend. And while many may be tempted to treat themselves, a closer examination of one's financial situation my reveal a better use for the money.
"When high interest credit card debt costs consumers hundreds of dollars a year in finance charges, applying a federal income tax refund to debt reduction is a sound financial move," says Dave Jones, President of the Association of Independent Consumer Credit Counseling Agencies. "Rebates used to create an emergency savings account will help avoid adding to credit card debt in the future."
If you want to put your tax rebate to good use, here are some tips that AICCCA recommends:
Reinvest the refund - Put your refund aside for expenses that you know you will have in the future such as holiday shopping, summer vacation, or back to school expenses. Eventually, an event will arise where you will need extra spending money. Immediately spending your refund on a celebratory or impulse buy will be more fun, but not financially prudent.
Reduce debt - If you had a credit card with a balance of $10,000 at 19.8% and were paying $200 per month, it would take you 106 months to pay it off. But if you paid a $600 refund check into that balance this month - you could have the card paid off in 91 months. In other words, you could be out of debt 15 months sooner. The sooner you pay off the debt, the more you save in interest.
Save, Save, Save - Contribute to your retirement account or add to your child's college education fund. Other smart moves include placing the refund in a savings account if you do not have a cushion of three-to-six months of expenses in the bank.
Stay away from anticipation refunds - Remember that there is a charge for receiving your loans early. Loan-processing fees in addition to other fees that an issuing bank may charge could run well over $125. Resist the urge to receive an anticipatory refund loan from a tax service and simply wait for the IRS to send you the refund instead; especially since electronic filing drastically speeds up the refund process.
Seek professional advice - Take advantage of the services of a qualified credit counseling service if you have questions concerning your financial situation. You can locate a member of AICCCA by calling 800-450-1794 or visiting www.aiccca.org.
Your tax refund can make a real difference in how you pay off bills and save for the future. Think about how to get a bigger payback from your refund and you will thank yourself later.
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.
