Fairfax, VA (March 8, 2005) —
Many Americans may feel like celebrating when they get refund checks from their income tax returns. "However, consumers would be giving themselves the best gift ever if they used this money to pay down their debt or set up a savings account," commented Dave Jones, President of the Association of Independent Consumer Credit Counseling Agencies.
"Buying clothes or a flat screen television is a lot more fun than paying off your credit card accounts," continued Jones. "But you could easily be paying 13 to 18 percent interest for your debt. If you eliminated this expenditure, you would be hard pressed to get a better return on your money in the stock market or other investment."
AICCCA recommends consumers read over these suggestions as to how to invest their tax refund checks.
Pay down credit card debt. Study all of your credit card accounts that have a balance due. Determine which card charges the highest interest rate and apply your tax refund money to that account. You benefit financially in two ways. First, you reduce or perhaps even eliminate the amount you owe on your credit card account. Secondly, you do not have to pay future interest payments or even late payments. Paying off your debt is probably the most cost effective way to invest your refund check. Your ultimate goal is to be debt free.
Start building a savings cushion. If you do not have a savings account or emergency account, start one today with your refund check. Financial experts recommend that you have three to six months worth of living expenses in your savings account. This would cover your expenses in case you lost your job, had to take a leave of absence from work or if you were seriously ill. If your car breaks down, you are better off paying cash from your savings account than charging to a credit card.
Unfortunately, you will not earn much interest on your savings account; however, the goal is to protect yourself in case of an emergency. After you have opened your savings account, get into the savings habit. Pay yourself first with every paycheck by putting money in your savings account.
Invest for the future. If you already have three to six months in your savings accounts, consider investing your tax refund in longer term — and better paying — investments. Options include putting your money in certificate of deposits, which are available through your bank and credit union. You can open a CD for as short a period of time as a few months or up to several years. Obviously, the longer you commit to this investment, the better the return.
After you are well established with your savings cushion and CDs, look to mutual funds or other long-term investment opportunities to pay for a child's college education or a new home. IRAs are a wise investment for your retirement.
If you are receiving a tax refund, consider it an opportunity to help you financially for the long term and not for short-term gratification.
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.
