6 Tips To Consider Before You Spend This Year’s Tax Refund

April 18, 2012

Do you spend weeks each spring eagerly anticipating your income tax refund? When the money finally comes in, is it gone tomorrow? You’re not alone. Many consumers view tax refunds as unplanned bonuses, but it may make more sense to plan for that additional income so it doesn’t go to waste.

“It is important to remember to use your refund wisely by making informed decisions and according to a plan, ” said Claire Rosenzweig, President and CEO of the Better Business Bureau Serving Metropolitan New York.

Whether or not you are in need of debt relief, tax refunds may provide the opportunity to improve your financial situation. BBB and Clear Point Credit Counseling Solutions recommend the following tips to tax refund recipients:

Pay down your debt. Refund checks may arrive when many consumers are still struggling with holiday bills. Use your refund for some much needed debt relief, such as paying off your credit card. If you have an outstanding balance on more than one credit card, you can either pay off the lowest balance card first (good for motivation) or direct the funds toward the card carrying the highest interest rate (wiser from financial perspective). Refunds may also be applied toward other debts, like a car loan or a home equity loan.

Consider your financial goals. Are you trying to save for a down payment on a house or car? Do you hope to contribute to your child’s college tuition one day? Consider applying your tax refund toward these goals. If you don’t yet have a set of short-term or long-term financial goals, it may be a good idea to put one together. You’ll be more conscientious about how you spend your tax refund or other extra money that comes your way.

Save it for a rainy day. Why not give yourself an even bigger return on your tax refund by putting the money into a savings account or an emergency savings account, CD or retirement fund? Your tax refund will continue to grow if you put it into savings or invest the money. It may be helpful to have a savings account to draw from when a major car repair bill, medical emergency or other unexpected expense comes along.

Keep things in perspective. Working your way out of debt can seem like a daunting task. Paying down debt takes time, but steadily increasing your monthly payments does have an impact. Just stay focused on the end goal because every little bit helps. It may take years to pay off your debt, but being debt free will be well worth the effort.

If debt is a continuing problem, consider a credit counselor. Certified consumer credit counseling agencies can assist people who are facing financial challenges and are looking for debt relief. BBB has information on more than 2,000 Credit & Debt Counseling firms, including hundreds of Accredited Businesses. BBB Business Reviews are available for free at www.bbb.org/search.

Consider investing in your home or in others. Even if your finances are in good shape, your refund check provides the opportunity to improve your life or the lives of others. Use the money to spruce up your home or make it more energy-efficient. Improve your career opportunities by taking a class or training course. Use your refund to teach your older children how to handle money. Give them a portion of the refund and help them budget for school, clothing and entertainment expenses and savings. Finally, you may want to donate your tax refund to a charitable organization. You’ll help improve the lives of others, and your charitable gift may reduce next year’s tax burden. Check out our reports on charities at www.newyork.bbb.org/charity for more information.

For more consumer tips you can trust, visit www.newyork.bbb.org.