Published May 13, 2014
Refund season is finally here! That means you can build that pool in your backyard, right? Wrong. Instead of squandering, splurging, or spending your refund immediately, why not put it to better use—toward your bills?
The IRS reported more tax returns in 2014 than in any other year—15 percent more, to be exact. So in order to make the most of this year’s refund, here are a few ways you can spend a little less, save a little more, and finally work toward becoming financially free.
1. Start paying off your debts—starting with the largest
Your largest debt doesn’t have to be your most expensive; it can be a credit card with the highest interest rate. If you have $3,000 on a card with 20% interest but $1000 on a card with 25% interest, you may want to use your refund on the latter card.
Paying off any debt—no matter how big or small—is always beneficial, but knowing how to target your various debts and pay them off appropriately will help you get out of debt faster. People who only pay the minimum balance may keep all the annoying late notices and creditors at bay, but they’re actually doing very little to effectively reduce their debt.
Related: Take a look at our recent article on how paying the minimum actually costs you more here .
Working toward paying your bills off strategically will help you get the most out of your monthly payments. Plus, it’ll help you pay off your bills quicker and easier.
2. Put that money toward your car
Using your refund to help pay your car loans—or any loans for that matter—can help you get a leg-up on paying off that secured debt. Even if it’s only enough to get you a few months ahead, think of it as a boost to help you get on top of your monthly payments. Now, we’re not saying put the money down now and then take the next few months off. Instead, use your refund to help turbocharge your monthly payments while consistently making the same payments you would before.
Are you thinking about using that refund as a down payment on a new car? If so, knowing how to negotiate interest rates will help you find the best deal possible. Though some loan rates may look cheaper on paper, they may take a lot
longer to pay off, therefore costing you more in the long run due to long, drawn out interest rates.
Related: Check out our post on how to negotiate a car loan to see how to get the best deal possible.
3. Store your refund in an emergency savings account
In a recent CNN Money article, over 75 percent of Americans were found to be living paycheck-to-paycheck, and if you’re among the vast majority of people who are working to make ends meet, you probably are too. Having an emergency fund doesn’t just help you prepare for unexpected emergencies; it offers you peace of mind. And since your tax refund is an unexpected income and not factored into your yearly budget, putting that money away means you won’t even miss it.
Even if you only allocate a third of your refund toward your emergency savings, it’s still something. Though building an emergency fund takes time, it is possible. Set goals with yourself, and work toward saving a little more each month. After a few solid months of putting a set amount of money away, you’ll be surprised to see just how much you’ve saved.
4. Spend a little, save a little
If you have money left over, or if you want to use the money for other things, split it up. You can put some part of your refund toward your rainy day fund, and you can put a small chunk toward your various bills and/or debts.
Make a list of your various debts, and take an active look at which ones are behind or are in need of a little boost.
5. Use your refund to help pay for a family vacation
If you’ve used part of your refund toward your debts, and if you already have money squirreled away for a rainy day, then why not use what’s left to help finance a much-needed vacation?
Though spending your refund on something enjoyable seems appropriate (especially since it can sometimes feel like ‘free’ money), it’s still important to spend wisely.
Before you plan a trip or book your next hotel, take a look at our recent post on to see how you can travel for less.
Now that we’ve given you a few of our ideas, we’d like to hear yours. How are you planning to use your tax refund? Let us know in the comments below!