Debt Consolidation and Credit Card Counseling

Debt management can be helped a lot if you use your income tax refund

The average American taxpayer will receive a refund of some $2200 this year. That’s a pretty sizable check and for many hard working people, it constitutes a windfall. It also suggests that most taxpayers are not having enough money withheld from their paychecks. Nevertheless, a check for some two thousand dollars is a pretty nice piece of cash, and most people have plans to spend it long before it arrives.

Assuming that you haven’t spent extra money on a refund anticipation loan, you probably have a couple of weeks to wait before the refund shows up in either your bank account or your mailbox. That is enough time to give some serious thought as to how you can, or should, spend that money.

And what should you do with that money? You should use it to retire some debt.

That’s not particularly “sexy”, especially when you could be spending the money on a plasma TV, a down payment on a new sport utility vehicle or weekend in Las Vegas. But in the long run, paying down debt makes much more sense. The average household in this country has close to $10,000 in credit card debt. That means, even paying only minimum payments, that some $400 per month goes out the door to service that debt. Applying that $2200 to the debt would lower the debt to less than $8000. Continuing to pay $400 per month would then allow you to pay off the debt several years sooner.

If you don’t want to use the money to pay down debt, there are some other “responsible” things that you can do with it:

Apply it to your mortgage - Every extra dollar you pay towards your loan principal saves you money in interest later. The more you pay down the principal, the sooner you can own your home outright.

Put money in a retirement account, such as an IRA. How much have you contributed to your IRA lately?

Use it for home improvement. Upgrading a kitchen or bathroom can be quite cost effective, as those improvements tend to realize the greatest return on the money spent when the house is sold. New countertops or a coat of paint on dated cabinets can go a long way towards modernizing a kitchen without spending a lot of money.

There are a number of useful or responsible things that you can do with your tax refund that make far more sense than blowing it on some gadget or vacation that will be long forgotten in a few years. Using that money to pay off debt tops the list, as it reduces the amount of money that you have to pay out every month in interest. And interest is probably the least exciting way to spend your money.

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