Experts: Blowing Tax Refund Not Best Idea
Refunds Averaging $2,400 This Year
POSTED: 9:52 am CST March 10, 2005
Early birds who filed their 2004 taxes through the beginning of March got refunds averaging about $2,400 -- roughly $200 more than last year.A survey commissioned by TrueCredit.com found that 41 percent of respondents said they would use their tax refund to pay credit card, mortgage or other bills. Another 28 percent of respondents said they would buy something they need, and 26 percent would save the money. Only 9 percent said they would splurge on something fun.
It may be awfully tempting to go on a trip or buy the flat-screen TV your living room has been begging for, but there are probably wiser ways to use the money. Dave Jones, who heads the Association of Independent Consumer Credit Counseling Agencies, said people should be very concerned about just blowing their refunds. He said it may seem like a windfall, but the best thing you can do is pay down high-interest credit cards. Jones said the average household is now carrying more than $17,000 in non-mortgage debt. If you're one of the fortunate who can keep your credit card balances paid off, consider setting your refund aside for emergencies. A cash cushion can help you weather a financial crisis, such as a job loss or a serious illness in the family. Jones said it's best to have enough in the bank to cover up to six months' worth of living expenses -- just in case.CreditGUARD of America echoes Jones' advice and has a few other suggestions for putting your tax return to good use.After paying off those credit cards, another option is to invest the money in your house. A complete termite inspection, a new coat of paint, new carpeting or remodeling your old kitchen can not only improve the quality of your life, it can also increase the overall value of your home.Or how about saving for retirement? Your tax return can begin the account, and then you can contribute a percentage of your monthly salary to it.Opening a college savings plan is another good option. Nowadays, a typical four-year college education can cost upwards of $100,000, according to CreditGUARD of America.State governed 529 college savings plans are the most effective tools when saving for college. Under 529 rules and guidelines, parents can contribute up to $250,000 per beneficiary. The 529 college savings plan works much like a Roth IRA, where withdrawals are completely tax-free when used for higher education purposes.
Survey: It may be awfully tempting to go on a trip or buy the flat-screen TV your living room has been begging for, but there are probably wiser ways to use the money. Dave Jones, who heads the Association of Independent Consumer Credit Counseling Agencies, said people should be very concerned about just blowing their refunds. He said it may seem like a windfall, but the best thing you can do is pay down high-interest credit cards. Jones said the average household is now carrying more than $17,000 in non-mortgage debt. If you're one of the fortunate who can keep your credit card balances paid off, consider setting your refund aside for emergencies. A cash cushion can help you weather a financial crisis, such as a job loss or a serious illness in the family. Jones said it's best to have enough in the bank to cover up to six months' worth of living expenses -- just in case.CreditGUARD of America echoes Jones' advice and has a few other suggestions for putting your tax return to good use.After paying off those credit cards, another option is to invest the money in your house. A complete termite inspection, a new coat of paint, new carpeting or remodeling your old kitchen can not only improve the quality of your life, it can also increase the overall value of your home.Or how about saving for retirement? Your tax return can begin the account, and then you can contribute a percentage of your monthly salary to it.Opening a college savings plan is another good option. Nowadays, a typical four-year college education can cost upwards of $100,000, according to CreditGUARD of America.State governed 529 college savings plans are the most effective tools when saving for college. Under 529 rules and guidelines, parents can contribute up to $250,000 per beneficiary. The 529 college savings plan works much like a Roth IRA, where withdrawals are completely tax-free when used for higher education purposes.
Distributed by Internet Broadcasting Systems, Inc. The Associated Press contributed to this report. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
