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5 Ideas for How to Use Your Tax Return

No matter how much you're receiving for your tax refund, deciding the best way to put your refund to use can be difficult. While it can be tempting to spend your refund on something fun, here are five ideas to consider which help 're-invest' your hard-earned money.

A jar of cash and change labeled tax refund near a piggy bank.

  1. Pay down high-interest credit card debt.
    Many Americans are carrying a high balance on their credits cards, and rates are at an all-time high. Retail store cards are the worst offenders, with interest rates averaging nearly 25 percent. Consider using your tax refund to pay off your cards with the highest interest rates first. Not only could it save you hundreds of dollars in interest per year, it might also raise your credit score. This means you may qualify for better interest rates down the road when shopping for cars, insurance or a new home.

  2. Pad your emergency savings account.
    Could you cover a costly car or home repair without putting the entire balance on a credit card? Only 39 percent of American households can cover a $1,000 unexpected expense with savings. Many financial experts suggest that you stash away between three and six months' worth of living expenses in an easily accessible money market or savings account. That way, you can still pay the bills if life throws an unexpected curveball your way.

  3. Make a principal-only extra mortgage payment.
    A tax refund serves as a great opportunity to make a lump-sum payment toward your home mortgage. This could save you thousands of dollars in interest and may help you build equity faster. Use a mortgage amortization schedule calculator to determine the impact of extra payments on your mortgage. Be sure to specify that the additional payments should go toward your mortgage principal. Otherwise, your lender will most likely just apply the funds to your next monthly mortgage payment.

  4. Invest in your career growth.
    If another degree or specialized certificate is something you've had marked down on your professional development plan for a while, you could use your tax refund as a way to invest in yourself. Whether you're working toward a promotion with your current employer or thinking about a career change, leveraging your refund to work toward professional goals can be a high-yield investment.

  5. Improve your home for comfort and value.
    Home improvement projects can make you and your family's life more enjoyable, while also potentially boosting the value of your property. These projects can be costly upfront, though. Your tax refund may be just the ticket to replacing your roof, pulling the trigger on that kitchen remodel or integrating smart-home technology for more security or energy efficiency.

If you decide to put your refund toward the last option, make sure to contact your insurance agent to discuss whether your homeowners coverage may need to be updated.

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