3 Suggestions of How to Use Your Tax Refund
We are in the midst of tax season, which means a tax refund could be coming your way! You may be wondering how to use your refund if you receive one. Should you pay off debt? What about saving for a big expense? Should you put it towards retirement? Here are a few suggestions of what to do with your tax refund this year*:
1. Pay off debt.
One way you can use your tax refund is by paying off debt. Whether it be a high interest credit card, student loans, or paying down additional principal on your auto loan or mortgage, paying off any amount of debt will decrease the amount of interest you will owe over the life of the loan. Start by paying down the debt that has the highest interest rate first to make the biggest impact. Another bonus to paying off debt is it could potentially increase your credit score. Maintaining low credit utilization and paying off balances in full can positively impact your score.
Student loans are another example of debt you could pay down with your tax refund. According to the U.S. Department of Education, all federal student loans are in forbearance due to COVID-19 and executive orders, so the more you put towards your loans now the bigger impact it has. Interest will not begin accruing again until after September 30, 2021, so if you are able to, pay down your student loans during forbearance to save on interest.
2. Save for retirement.
Taking your tax refund and using it to save for retirement is an extra bonus to yourself. Investing it into your 401(k) or Roth IRA may yield a positive return, resulting in even more money. Kohler Credit Union Investment & Retirement Services can help you with financial planning, retirement planning, portfolio accounts, and brokerage accounts. You can set up a no cost, no obligation appointment with our investment professional by emailing Rhiannon or by calling 920.783.2312. For additional information, visit the Investment & Retirement Services page.
3. Put it towards a necessity.
Perhaps you are saving for a new roof or windows for your home. Maybe you are looking to upgrade your air conditioner before the summer heat arrives. Or maybe you need reliable tires on your vehicle that can take you to your destination safely. Whatever the item may be, one way you can use your tax refund is to put it towards a necessity.
It might be easy to use your refund towards something you have been wanting for a long time, but it may be more practical to use that money towards an item you really need. You can use your tax refund in many ways.
Tax season can be stressful, so do not let the decision of how to use your refund be the most stressful part. By paying down debt, saving for retirement, or putting it towards a necessity, you can be sure your money is being put to good use. For more information regarding how to track your refund, visit the IRS website. If you have any questions regarding how your taxes are affected by the Economic Impact Payments (stimulus checks) and the Recovery Rebate Credit, visit the IRS website.
*This article is provided for your convenience and is for informational purposes only. For more in-depth and personalized advice, please contact your tax professional.