This is a guest post.
That’s right, it’s tax season again, and if you’re among the number of consumers smart enough to slog through the mire of your tax and W-2 forms before the deadline next month, you’re (hopefully) expecting a nice refund in the mail (or via direct deposit) any day now.
Now, far be it from me to tell you what to do with all that extra cash you’ve got coming in. God knows I’ve wasted more than a couple tax refunds on a new TV or iPod, but if you want to spend that extra bit of money on something that actually matters in the long run – instead of something that loses value 15 minutes after you’ve taken it out of the wrapping – here are a few ways we can think of to spend your tax return. They might not sound like fun, but chances are you won’t regret the decision to save a little more money in the long run.
1. Pay your credit cards down. Let’s be honest: If your first thought upon seeing that refund check come through was to take it out for a night on the town, chances are pretty good that you’ve got at least a little unpaid credit card debt that you can take care of with that extra government money. Yeah, it’s not as fun as spending the money at the mall, but you also won’t have to worry about overspending your refund and adding to your credit card bill, either.
2. Pay your cards off completely. If you’ve only got a little unpaid credit card debt in your name – say, enough for a tax refund to take care of – you might consider taking care of it completely, so you won’t have to worry about it hanging over your head like a guillotine waiting to fall. If your credit score has been suffering as a result of late payments, collections, and/or other negative items showing up in your credit report, now would be a good time to take care of them, as leaving them alone will only damage your credit history even more, and leave you in need of credit repair services later.
3. Start an account for emergencies only. That is, if you don’t already have some funds set aside in case of an emergency (such as unexpected car maintenance or a hospital bill), now would be a good time to do so. If you’re already living on a paycheck to paycheck basis, having an emergency fund set aside is absolutely vital if you don’t want to end up in serious financial trouble down the line. I’d recommend building up a fund of at least $1000 (meaning most of it will likely come from your own pocket), and never dipping into the account for anything other than a real emergency.
4. Take care of another unpaid bill. Got some accounts you’re running behind on, or some bills that are about to fall into collections? Use that refund money to pay them down and put out a fire before it spreads. Your credit score is dependent on the number of good, open accounts you have in your profile and if you want it to keeping looking as good as it does (or make it look even better), you need to stay on top of each of your accounts and make sure they’re paid on time. Putting that extra refund money toward these accounts can go a long way towards making your efforts at credit repair successful.
5. Give yourself a little something. Thought I was gonna ignore you completely, didn’t you? While you shouldn’t spend ALL of your tax return solely on yourself, you should at least treat yourself to a little something nice. After all, it’s free money and you’ll be doing your part in helping the economy get back on track, as well. Just don’t overspend yourself, unless you WANT to keep yourself mired in unpaid debt, of course.