What are you going to do with your tax refund this year? If your immediate answer was “spend it,” you might want to think again. According to the IRS, the average tax refund in 2012 is $2,899. That’s certainly a significant amount of money that could buy you a lot of fun, nice things. But if you really want to make a smart decision, consider using your tax refund for one of these five purposes instead.
Pay Down Student Loans
If you still have student loans lingering from your college days, use your tax refund to take care of a significant portion of them. If your refund is big enough, you might be able to pay off your loans completely. The peace of mind that comes with reducing or eliminating your student loans is amazing. It means all the future benefits of your education are entirely yours.
Pay Down Credit Card Debt
If you have credit card debt, and lots of people do, use your tax refund to pay a portion of it. If you can pay it all off, even better. Using your refund to work on your credit card debt is one of the smartest things you can do with it. If you can reduce your credit card debt, you will significantly reduce the amount of interest you have to pay on it before it’s paid off completely and save money in the long run.
Add to Your Child’s College Fund
If you have any children, you hopefully have college funds started for them already. If you don’t, now is the time to start saving. If you do, add your tax refund to them for a big boost in savings. By the time your child is in college, the price of their education will probably be even higher than the current ridiculously high price of it. The extra savings from your refund, plus any interest it will accrue over the years, will be a big help to your child when they do enroll in college.
Add to Your Retirement Fund
If you have a retirement fund, and hopefully you do, consider putting your tax refund into it. If you don’t, you should start one now. Whether it’s an IRA or a 401(k) or otherwise, the amount of your tax refund will represent a significant contribution that could be a tax write-off next year, and it will greatly increase your savings for your future. Especially in a time when Social Security is threatened, it’s very important to prepare for your own retirement as early as possible.
Donate to Charity
If you don’t have a significant, immediate need for your tax refund, or if you’re just feeling very generous, you could donate it to charity. Your donation can be a deduction next year, but more importantly, it can help out those who are in great need. There are many fabulous charities all over the world, so do some research and find one that you’re most interested in contributing to.
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