Tag: debt

4 Ways to Wisely Use Your Tax Refund

4 Ways to Wisely Use Your Tax Refund (1)

Now that tax season is fully underway, you may be thinking about what you want to do with your tax return when it comes in.  For some, it might go right into a savings account.  For others, it might be an opportunity to splurge on different items you’ve had your eye on.  A healthy balance between the two, is looking into some wiser ways you can utilize your refund.  If you’re waiting on your refund to come in, consider some of these great options to put it towards:

Contribute to Your Emergency Fund

You may have one already, and if you don’t, it might be a good time to consider starting one.  An emergency fund is a great tool to have in case you encounter an unfortunate major expense that you wouldn’t regularly have the funding for.  You can contribute to your emergency fund on a regular basis depending on your pay schedule. However, when your tax refund comes in, depending on the amount, you may be able to make a large contribution, and give yourself a better financial cushion in the event of an unexpected expense.

Invest in a Down Payment

You may be in the process of looking for a new home, or even a car.  Both of these purchases are likely to require some sort of down payment, especially if you want your monthly payments reduced as much as possible.  Your tax return is a great way to contribute to a downpayment and significantly lower what your monthly costs or the length of your finance or mortgage term will be.  If you’re buying a home, for example, this lump sum of money will be a great contribution to your down payment or even your closing costs.

Pay Down High-Interest Debt or a Mortgage Payment

Any debt you’ve been carrying for a while is likely racking up interest, and depending on the company or what type of loan it is, the interest rate could be extremely high.  Your tax return would be a great way to pay down some high-interest debt and bring you closer to having it paid off completely. Additionally, you can also consider contributing to your mortgage payment if you’re a homeowner.  However, you should always make sure that your mortgage company isn’t going to charge you a penalty for early or pre-payment.  If you’re certain you won’t get a penalty charge, consider using your tax return to make some additional mortgage payments.

Make a Home Investment

If you’ve been wanting to make some interior or exterior home updates, refund time is a great time to do it.  This extra money may help you make improvements or updates that you might not have been financially ready for before.  In the long run, this will ultimately improve the value of your home while turning it into exactly what you envisioned.

Strategies for Quick Debt Repayment

John J Bowman Jr - Debt Repayment

It’s a warm Saturday afternoon, and you’ve decided that you deserve a day out on the town with your friends. You’re exhausted and burned out from a too-long work week, sick of the grind and needing a break. You’ve been so thoughtful lately, you think, minding your budget, that you deserve to splurge a little. You hit the mall with a gaggle of friends and start swiping; more than a few bag handles circle your wrists as you reach for your credit card to pay for overpriced popcorn and soda at the complex’s theatre. You haven’t gotten your paycheck yet, but that’s okay – you know that your credit will cover you for now. When you check your banking app the next day, though, you can’t quite believe the number that blinks up at you. How can your credit balance be so high?

 

Sometimes, using a credit card to cover purchases can feel like playing with Monopoly money. We spend and spend and spend, knowing that we don’t have to pay back our debt right now. The fact that the money will need to be paid back at some point is a concern for later…until later rolls around to the present, and we face a veritable mountain of debt. According to a 2017 nerdwallet study on household debt, the average American consumer owes $15,983 in credit card debt. Totaled across the nation, that’s $931 billion owed by US consumers. Paying off this debt is an intimidating endeavor, but not an impossible one. Here, I provide a few strategies for a quick and efficient debt repayment.

 

Put the Cards Down

If you want to lower the mountain, why would you add to its height? Stop using your credit cards, and avoid making purchases that would add to your overall balance. Steering clear of credit for a few days or weeks might help you keep better tally of how much you actually spend in a day; the dues feel dearer when you have to pay them immediately, rather than at some hazy later date.

 

Revisit Your Budget

Take a closer look at your current budget! Can you trim any of your costs? Be tough but fair with yourself; you probably don’t need Netflix, Hulu, and HBOGo. Being on a budget doesn’t require you to give up all entertainment, but treating yourself should only go so far. Once you have a pared-down budget, you can start crunching the numbers and make an estimate of how much you can afford to apply towards your debt each month. Remember, paying off your balance now will greatly decrease what you pay in interest later!

 

Pick Up a Side Hustle

Trimming a budget can only go so far. In the end, you’ll make more from a part-time job or side hustle than you would ever save by canceling subscriptions or couponing. Find a money-making gig that can fit with your schedule!

 

Apply Unexpected Income Sources Towards Your Balance

It can be tempting to splurge when you find yourself with an unexpected windfall. However, the money you spend on luxuries now could be handicapping your ability to pay for more basic needs later. Put bonuses, inheritances, and tax refunds towards paying off your debt! Once you live debt-free, you will be able to afford splurging now and again.

 

Be Consistent

Debt repayment won’t happen unless you hold yourself to a firm budget and repayment schedule. Be consistent! As much as it might hurt to pass on dinners out or afternoons at the mall, your debt-free future self will be much happier and more financially secure for your efforts.