It’s tax season and for many people that means a tax refund is on the way. It’s tempting to think of a refund as a gift or found money but in reality, it’s YOUR money, money you EARNED! When you think of a tax return as found money it’s easier to spend that money in a more frivolous, non-essential way. But, when you recognize that a tax return is money you already earned, you might be more inclined to use that refund for essentials, such as paying off debt, and that’s a great way to put your money to work.
If you decide to use your tax refund to pay off debt, prioritize high-interest debt such as credit cards or personal loans which can each carry interest rates from the high teens into the mid-twenties. And, be wary of tax preparers’ offers of an advance or loan on your projected refund if you hire them to prepare your tax return. An advance or loan will let you borrow against your projected tax refund and give you the money immediately but you will pay fees and interest on money that is actually already yours. That’s right, you will be paying for access to your own money and in the end receiving less due to fees and interest. The IRS says most refunds are issued in less than 21 days but you can get your refund quicker by filing electronically and choosing direct deposit.