Along with those refunds come questions about how that money might be spent. Of course, the temptation to splurge on something extravagant is always an option, but personal finance experts have offered other options that might prove smarter in the long run.
A recent survey conducted by
The survey of 1,213 taxpayers, which was conducted during the first part of March, found that 25 percent of those polled cited debt as the obstacle that posed the greatest challenge to saving their refunds. Paying down debt may not be the most sexy way to spend an unexpected windfall, but it will help those who do achieve a sense of financial security.
Personal finance experts say taxpayers should devise a debt-reduction strategy to maximize benefits. That strategy should include a list that identifies which debts should be paid down first and those from which taxpayers benefit — home mortgages and many student loans are examples of advantageous debt.
Most experts agree that high-interest credit card debt should be at the top of a debtor's list. That can be one of the most expensive forms of household debt and will burden those who opt to make the minimum monthly payment.
“One way to potentially optimize payment of your debt is to first make the minimum payments required for each debt, and then allocate any remaining dollars to the debts with the highest interest rates,” the organization recommends as part of its debt strategies. “If you make only the minimum payments, it may take a long time to pay off the debt, and you may have to pay large amounts of interest over the life of the loan.”
Another alternative is to invest the refund in a retirement fund to achieve long-term objectives or some other investment account for short-term savings goals. Any savings not reserved for retirement, Collins said, can come in handy when an unexpected expense arises.
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