Are you looking forward to a Tax Refund this year? Tax season is upon us, and you might be getting a refund. While it may be tempting to spend your refund on a new TV or set of dumbbells for your home gym, you should sit down and see what will have the most significant return on your money. Here are six ways you can spend your refund this Tax Season:
Pay Off Debt
If you have large amounts of debt, you may want to consider using your tax refund to pay it off. Revolving debt, such as credit cards, charge interest every month you hold that balance. If you are making the minimum payment on these cards, it can take years and thousands in interest payments to reduce the balance.
Lowering your credit card balances will also help increase your credit score. A lower score can qualify you for better interest rates on car loans or mortgages.
Down Payment on A Mortgage
Another great way to invest in yourself is to use it as a down payment on a mortgage. Using your refund as a down payment can:
- Build equity in a home
- Keep your housing payment low while rents increase
- Take control of your financial future
Emergency Fund
Do you have an emergency fund if things go wrong? Your emergency fund should be 3-6 months' worth of expenses. If you do not have medical insurance, you may need even more. Having a cushion can help in case:
- You or a spouse lose your job
- Unexpected housing expenses
- School expenses for children
- Other unforeseen scenarios
An FDIC approved high-interest account is recommended. This way, you can earn money back, but it is accessible at all times. Your emergency fund should not be the same as an investment account or 401k.
Get Ahead on Monthly Payments
If you made one extra mortgage payment per year, you could potentially shave years of interest and time off the life of your loan. If the idea of debt scares you, making these extra payments can help propel you towards your end goal.
Education
If you would like to improve your monthly income, you can spend it on education:
- College classes
- Certifications
- Online courses
- Coaching/mentorship
Treat Yourself (Smartly)
While it is essential to allocate your money into something that will pay off, life is supposed to be fun. If you put most of your refund towards a smart investment, then make sure to treat yourself.
If you wanted to use your tax refund to purchase a home, click here to get started. Our DRMC loan experts will help you determine what it will take to buy your dream home!
