taxrefundchckEach year, Americans file their taxes in anticipation of receiving “free” money. Some of us, who are not as lucky, have to pay Uncle Sam back. While others eagerly awaits their refund so that they can spend it on a new car, TV, vacations, and a host of other non-detrimental things. However, the best way to get the most out of your refund is to save it, invest, and/or pay off debt.

 

To help those who are wondering what to do with that check or direct deposit, here are 5 Sure-Fire Ways to Get The Most Out of Your Tax Refund:

 

1. Pay off or reduce your credit card balances – If you are far behind in payments, you are probably one of millions of Americans with a low credit score. Most credit ratings are lowered because of overdue payments and huge balances. Get back on track by using your refund to pay off that debt. Not only will that help raise your credit score, but it will also put you back in good standings with the credit card company.

 

2. Pay off loans or make additional payments – You’d be surprised at the number of people who obtain payday loans or cash advances. The idea was to use your job paycheck to pay the loan back – little by little each month. Of course, things don’t pan out as planned. Your interest rate is increasing and you fall deeper in debt. This applies to mortgages and auto loans too. It is best to use your refund to pay these loans off completely or pay on them. For mortgages, get ahead of the 30-year fixed and double up on a monthly payment. It will help you lower your principle significantly.

 

3. Settle your collections account – Stop the collectors from harassing you by paying off your debt. Out of all the things that can negatively affect your credit score, an unpaid collections account is the worst. Even if you settle your collections account, this does not improve your score. However, it will definitely make it easier to get approvals on other loans or credit accounts.

 

4. Save money for a rainy day – Having a savings account (other than your 401K) is important. A savings will allow you to store your refund in case of an emergency (i.e. loss of job, major home repairs, etc). Always save up to 6 months of emergency funds. If you do not have a savings account set up, this is the perfect time to open one.

 

5. Invest – There are many options available in terms of investing. You have mutual funds, bonds, stocks, real estate, and so on. If there’s a business you’ve always wanted to start, your refund may help get it off the ground. Of course there’s risks to owning a business, but at least this is a risk that could potentially be profitable. Contact a financial advisor for assistance. Figuring out what type of investment is good for you will be overwhelming. But, once you sit down and learn the pros and cons, you’ll soon see that using your refund was well worth it.

 

Hopefully, these tips are found helpful. Even if you decide to take your family on a vacation, don’t spend it all on the trip. Save a portion of your “free” money and put it towards one of the five options listed above.