The average tax refund in 2017 was $2,895, according to the IRS. While that may feel like a windfall, your refund can go fast if you don’t have a plan in place. If you anticipate a refund this year, make sure you are using the funds to your advantage and decide now what to do with the money.
Two popular options are paying down high interest debt or saving your money. Which option is right for you? It really comes down to your financial situation. Here are some things to consider:
Paying debt – If you have high interest credit card balances, paying down that debt is one of the smartest things you can do. With the national average credit card APR at around 16%, consumers can save big in the long run on high interest charges, which compounds month after month, making balances harder to pay off with minimum monthly payments.
Saving – Ideally, it’s great to have three to six months of living expenses set aside for emergencies, lost income, or unexpected repairs. However, that amount can be daunting, so experts say $1,000 is a good first goal when starting an emergency fund. If you already have three to six months of expense set aside, you may want to save for big ticket items, like vacation, braces or tuition.
Can’t decide? You may want to consider a combination, putting some towards debt and some towards savings. Look at your numbers using a variety of scenarios to help you determine what is best for you.