Get to know how to take care of everyday expenses with your tax refund. This piece was written by Elaine McPartland from ConsolidatedCredit.org and gives some thoughts about what you can do with your return.
According to a Princeton Survey commissioned by Bankrate, about one in four consumers plan on using their tax refund this year to cover every day expenses and necessities.
While this is definitely a better use for a tax refund during this continued economic slowdown versus splurging on a vacation or an expensive impulse buy, it’s not really doing anything to provide long-term financial relief. Although you may get ahead for a while, eventually after a few months the bills and problems with your budget will be back in full force.
Each debt that is paid off reduces the number of obligations you have to worry about each month while freeing up more free cash flow in your budget
Instead of using your refund for everyday expenses, why not use it to improve your financial outlook overall? By using your tax refund to pay off credit card debt, you can reduce your monthly debt payments to improve your financial outlook over the long-term. This gives you more money to cover everyday expenses in your budget without needing extra money to do it.
Since credit card debts are paid on a revolving payment schedule, your bill payment requirements vary based on how much you owe in total. When your debts are high, your bill payments will be high as well. If you can eliminate a large portion of your debt with your tax refund, then your bill payment requirements will decrease.
Consider that the average tax refund this year is expected to by $2,913. Now let’s say you have a credit card with an outstanding balance of $5,000. Depending on the assigned payment schedule, your payments should be between $125 and $150. Now let’s say you use your entire refund to pay off a portion of this debt.
Your monthly payments would decrease to between $50 and $65. That’s a big difference that can then provide an opportunity to reduce your debt load even further.
Essentially, you can use the money you save from one bill being decreased to make extra payments on the debt. This will allow you to pay off more of the principal debt instead of just the interest accrued in that month. You can pay off the debt quickly and eliminate one obligation completely.
Once that debt is eliminated in full, then you have even more money available to eliminate other credit card debts.
It is very important to rememebr that when your debts are high, your bill payments will be high as well. If you can eliminate a large portion of your debt with your tax refund, then your bill payment requirements will decrease.
Each debt that is paid off reduces the number of obligations you have to worry about each month while freeing up more free cash flow in your budget.
This piece was written by Elaine McPartland from ConsolidatedCredit.org and gives some thoughts about what you can do with your return.
Everyone Loves A Tax Refund
