If there's one thing that can get a person through the cold, snowy winter months, it is the hope of receiving a healthy refund from your income tax return. The question then becomes, what is the best use for this money?
Should I pay my bills with it? Well, that depends on many factors, including how much of an impact your income tax refund is going to have on your bills.
Here's an example: Let’s suppose you owe $30,000.00 in credit cards, your normal monthly payment is $750.00, that $750.00 is paying mostly interest, and you are about to get a refund of $3,500.00. So what happens if you give up all of your money to your credit cards in this situation?
Without knowing more, and I can only speculate, but consider this: after you pay the $3,500.00, you will still owe $26,500.00 to your creditors. And your payment to them will not have gone down a lot, maybe to $675.00 or so, and again, mostly interest.
So now you have spent all of the money that you could have saved for an emergency, and you are still having trouble making the payments. What have you really accomplished?
Am I saying that you absolutely should not use your tax refund to pay creditors? No, I can’t say that until we meet and go over your finances in much more detail. But before you hand over that hard-earned money, get some good advice from those who examine these situations on a daily basis.
The last thing you want to do is throw out your possible emergency money unless you are assured a good result.