You are expecting a pretty hefty income tax refund this year, let’s say, over $2,500.00, and you are getting ready to catch up on those delinquent credit card payments. While this seems like a good idea, there might be a better place for that money to go.
Let’s say you make the payments on these cards, but the circumstances that caused you to fall behind have not been cured. Or, you make those payments on the cards, but next month, you'll still only be able to make the minimum payments, or maybe not even that much.
If you’re in this situation of owing a lot of money on loans or credit card bills, what you need to do first is consult with us at one of our many offices, including locations in Pittsburgh and Erie. We can determine whether spending your income tax check is the way to go.
Why You Should Keep Your Refund
I have a client who owes about $30,000 in credit cards and personal loans. Their monthly payment is about $800.00 per month and the client has fallen behind by a couple of months. The client is going to get an income tax refund of almost $4,000.00, and wants to not only make up the two payments they are behind, but they want to pay ahead by a couple of months. That will use up virtually the entire refund, leaving about $50.00 to go out for dinner.
When I looked at the client's finances, I noticed they only had about $300.00 available each month to pay these debts. Even if they bring these bills up to date, and pay them in advance, they are still going to be short by $500.00 per month when it is time to pay them again in three months.
Steidl & Steinberg Is Here To Help
With this particular case, I suggested the clients file a Chapter 13 bankruptcy, where you pay back your creditors based on the amount of money you have available. In their case, it is $300.00 per month. Over the period of the Chapter 13 bankruptcy plan, they will pay the creditors a percentage of what they owe, and the rest of the debt will be discharged at the end of the plan. And, of course, the clients will keep their house, car, and everything else.
So what should they do with the income tax refund? They should put it away for the emergencies that inevitably come up: car repairs, house repairs, kid issues. They will feel a lot better knowing the money is in the bank, ready to go if they have a real need, without adding on additional credit debt. And they can still go out to dinner. Schedule a free consultation with one of our Pittsburgh bankruptcy lawyers (or the lawyers in our additional offices) before you spend your tax refund this year.