Why is tax refund ideal for avoiding credit card debt blue?

As per the IRS, in 2016, the average tax refund was about $2,860. In 2017, it is expected that almost 70% of taxpayers will receive a tax refund.

Getting a big fat tax refund is satisfying, but what will you do with the money?

Should you go for a trip with the money or pay your due credit card bills?

According to the Bruce McClary, spokesman for the National Foundation for Credit Counseling, “it depends on where the money is going to do the most good.”

If you ask me, I would like to suggest you that rather than blowing the money on a trip or luxury, you might use the money to reduce your debt burden.

Why should you use the tax refund for paying credit card debt?

Using the tax refund to pay off the higher interest debts allow you to get the fastest relief from debts easily. Most of the people are using this trick to get rid of painful debt.

As per the report of National Retail Federation survey, in the year 2016, almost 39% of American adults had used the tax refund for paying credit card debt.

1. You can save on the interest rate payments

According to the Federal Reserve, most of the credit card issuers had charged an average annual percentage rate of 13.61% on accounts, which accumulated interest on last quarter.

So, based on that calculation, if you are carrying an average credit card balance of $3000 for a whole year, you would be charged $408.3 in interest.

So, if you have huge credit card debt, the interest charges are the main culprit.

Making only the minimum payments is a bad idea.

You should try to pay as much as possible to save on the interest rate payments and to get rid of the debts fast.

2. No need to find a 0% APR credit card

Transferring existing credit card debt to a 0% APR credit card can be a smart way to lower the interest cost.

But, the problem is that 0% APR credit cards aren't easily available.

If your debt-to-income ratio is high, you may not be able to qualify for this card.

If you get a good amount of tax refund, then paying off the highest interest credit card is a wiser option.

3. Your credit rating may get improved

Carrying huge credit card debt can be the main reason behind your poor credit score.

Keeping the balances more than 30% of the credit limit hits credit score majorly.

Making a big payment to your credit card debt helps to reduce the whole debt as well as the credit utilization ratio.

Thus, your credit score may get improved.

4. It grows a sense of confidence in you

The huge credit card debt creates financial insecurity.

Most of the debtors feel they don't have other option to get rid of their debts except filing bankruptcy.

But, there are some ways you can avoid bankruptcy.

One of the wisest strategies is making the largest payment to the highest interest debt and making extra payments on other debts.

Thus, you can save on interest payments and feel a psychological win.

So, the main point is that using the tax refund can be the best choice for you to unburden your debt loads.

You don't have to use your savings or other costly option to get rid of those painful debts.

However, you need to change your spending mentality and other costly debt provoking habits to avoid such intense financial problems.

Just think about those people who can use their tax refund as per their wishes because they have no due credit card accounts!

So, always use your brain before making unnecessary purchases. After all, it's your hard-earned money!

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