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.”
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.
1. You can save on the interest rate payments
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.
Making only the minimum payments is a bad idea.
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.
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.
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.
Thus, you can save on interest payments and feel a psychological win.
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.
So, always use your brain before making unnecessary purchases. After all, it's your hard-earned money!