The IRS reported that $324 billion in tax refunds were given during 2018 with the average refund being about $2,900. Many people have filed early this year and they are already awaiting their tax refunds. Often, deciding what to do with that refund can be a challenge. There are, after all, numerous possibilities of how you can make the most of that tax refund check.
According to a survey conducted by Credit Karma, about 22 percent of Americans plan to use their tax refund for savings this year. Many people have a spending splurge and use their tax refund for things that they really don’t need. So, opting to put those funds in savings is much more responsible. There are other ways you can use your tax refund to boost your financial situation instead of putting it into savings.
About 24 percent of those taxpayers surveyed said that they will use at least a portion of their tax return to pay down their debts. Studies were done to determine what would happen if an individual’s entire tax refund was used toward debts, and the results were somewhat surprising. Here is a breakdown of what you could do if you used your tax return toward your outstanding debts.
What If Your Tax Return Is Used Toward Your Debts
The Federal Reserve reports that the average student loan debt for an individual is $30,000. If your loan has an interest rate of about 6.2 percent, your monthly payment is about $336, and you will pay on it for more than 10 years. That means you will pay out about $40,000 total in interest and principal. If you put a $2,800 tax return toward the student loan balance, you will save $2,000 off interest fees and take 15 months off your payments.
Now look at that $2,800 tax return differently. The government is giving you back your money and that is money that you could have held onto and used to pay down your debt throughout the year. You don’t have to wait until you file your taxes to get that money back. Instead, you should consider adjusting your withholding amount, so you get more money in your pocket during the year. If you get $2,800 for your refund, divide that by 12. That means $233 more per month you could take home by having less deducted.
If you took that $233 extra you get every month and paid it toward your student loan, you will pay the debt off in half the time – in five years. Plus, you will save yourself more than $6,000 in interest. If you don’t have student loan debt, there are other debts that you can pay down with your tax return. Below are some general ideas of how you can put your tax return to work for you and save yourself even more money in the long run.
Credit Card Debt
The average household credit card debt is $15,654. If you are making the minimum payment, which is about four percent of the balance, and your card has a 15 percent interest rate, you will be paying on that card for at least 14 years. If you take your $2,800 tax return to pay on that debt by adding $233 monthly to your credit card payment, you will save $5,300 in interest and pay your card off in only 20 months.
The average loan for a used car is $19,291 with an interest rate of 8.7 percent. Most car loans range from five to six years. If you use your tax return to pay off debt by paying your $2,800 return toward the car loan, and then you adjust your deductions so you get $233 more per month next year and you pay it toward the loan, you can save $2,000 on interest and pay your vehicle loan off three years faster.
The average mortgage balance is $173,995 with a four percent interest rate set on a 30-year term. If you pay your $2,800 tax return toward it then change your deductions to get $233 more every month throughout the year that you can pay toward the mortgage, you will save $47,157.95 in interest and pay off your mortgage a full decade early.
Don’t Let Your Debts Get You In A Bind
If you have outstanding debts and you are finding yourself in tight situations with your finances, you should consider debt consolidation. With the help of a debt counselor, you can reduce payments, pay your debt off much more quickly, and save thousands on interest. Christian Debt Counselors can help stop collection calls, reduce or completely eliminate your interest rates, and consolidate all your unsecured debts into a single monthly payment.
When you work with a debt consolidation company, you can avoid bankruptcy, reduce your total debt, settle your debts in 12 to 36 months, and become financially independent. Qualifying debts that Christian Debt Counselors can help you with include:
- Accounts in collections
- Medical bills
- Personal loans
- Credit cards
- Unsecured debts
To learn more about Christian Debt Counselors and how they can help you pay down your debts today, call or apply online today for a free, no obligation quote. Now is the time to get your finances in order and not have to worry about whether you can pay your bills and how long it will take to get them paid off.