Ask Andy: What to do with your tax refund - WMC Action News 5 - Memphis, Tennessee

Reported by Andy Wise

Ask Andy: What to do with your tax refund

Maybe you're one of the lucky ones who got -- or is about to get -- a tax refund.  Maybe you have big plans for that refund check.

Change your plans.

Take that tax refund and pay off your credit card balances, starting with the one that has the highest interest rate if you carry more than one.

I know what you're thinking: "Big buzz-kill, Andy! I was banking on a trip or a plasma TV!"

Well, think of it this way:  the average tax refund this year will be about $2,700. Let's say you're carrying a balance on a credit card that has an 18 percent APR. Taking that $2,700 tax refund and putting it toward your balance would save you $500 in interest payments the next year, assuming you just made the monthly minimum payment. 

"If your APR is 18%, decreasing your balance is similar to making an 18% return on your money," says Bill Hardekopf, President and CEO of www.lowcards.com.  "These days, you can't find a sound investment with better returns than this."

Hardekopf says there are more benefits to spending your tax refund on your credit card balances.  For one, it INCREASES YOUR CREDIT SCORE by reducing your debt to credit ratio. That could mean LOWER RATES ON FUTURE LOANS. It also PROVIDES EXTRA PROTECTION against fluctuating terms and conditions. The lower your balance, the less those changes cost you.

That means more financial freedom in the future to spend future tax refunds -- on that trip or plasma TV!

 

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