How to Spend Your Tax Refund

A tax refund is not money that you won in a lottery, it is your hard-earned cash that has been sitting with the IRS. Therefore, rather than spend your tax refund on a shopping spree, consider it as one of your earned paychecks and use the money wisely to benefit your financial future.

Things You'll Need

• Bank statements
• Credit card statements

Instructions

1. Avoid placing your money into your savings account. Even if you have a high-interest savings account, the rate of inflation does not always match interest rates that most banks offer, primarily because the buying power of the dollar is decreasing at a faster rate than savings account interest rates in 2011.

2. Pay off your credit card debt. The wisest way to use your refund money is to get debt free. Do not pay off the credit cards that have an ongoing promotion of zero percent APR. Pay off your high-interest credit debts first.

3. Divide the rest of your refund into three equal parts. Apply one part of your tax refund to the principal of your auto loan. Decreasing your principal balance reduces the amount of your monthly interest.

4. Apply the second part of your tax refund toward the principal of your mortgage. This will again decrease the monthly interest amount.

5. Invest the third part of your tax refund into an IRA, mutual fund, stocks or an investment account of your choice to save toward your retirement.

Tips & Warnings

• Call your auto creditor first to get the right payment mailing address for the principal payments. Most of the major auto creditors have different addresses for the regular monthly payment and principal only payments.