Would You Pay-Off Debt With Your Tax Refunds?

Pay off debt with your tax refund

The deadline for filing your tax returns is fast approaching. And that means you’ll soon be getting tax refunds. Have you decided what you’d do with the refund money? Put it in your savings maybe? Plan that long-due vacation? Or would you invest it? Well, there’s also another option a large percentage of Americans have in mind- Pay-off debts! Yes, that’s what 41% of respondents said in a recent survey by FDR.

What are Americans willing to Give-Up to be Debt-Free?

Freedom Debt Relief surveyed over 2000 Americans in the age group of 18-65 on what they would give up to get out of debt. Surprisingly, according to this FDR Survey, most respondents were ready to sacrifice a great deal to be debt-free. It’s interesting to note that 21% of respondents said they would part with vacationing for 10 years, 22% would stop dining out, and 13% would give up the right to vote.

Much smaller percentages of respondents were willing to give up their phone, internet, or driver’s license. But what’s more remarkable is that a larger majority of respondents said they would instead use their cash windfalls to get out of debt.

Also Read: Stop Your Debts from Snowballing – Get a Loan for Debt Consolidation

Using Tax Refunds to Pay-Off Debts

When the respondents were asked what they would do with their tax refunds, 7% said they would invest it, and 26% planned to put into their savings account.  But the larger 41% said that they would use their tax refunds to pay off debt. Interestingly, this underscores one of the predominant struggles of an average American adult- dealing with credit card debt.

So, is it a good idea to use your tax refunds to pay-off high-interest debts? It definitely sounds like a smart way to put your refund money to use. In fact, your tax refund may be ideal for paying off credit card debt. Here’s why.

3 Benefits of Using Tax Refunds to Pay-Off Debts

Using your tax refunds to pay down, or even pay-off your high-interest credit card is sure to bring you a great deal of financial relief. And especially so when your credit card debt is so much that starts eating up your monthly budget. That’s probably why this idea seems to be growing very popular. Here are more reasons why this makes sense:

  • Helps you save money on interest- The interest portion amounts to a large percentage of your credit card debt. Credit card issuers charge an average interest rate of 17.65% annually. And you know how credit cards work. As long as you keep making minimum payments, you will virtually carry this debt forever. So the only way you can avoid it is by transferring your credit card debt to another card with 0% APR. But not everyone qualifies for this type of credit card. And so, an easier way to pay down your debt is using your tax refund. This is your best bet for saving on interest.
  • Gives you a chance to boost your credit- Credit card debts have a tendency to pull down your credit. Did you know that the “amounts you owe” have a huge influence on it?  They account for 30% of your FICO score. So higher your balances, lower is your credit score. This means that paying off the debt is your only chance for redemption. And your tax refunds provide this opportunity. This money can help you reduce your debt and quickly improve your credit-utilization ratio.
  • You don’t have to use up your savings- It’s always painful when money leaves your bank account. Although you badly want to be debt-free, you don’t want that to dent your savings. But when you pay off your debt with tax refunds, your savings remain untouched. This makes it a less painful process.

So paying off debts with your tax refund money is certainly a smart idea. However, if you’d rather put tax refunds to some better use, just make sure you don’t neglect your credit card debt. Whether you like it or not, debt doesn’t go unpaid. Consider other options such as credit card refinancing or debt consolidation loans. Get in touch with Lendvious for a quick solution to your credit card woes, and set off on a fresh financial journey!