Do you have an income tax refund check coming your way? So far in 2011, the IRS has issued more than 45 million tax refunds and the average refund was $3,129.
If you’re anticipating a tax refund check this year, it may be tempting to splurge on an expensive high-tech gadget or go on a shopping spree. But in the long run, there are better ways to use that tax refund check — including some ideas on how to have fun, yet still be frugal.
Here are five smart ways to put that tax refund check to good use this year:
1. Invest in Yourself
Enroll in a class or professional development program you’ve been meaning to take for a while, buy that gym membership you’ve been putting off, or go to that business conference you could never previously afford to attend. Using your tax refund check to improve your personal or professional life is a great way to make use of the extra cash.
Even something as simple as hiring a career coach, image consultant or a personal stylist can help you put your best foot forward and feel better about yourself. It may even help you get a promotion or land a new job if you’re seeking employment.
“We all have those professional development goals we hope to accomplish ‘someday’,” says Emily Bennington, founding partner of Professional Studio 365 and co-author of Effective Immediately: How to Fit In, Stand Out, and Move Up at Your First Real Job. “Problem is, ‘someday’ never seems to come around unless you make a commitment. If you use your refund wisely on something that can measurably benefit your career, there’s really no better investment you can make than in yourself.”
2. Pay Off High-Interest Credit Cards
Eliminate high-interest debt by paying off all or a large percentage of your credit card balances.
“I always recommend that people take 10% of a tax refund check and just have fun spending it. But the other 90% should go to paying down debt or saving money,” says Russell Graves, Executive Director of Consumer Credit and Budget Counseling in Marmora, NJ.
Reducing or eliminating debt can boost your credit rating and improve your monthly cash flow. Paying off debt with your tax refund check can also relieve some of the burden of carrying a heavy debt load this year.
3. Save For An Important Goal
Use a big chunk of your tax refund to open a high-yield savings account that will help you achieve an important future goal. For example: are you planning to get married or thinking about buying a home next year? Then create a dedicated savings account to get you closer to reaching those goals.
Seek out a savings account that’s FDIC insured, with a great rate, and that offers flexibility and easy access to your money when you need it. One good option that fits the bill is Capital One’s InterestPlus Online Savings account. It’s currently paying a 1.10% annual percentage yield (APY) on balances of $1,000 or more — way more than the .21% APY national average — making it a great choice for those looking to snag one of the best savings rates available from top national banks. Even better, if you keep a $10,000 average balance in the account or use a Capital One credit card at least once a month, you’ll qualify for a 10% quarterly bonus on interest earned.
4. Make an Extra Mortgage or Car Loan Payment
Pay off that mortgage faster and reduce the balance on that car loan with this year’s tax refund check. Reducing the loan balance on these larger accounts can also reduce your monthly payments, or at least shorten your debt repayment period. Making a larger, lump sum payment toward a mortgage or a car loan payment can also increase your net worth because you will be carrying less debt.
5. Book a Vacation Early
If you’re considering taking a vacation this year, plan as far in advance as possible to get some great deals on airline tickets, cruise packages, hotel rooms and all-inclusive resort vacations. Booking early can save you money and stretch those tax refund check dollars. Take some time to shop around for the best deals and use travel aggregator sites to compare rates on flight and hotel packages.
Even though last-minute travel deals abound, you can often score even better deals when you plan your trip at least three months in advance. Booking early will also give you time to pay off your travel before your getaway, reducing the chance that your vacation will wind up creating lingering credit card bills.
From planning a fun but frugal getaway to investing in yourself, there are several smart ways to use your tax refund check. Use any of these tips to make some wise financial decisions about what to do with your tax refund this year.