Whoo hoo! Ready for a nice, fat refund check from Uncle Sam? In November, the IRS reported that the average tax refund it processed during 2015 was $2,785.
All too often, such extra money makes people splurge, even while they imagine they’re saving it. How do you make sure this year’s windfall makes your life better in the long term? Try these nine ways.
Idea No. 1: Pay down high-interest debt
High interest rates can lead to the accumulation of devastating debt. Eventually you can end up with payments so large that it becomes difficult to do more than pay the minimum required each month.
That’s why one of the best uses for a windfall is to use it to pay down, or pay off, your debts with the highest interest rates.
Think of this way: Paying off a debt with a 15 percent interest rate is like earning 15 percent, risk-free and tax-free. That’s an investment virtually impossible to find these days.
When you’ve paid down your debt, don’t stop. If credit-card debt, payday loans or other high-rate debts have been a problem, use this moment to escape the cycle. Choose from trustworthy sources of free credit counseling and get help.