Let Uncle Sam Help You Pay Off $5,000 of Debt

Photo (cc) by Andres Rueda

Think you don’t have any money to pay down debt? If you’re an average American, you may have more than you think.

Much of what I’ve done for the last 20 years, in both books and news stories is talk about debt: specifically why you should avoid it, and how to find the money to destroy it. Most of the money I suggest harnessing for debt destruction comes in dribs and drabs from doing things like smart shopping and avoiding dumb deals.

But sometimes there’s something big you can do. This is one of those times.

Watch this 90-second news story, then meet me on the other side for more:

Just to make sure you got the concept, here it is again in a nutshell:

  • Take your tax refund for 2009 and apply it directly against your credit card or other debt. If you’re the average taxpayer, that should amount to $2,400.
  • If you’re not expecting your income tax situation to change this year, head to the IRS withholding calculator. See if you can get a bigger paycheck by legally increasing your personal exemptions, thus having less withheld.
  • File a new W-4 with your employer and get a fatter paycheck.
  • Put every dime of that new-found wealth against your debts. If you’re the average taxpayer, that should amount to $200 a month.

Grand total? $4,800 less debt in 12 months with little sacrifice, because you’re essentially using money you were already putting aside; you just stopped lending it interest-free to Uncle Sam and started using it for a higher purpose.

This strategy will obviously help destroy your debts. But just to drive the point home, let’s see exactly how much.

Let’s assume you have a $5,000 balance on your credit card and you’re currently paying 18% interest and making minimum payments (the interest, plus 1% of the balance.) Here’s what your future looks like:

  • Time to pay it off: About 23 years
  • Total Interest: about $7,000

Now assume you use the tax refund method. Here’s what that would look like:

  • Time to pay it off: 15 months
  • Total Interest: About $300

So there you have it: if you can find an extra $200 a month, you can save close to 7 grand.

And if you don’t have a $2,400 tax refund heading your way and/or can’t modify your W-4 to find an extra $200 a month? Find it elsewhere by checking out other tips in our Ways to Save category or elsewhere to find the extra money. Because whether you can get Uncle Sam to help or not, destroying debt will put thousands of dollars into your pocket rather than your banker’s. It’s just that simple.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Why Is My Pension Killing My Social Security Benefit?
Why Is My Pension Killing My Social Security Benefit?

A reader says the government is penalizing him for having a pension. Is he right?

14 Products That Keep Foods Fresh Longer
14 Products That Keep Foods Fresh Longer

We’ve rounded up innovative Amazon purchases to lengthen the life of your favorite foods and beverages.

5 Simple Steps to an Awesome Retirement
5 Simple Steps to an Awesome Retirement

The path to your dream retirement begins with these five steps. How many have you already taken?

How to Get the Best Deal on Homeowners Insurance
How to Get the Best Deal on Homeowners Insurance

If you’re not using the latest policy comparison tools, you’re probably paying too much.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

12 Deep Discounts Available on Amazon This Friday
12 Deep Discounts Available on Amazon This Friday

These items are steeply discounted — but the deals won’t last long.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.