The average tax refund this year is $2,852, about $75 more than in 2023, the Internal Revenue Service (IRS) said.
Experts suggest the two most financially beneficial ways to use the proceeds are to pay off outstanding debts and put the rest toward savings.
One financial advisor suggests that people should do both at the same time, rather than choosing between the two.
“Even if you’re debt-free and your savings are gone, the next thing that happens is the next time you have an emergency expense like a flat tire or taking your dog to the vet, that expense goes to your credit. It just comes back.’ Once you get the card, you’re right back in debt,” said Matt Schultz, chief credit analyst at LendingTree.
This year, IRS data shows the average tax refund is $2,852, an increase of $75 over 2023.
“If you can increase your savings while paying off your loan, you can break the cycle of debt that many people find themselves in.”
Courtney Alleb, consumer finance advocate at Credit Karma, said tax refunds are typically “the biggest additional benefit of the year.”
“One of the things we’re seeing is that people tend to think of their tax refund as a splurge. One in four taxpayers think of it as discretionary money; I’m thinking of using it for things I wouldn’t use it for otherwise,” she said.
“This behavior is completely understandable, but given how hard people are with the rising cost of living and high interest rates, the best thing you can do is use this as an opportunity to advance your financial goals.” continued Alev.
“Life is short, and you want to reward yourself. And we’re seeing a lot of different responses when it comes to tax refunds. Our best tips are to use that refund to get your financial life back on track.” That’s what we’re looking at from the top of the tree and giving advice.”
For long-term stability, we recommend focusing on financial goals
Financial experts advise using refunds to clear debt and increase savings
Emily Garcia, 30, who works in marketing for a medical imaging software company in Toledo, Ohio, said she and her husband, who co-filed, received about $1,000 in refunds, which they used to buy patio furniture.
“We wanted to dress up our backyard and look great, but furniture is never cheap. It was nice to have a refund check to buy what we were looking for.” she said.
Garcia and her husband bought a home two years ago and are still paying it off, but they decided not to use the proceeds toward the mortgage.
“The debt is out of control,” Garcia said. “$1,000 isn’t much money. But it’s a good amount of money to buy furniture and things like that.”
Megan McClelland, 38, a head high school counselor in Petaluma, Calif., has spent the more than $1,000 she received back on trips such as bachelorette trips and weddings.
In October, McClelland had her last outstanding student loan canceled through the Public Service Loan Forgiveness Program, making her debt-free for the first time in years.
As of last month, the IRS had processed about 141 million returns and issued about $261 billion in refunds to taxpayers, a 2.2% increase from 2023.
She sees the refund as an opportunity to spend “something that I probably wouldn’t be able to pay for any other way,” since the $500 she had planned for her monthly student loan payment is now going to her savings account. he said. She will be in debt.”
McClelland said that in the past, traveling or putting travel money on a credit card meant working extra shifts, moonlighting at a winery or working a catering job. . Now she can take advantage of her tax refund instead.
“The way tax refunds work in my head is that they can be used for more ‘play money,’” she said.
As of last month, the IRS had processed about 141 million returns and issued about $261 billion in refunds to taxpayers, a 2.2% increase from 2023.
