NEW YORK — The average taxpayer received a $2,852 refund, $75 more than last year, according to the latest IRS data. So what should you do? What to do with that money?
Experts generally Debt and savingsBut for many people, that’s unrealistic.
Courtney Alev, consumer finance advocate at Credit Karma, says tax refunds are typically “the biggest windfall of the year.”
“What we’re seeing is a trend towards tax refunds as a splurge, with one in four taxpayers viewing their refund as free money and intending to spend it on things they wouldn’t normally spend,” she said. “With the rising cost of living and High Interest RatesThe best thing you can do is use it as an opportunity to further your financial goals.”
Emily Garcia, 30, who works in marketing for a medical imaging software company in Toledo, Ohio, said she and her husband, who filed jointly, received about $1,000 in a tax refund and used the money on patio furniture.
“I wanted to decorate my backyard nicely, and furniture isn’t cheap,” she said. “I was glad I got my refund check so I could buy what I was looking for.”
Garcia and her husband bought a home two years ago and are still paying off the debt, but they decided not to use the money to pay off their mortgage.
“The debt isn’t going anywhere,” Garcia said. “A thousand dollars isn’t a lot, but it’s enough to buy furniture and stuff.”
Megan McClelland, 38, a head counselor at a high school in Petaluma, California, has been using her $1,000-plus tax refund for trips with her bachelorette, weddings and other getaways.
In October, McClelland had her outstanding student loan payments forgiven. Public Service Loan Forgiveness ProgramShe says the $500 she had budgeted for her monthly student loan payments is now in a savings account, and she sees the refund as an opportunity to spend “on things that I probably wouldn’t be able to pay for otherwise, or that would put me in debt.”
McClelland said that in the past, people would usually have had to work extra shifts, take a part-time job at a winery or work in catering, or pay for their trips with a credit card, but now they can use their tax refund instead.
“Tax refunds are something I would consider more ‘fun money,'” she said.
As of the end of last month, The IRS has processed about 141 million tax returns. And it would return about $261 billion to taxpayers in 2023, up 2.2%.
Matt Schultz, chief credit analyst at LendingTree, agreed that the most financially sound thing you can do with your tax refund is to pay off debt and go back into savings, but said you shouldn’t choose one or the other, but rather do both at the same time.
“If you pay off your debt to zero and have no savings, the next time you have an emergency expense like a flat tire or taking your dog to the vet, it will be paid off on your credit card, putting you back in debt,” he said. “If you can slowly build up savings as you pay off your loans, you can break the cycle of debt that so many people fall into.”
Alev said, “Life is short, we like to treat ourselves, and there are a wide variety of reactions to tax refunds. Our number one advice is to use that refund to get your financial life back on track. At Treetop, that’s what we see and what we advise.”
