Good ways to put your tax refund to use

Congratulations for getting your taxes done and filed. If you’re in line for a refund — or already have received one — you’re in good company. A majority of US filers typically do get money back. And this year is no exception. Based on the latest data from the IRS, as of April 4, the agency had already paid out $211 billion in refunds to nearly 68% of the households that had filed returns to the agency. The average payout was $3,116. Whatever amount you’re getting, it’s worth taking a beat to consider how best to use it to improve your current financial situation. And by “best,” think getting the most bang for your buck and increasing your psychological sense of security in what are objectively very uncertain times thanks to the confusing on-again, off-again US tariffs regime, among other things. Get a 20% risk-free return It’s hard to overstate just how many financial experts consistently hammer home the point that whenever possible you should pay off your expensive credit card debt. The average rate on a consumer credit card is 20.09%, according to Bankrate.com. So if you reduce or eliminate your debt at that kind of level, “it’s a 20% risk-free return,” said Greg McBride, Bankrate’s chief financial analyst. If you’re carrying balances on different cards at different rates, mathematically it makes sense to pay off your highest rate debt first, McBride said. But Dan Bennett, a certified financial planner with Lake Water Advisory, also noted that “there’s a spreadsheet answer and an emotional answer.” By that he means it might make you feel good to use your refund to wipe away a smaller balance on a card so you can rack up a psychological win in paying off all that you owe. That’s okay, he said, but only if the rate on the debt you want to eliminate is no more than five or six percentage points below that of your largest balance. If the differential is much larger, it makes more sense to apply it to your highest rate debt. If your refund reduces but does not eliminate your credit card debt, see if you qualify for a zero-interest balance transfer card, which can buy you up to 21 months interest free to pay off your remaining debt, said Jody D’Agostini, a certified financial planner with Falcon Financial Group in alliance with Equitable Advisors. Cushion yourself against emergencies Figure out how much cash you have for emergencies, including job loss. Ideally you’ll want three to six months’ worth of living expenses set aside; or up to a year’s worth if you’re self-employed or are your family’s sole breadwinner. Or, D’Agostini suggested, you might consider having nine to 12 months’ worth of expenses if your job is reliant on federal government contracts, which may be cut back; or you otherwise work in an industry that isn’t offering great job security. “Employers are taking longer to hire these days. And you don’t want to (just) get a job. You want to get the job that you want. And you don’t want to feel crunched to make a decision if your money is running out,” she said. While recommended emergency-fund cash levels are hard to attain for many people, “They are a destination, not a starting point,” McBride said. “A refund can propel you down that pathway.” And the good news is your emergency cash can earn a solid, inflation-beating return if you park it in an online high-yield savings account at an FDIC-insured bank, in a money market mutual fund, in a certificate of deposit or in a short-term Treasury bill, all of which are currently yielding roughly between 3.8% and 4.5%. “You’re still rewarded for cash right now,” D’Agostini said. Split your refund to hit more than one goal Chances are you may have competing financial goals. “It’s not necessarily either-or. If your windfall is big enough, you can make progress on multiple fronts. That average of $3,100 might let you pay down the last of your credit card debt, put some money in your emergency savings and then use the final chunk to take care of deferred maintenance on your home or automobile, so it doesn’t cost you more later,” McBride said. Or, if you’re not feeling like you’ve got adequate job security, you might put your refund toward an emergency savings account, while using the earnings from that account to pay down some of your credit card balance on a zero-rate balance transfer card, D’Agostini suggested. Take advantage of lower stock prices Another way to split your refund is to divide it between short- and long-term savings, assuming you’re not carrying credit card debt. Or, if you already have enough in emergency reserves, you can simply put the money towards your retirement savings. For instance, Bennett suggested taking advantage of the fact that the market rout in the past few weeks pushed stock prices lower. If you qualify to contribute to a Roth IRA — where your after-tax money can grow and be withdrawn tax-free — “it may be a great opportunity to max out now,” Bennett said. Especially if you have a really long time horizon. Spend your refund smartly If you’re fairly well set — no credit card debt and adequate emergency and retirement savings — you might consider buying something you want or need. While higher prices from President Donald Trump’s tariffs regime haven’t filtered down to the consumer yet, they will, possibly as early as this summer — unless there are major changes to his trade policy. There’s no predicting anything. But if your old car or washing machine is on its last legs anyway and you were planning to get a new one later this year or early next, you might consider using your refund towards making the purchase a little sooner before the cost rises and inventories run out, D’Agostini said. Or, if you have the cash flow and you’re worried about potential layoffs, you might consider using your refund to help pre-pay essential expenses — e.g., home and auto insurance expenses for the rest of the year — if that would make you feel more secure, Bennett said.