Could your tax return help in your debt management efforts?

Tax season is just around the corner, and many Connecticut residents are already planning how to spend their returns. For those who are struggling with debt management, an influx of cash could take a nice bite out of an existing debt load. Understanding the best way to allocate a tax refund can help consumers make the most of this and any other windfall.

It may be tempting to make a big purchase with a tax refund, but there are usually better ways to spend that money. For those who carry large balances on high interest credit card accounts, paying down those accounts is an excellent use of those funds. Begin with the highest interest rate, and move down the list from there. 

One thing to avoid is using tax refund anticipation loans. These lending products charge extremely high fees to access the value of a tax refund. A better approach is to simply file early in order to get the return back sooner. 

Another good use of a tax refund is to secure more reliable transportation or make needed auto repairs. Some people use the money to create or bolster an emergency fund. Even paying down backed up utility bills is a good way to put a refund to use. 

As with so many financial issues, planning ahead is key to making savvy decisions about how to spend a tax refund. For some in Connecticut, a cash infusion can be enough to restructure existing debt. For others, a more intensive debt management program is necessary. For an overview of available options, schedule an appointment with an experienced bankruptcy attorney and create a plan of action. 

Source: mcphersonsentinel.com, “Plan before spending tax refunds“, Jana McKinney, Jan. 10, 2018