Another tax season is nearly behind us. If you're slated to receive a refund, you may wonder how to best use the money. Here are five great ideas to consider for your refund dollars.
1. Spend a small percentage of it
Take 10% of your refund money and spend it on something for yourself. Doing so will help you stick to your plans for the rest of the money. If you're too strict with yourself, you may be more likely to fall off the financial wagon. The average tax refund amount is just shy of $3,000, according to the IRS. So if you receive the average $3,000 refund, spend $300 of it. But use the remaining $2,700 wisely. Check out the following ideas for how to do just that.
2. Pay off high-interest debt
Put your money to excellent use by paying off any outstanding credit card debt you may have. If paying it all off isn't feasible, then consolidate your debt. Several credit cards offer 0% on balance transfers. For instance, Citigroup's (C 7.56%) Citi Simplicity and JPMorgan Chase's (JPM 3.31%) Slate cards offer 0% on balance transfers for 18 and 15 months, respectively, and no annual fees. If you qualify, transfer your balance as soon as possible. The immediately set up and stick with a monthly payment plan. Discipline yourself to have the entire balance paid off before the 0% time clock is up.
3. Build your savings account
Take this opportunity to bolster your savings such that you have at least three months' worth of living expenses socked away. Money market or savings accounts will provide you with the best rates. For example, American Express' (AXP 3.46%) high-yield savings account pays 0.85%, and Capital One Financial's (COF 5.65%) Capital One 360 offers a 0.75% APY. Both accounts boast no minimum balances and no fees. Meanwhile, EverBank Financial (NYSE: EVER) pays an attractive 1.01% money market rate but requires a $1,500 minimum opening balance.
4. Fund a Roth IRA for 2013
Get a jump on this year's Roth IRA contribution. Sure, you have until April 15, 2014, to make your contribution for the 2013 tax year. But don't wait. The earlier in the year you fund your Roth, the more months of tax-free growth you'll accrue. And that can amount to a lot of money over your working life.
5. Revisit your tax withholdings
Consider talking with an accountant about why you're getting a refund in the first place. When you receive a refund, it's only because you've overpaid to Uncle Sam throughout the year. He's essentially used your money all year long. Don't stand for that another year. Discuss your situation with a tax professional, or, if you're more hands-on, tackle the issue yourself.
Foolish bottom line
Put your tax refund money to good use by employing these strategies. Making small steps toward improving your financial situation can make a big difference later in life.