Getting money back from the IRS? Here's what you could do with it.
While most of us don't look forward to filing taxes, there's often a silver lining: the majority of filers who submit a tax return get a refund. The IRS reports that the average refund so far this year is $2,880 -- not a small amount of cash. If you have money coming your way, here are some smart things to do with it.
1. Build or replenish emergency savings
Many people have tapped their savings accounts to keep up with their bills during the pandemic. If you're one of them, you can replace funds by sticking your tax refund into a savings account or emergency fund. If you don't have money on hand for a rainy day (or not enough of it), consider saving your refund as a start.
2. Pay down credit card debt
Just as a lot of people turned to their savings to cover their expenses in the course of the pandemic, many have taken on credit card debt. If you're carrying a balance, you may want to use your tax refund to whittle it down as much as possible. Doing so could not only save you a lot of money on interest, but improve your credit score if there's room for improvement.
3. Pay off a personal loan
Some people took out personal loans during the pandemic to make up for income shortfalls. Though personal loans don't tend to charge as much interest as credit cards, they still charge some interest. If you use your refund to chip away at your loan balance, you save money in repaying that debt.
4. Fix up your home
A lot of people are still working from home or hunkering down due to the pandemic. If you have more time on your hands, it may be a good time to make home repairs. If a lack of money has stopped you from tackling home projects, your tax refund could make them possible.
5. Get a new car
You may be working from home right now and getting your groceries delivered -- but what happens when life goes back to normal? If you happen to need a better car, consider using your tax refund to put a down payment on one.
6. Go back to school
Though the U.S. unemployment rate is pretty high right now, as the pandemic improves, more jobs may become available. If you'd like to switch careers or aim for a promotion, you may need to boost your skills by taking classes or getting a higher degree. Your tax refund could help cover tuition.
7. Invest in your mental health
It's been a tough year for a lot of people. If you're doing well on savings, aren't chipping away at debt, and have enough money to cover expenses, consider spending some of your tax refund to relieve stress. Treat yourself to an online yoga class. Start seeing a counselor if you feel you need a professional to talk to. Or use that money to do things that will bring you joy, whether it's doing something special for family you haven't seen in ages or paying for extra childcare to get a break.
Though not everyone who gets a tax refund gets a whopping sum, you may be in line for several thousand dollars if your refund is around the average. Before you spend that money, think about how it could improve your total financial picture, and use it accordingly.
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