Chicago Bankruptcy Experts Say Paying Down Debt Stretches a Tax Refund
If Uncle Sam treated you as well as he treated me recently, you’re probably still smiling over the fact that you have a tax refund coming. Maybe you’ve even started to plot how you’ll spend the money once it arrives. If so, good for you! Having a plan for your refund is the best way to stretch it as far as possible—though it took me awhile to figure this out.
Back when I was younger, my only plan was to blow every dime on a mad shopping spree. In those days, a tax refund was as good as free money. Never mind that it was actually money I had earned yet was being withheld by the IRS—I pretended I had hit the jackpot. Since it didn’t feel like my income, I didn’t treat it with the same kind of responsibility as my paychecks—meaning I felt no guilt over spending it at the mall.
Problem was, I was otherwise living paycheck to paycheck because I had a lot of credit card debt. And because I never had enough money, I continued to rely on the same credit cards that put me in the red. I thought I was stuck in a vicious cycle, but I didn’t realize I had a ticket to financial freedom in the form of those IRS checks. After a few years (and after my refunds began getting smaller and more precious) I began using portions of them to pay off debt and actually stock up some savings. And you can do the same.
If you’re like most Americans, you have a lot of debt—probably at least a few thousand bucks. And if you’re making minimum payments with a typical annual interest rate—let’s say 20% or 30%—you’re giving a ton away to creditors. Most of those minimum payments will barely cover the yearly interest (if they do at all), and it could take years before you are able to pay off the principal balance. By spending your refund on reducing your debt, think how much money you will save yourself in the future! It will go much farther than if you merely use it for day-to-day spending, in which case you will still owe interest on your debts.
The principle still holds even if you didn’t get a refund this year. If you can save a portion of your paycheck every month—even if its just 10%, give or take—for paying down debt, you will be closer to financial freedom. And when you’re free of debt, you won’t have to wait for an IRS check to have money to spare.
Tackling debt can be a challenge. But if you find yourself overwhelmed, the debt experts at DebtStoppers in Chicago and Atlanta can help. You can start by signing up for our free one-on-one debt analysis. In the meantime, check out paycheck-stretching tips on our blog and in our free Financial Toolkit.
If you have trouble sticking to a savings plan most of the year, there’s no better time to take action than when you get that refund. Don’t look at it as free money—look at it as savings that you temporarily invested with the IRS (for not very much interest, but that’s another story). Now you just need to finish the job by putting it somewhere where it can really pay off.