The average tax refund was $2,500 in 2008. If you’re
getting a big check from the IRS this year, develop a plan
to make the most of the money. Use the opportunity and make
healthy money management decisions. Credit.com recommends three
ways to spend your tax refund wisely.
1. Open
a Secured Credit Card
Opening
a secured credit card is one of the easiest and safest
ways to rebuild damaged credit. And we all know just how
important good credit has become these days. Secured credit
cards are easy to open, report to the credit bureaus, and
will help add positive information to your credit reports
when they are used responsibly.
Here’s where the tax refund comes into play: You need
at least $200 to deposit in a savings account in order to
open a secured card. The savings account balance serves as “collateral” for
your credit limit on the new credit card; a
$200 deposit will translate to a $200 credit limit. You can
add more to your savings account to increase the limit.
After about a year of responsible use, many secured credit
cards will switch to being unsecured and you’ll receive
your deposit back plus interest. Not only will you have
boosted your credit, but you also will have created a nice
little nest egg.
2. Reduce your Debts
Now is
the time to get rid of your high interest credit card debts.
You might not be able to pay
off all your debt with your
tax refund, but it can certainly make a dent or help you
kick start a new repayment plan. For example, if you have
$8,000 in credit card debt at 16% APR, you can save $6,800
in interest and 18 years of repayment time just by increasing
your monthly payment from 2.5% to 6.5%. That’s only
$300 more each month.
Use our credit
card repayment calculator to see how much you might
be able to save by increasing your payments or reducing
your interest rates.
3. Create an Emergency Savings
Account
Is
your family financially prepared for a job loss or illness?
How would you pay your mortgage, credit cards, loans,
and insurance if you lost your income? Our experts recommend
building up an emergency account with enough to cover
six to eight months of your basic expenses.
Putting all or part of your tax refund into a savings
account is a great way to jump-start your emergency savings
plan. When you’re creating the savings account, try
setting up a direct withdrawal from your checking account each
month. Even if it is just for $20 a month, it’s a
quick and painless way to save.
How do you plan to spend your tax refund? Share your ideas
in Credit.com’s
Community Forum.
In the News
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CARD Act passed by senate banking committee
The Senate Banking, Housing and Urban Affairs Committee has
passed S. 414, legislation to regulate credit card policies.
The Credit Card Accountability, Responsibility and Disclosure
Act ("the Credit CARD Act"), introduced by Senator
Christopher Dodd (D-CT) aims to protect consumers from confusing,
misleading, and predatory practices by credit card companies.
Among other provisions, the legislation will ... Read
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On the Blog
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Card Limit Reductions Impact 16% of the Population According
to FICO
A new FICO report on credit data from the second half of
2008, revealed that 16% of the US population had some reduction
in their credit card limits. A majority of these consumers
didn't have any late payments, collection accounts or other
negative records to trigger the change ... Read
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Ask John
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Card Issuer Closed My Account Because It Was Unused – Why?
This month John explains why credit
card issuers are taking these actions and what you need to
know in order to protect your credit scores in the process
... Get the
real story from John Ulzheimer »
Quote of the Month
"If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don't get wet you can keep."
-
Will Rogers
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