Thrifty ways to use your tax refund

April 2, 2009 6:38:22 AM PDT
The April 15th tax deadline is just around the corner again. Just about the only nice thing about filing your returns is getting a refund - that is, if you qualify. So what should you do with the money?SIGN-UP: Get breaking news sent to you

No one seems to have trouble spending Uncle Sam's money. But the recession has some thinking twice about how to use their tax refund. Do you save it for a rainy day? Or eliminate high interest debt? Most experts agree - pay off your credit cards.

"I personally think it is ridiculous to have a savings account at the same time you have credit card debt and here's why. It is very simple math," said Elisabeth Leamy, GMA Consumer Correspondent.

"If you apply your refund to your credit card charging 22 percent, you are in effect getting 22 percent return on your money paying down high-interest debt. So number one place you should look at is paying down your high interest debts," said Michelle Price, Edward Jones Financial Advisor.

"In a way, you can make money by paying off credit card debt," said Leamy.

Two-thirds of people who filed taxes last year got a refund on average, for $2,400. If you'd consider your debt manageable:

"Look at putting your money in an IRA if you have a tax refund. That's probably one of the best things you can do for yourself," said Price.

You could also create an emergency fund. Ideally, you'd want to have three to six months saved, just in case.

"One thing you may want to consider is start 529 for your child. College costs are going up every year. Save early and save often. A 529 gives you tax benefits that a savings account or regular brokerage account won't," said Price.

The bottom line? The advice from economists is likely similar to environmentalists, think green, cut down your plastic expenses.

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