Friday, May 4, 2007
For What It's Worth: Ways to spend tax refunds
So what are you planning to do with your tax refund check? Have you already spent it? Seven's Craig Stevens says, "For What It's Worth," there are several excellent ways to invest that extra cash.
WSVN -- So you just got your tax refund check in the mail, and you're ready to spend, spend, spend.
That's exactly what Johana Gonzalez did last year.
Johana Gonzalez: "Last year I used my income tax money, and I blew it off in New York."
But this year, instead of running up big bills, she used her tax refund to pay down her debt.
Johana Gonzalez: "I had three credit cards that were at minimum pay, so I knocked those out. I knocked out a big credit card. Then I had some debt that I owed my dad, so I paid that off as well."
Seven News financial expert Allie Jablon says a tax return should not be considered free money.
Allie Jablon: "This year, in 2007, we're seeing that the average tax refund is above $2,500. That's a huge chunk of change."
So what should you do with all that extra cash?
Allie Jablon: "One great way to spend your tax refund is to fund an IRA or an Individual Retirement Account."
With a traditional or Roth Individual retirement account you can contribute up to $4,000 a year.
Any gains are tax-deferred or tax-free until the money is withdrawn.
Allie Jablon: "Another great option for those getting a refund is to open a CD or a Certificate of Deposit."
Allie says this is a great idea if you're saving to buy a home or a car.
You can lock in favorable rates depending on the length of the CD.
Allie Jablon: "Another great way to spend your tax refund is to add to your emergency fund."
Allie says you need to have at least three months of expenses set away; this is money you can use if you can't work.
And, finally, you should consider doing exactly what Johana did.
Allie Jablon: "Use it to reducing that awful credit card debt."
If you're only making the minimum payment, try to pay down as much as you can.
Johana says using her tax refund to pay down her credit card debt took willpower -- but she now has more control over her financial future.
Johana Gonzalez: "I want to shop and waste it all on clothes and shoes. It hurt but, after a while, I was like, 'OK this is something I have to do,' and then it felt better afterwards, so I definitely don't regret it."
Craig Stevens: "Allie says you can also put your tax refund into a high-yield savings account and see about five percent on your return."
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