Tax Day has come and gone and now many Americans are anxiously awaiting their refunds. While a vast majority of Americans have already received their state and federal income tax refunds (with the exceptions being those that were late filers). With that extra cash now padding their pockets it’s assumed that many Americans will see it as an opportunity to go make some frivolous expenditures. However, a recent study conducted by Credit Karma Tax is telling a different story.
Paying Off Debts and Planning for the Future
Overall with a vast majority of Americans are going to be using their money wisely and are thinking ahead with their refunds.
Rainy Day funds for themselves of a family member: Approximately 23% of Americans responded that they planned on putting it in their bank account or a rainy day fund. Considering that 57 million Americans have no emergency savings, that is a very wise move to make. Often times when individuals do not have an emergency fund, they will dip into their retirement funds which incurs penalties and puts them in a tougher spot when retirement rolls around.
Pay off credit card debt: 18% of those who responded said they would pay off credit card debt.1 Considering that most all credit cards have very high interest rates, this is also a very good idea. According to an analysis by NerdWallet conducted on 2017 household debt, the total credit card debt owed by US consumers equates to $931 billion, with the average US household carrying approximately $15,983 of credit card debt. While some households may have less credit card debt than this amount, it is still important to get out of this form of debt since the average card APR sits at about 16.15 percent.
Pay off other debt: An additional 20% of Americans said that they would be paying off other forms of debt, which varied between a mortgage, student loan debt, or medical debt.1
Saving for a major purchase: 10% reported that they were saving up to pay for a home, car or boat.1 Now while extra cars or a boat may not be the wisest thing to spend your money on, especially if you’re in debt, saving up for a down payment on a house is a very noble, and wise thing to do.
Others might want to rethink theirs
17% of respondents said that they planned on spending their refund on something for themselves, their significant other, or towards a vacation.1 While it is good to treat yourself every once in a while, financial stability and being debt free is a good way to ensure that you can treat yourself more in the future.
At the end of the day, your tax refund is a very welcome boost to your finances and can help you stay out of debt and prepare for a rainy day. Through proper planning and usage of your refund you can find yourself out of debt, prepared for the future or ready to make that big purchase.
If you have any questions on how you can properly prepare for the future, call us at GROCO today!