Budgeting & Saving

9 Great Ways to Use Your Tax Refund

Congratulations—you won the lottery! Well, not exactly. What you did is overpay your tax obligation, and now you have money that was rightfully yours coming back to you as a refund. It may be a substantial sum too. According to the IRS, the average federal income tax refund in the first week of tax filing week was $1,865. Whatever yours might be, however, it can feel like a windfall.

Now what are you going to do with the money? That's the million-dollar question. Here are nine financially fabulous ideas.

1. Dissolve High Interest Debt

Or at the very least, make a sizable dent in it. Interest rates on credit cards are too high to let debt roll over from one month the next. According to data accumulated by, the average annual percentage rate (APR) on credit cards is 17.64%, but for bad credit it's 25.33%. A smart way to use your refund is to power down some of what you owe, which could save you a considerable sum. For example, if you owe $1,865 on a credit card with a 21% APR and send just the minimum payments every month, it would take about 9.5 years to pay off and cost $1,872.59 in fees.

So you can see how much you might save if you put your refund toward existing credit card debt. And if the debt you've been hanging on to has been hurting your credit rating because the balance is too close to the limit, you'll also be helping your credit scores escalate.

2. Prep for a Crisis

If some of that credit card debt went to pay for some sort of emergency, you already know the pain of not having a nest egg from which to draw in case you need it. You can offset that problem now by putting the refund into a savings account designated for unexpected emergencies. It will give you peace of mind that if something expensive does come up, you'll be covered.

Of course you won't be making much money while it's tied up this way, since most savings accounts don't offer high interest rates. Still, some offer APRs in the 2% range. Assuming you deposited $1,865 into such an account, and then made regular deposits of $50 per month, you would amass about $2,500 in a year. Not bad!

3. Get Ahead of the Holidays

The holidays can be a financially stressful time. If it is for you, imagine the joy of being able to dip into a deep pool of funds for gifts, extra food, decorations and whatever else goes into your winter season budget. As you might remember from last year, it probably cost you a hefty sum.The statistics portal Statista reported the average spending on Christmas in 2018 was $794 on presents alone. Wouldn't it be fantastic to have that money on hand?

4. Fund Fun

Not everything has to be the "right" thing to do. Go ahead and enjoy your hard-earned money. Think about what you most missed when you were scrimping. Maybe it's time for a much deserved vacation, some new clothes, a swank dinner out or great seats to a hockey game. Whatever that fun thing is—and as long as it doesn't jeopardize your overall financial health—use a bit of the cash for a valued indulgence.

5. Add to Your Retirement Account

If your non-working years are in the not-too-distant future, seriously consider depositing the money you're getting back from the government into a tax-advantaged retirement account. For 2019, you're allowed to add up to $6,000 to an IRA (unless you're age 50 or older by the end of the year, in which case the maximum is $7,000). When you stop bringing in a paycheck, the cash you've set aside and invested will be waiting for you.

6. Invest in Your Physical Self

Braces, LASIK surgery, hearing aids … some medical procedures and products are so pricey that people avoid getting them. If you've been putting such desired health care expenses off until you can afford them, turn your attention back to your body and invest in your well-being. That includes joining a gym, purchasing exercise equipment or investing in whatever else will get you in tip-top shape.

7. Help Your Home

Being a homeowner has its advantages, but a downside is the constant upkeep. Look around. Maybe it's time to splurge on a fresh coat of paint, refinish hardwood floors or buy an energy-efficient refrigerator. Whatever the case, getting your home in good working order is a smart way to use a refund. If there's anything left over, open a savings account specifically for home maintenance and repairs. The experts at HGTV recommend having a reserve of 1% to 3% of your home's purchase price for such expenses.

8. Give to Others

A dear friend in need, endangered species, the ballet, your alma mater … what moves you to donate is a personal decision, but this may be the perfect time for you to give to a worthy cause. If you want to contribute to a nonprofit or charity, however, make sure you do your research about the organization first. Check it out on Guidestar to make sure it's highly rated.

9. Enroll in an Educational Program

If you've been feeling stuck at your job and want to branch out and up, why not use the tax refund to learn something that will advance your career? There are plenty of online courses and certificate programs, often offered by local universities, that are reasonably priced. Or maybe you've always wanted to learn how to speak French, take a ceramics class or play the violin. This is your opportunity. Seize it!

However you spend your tax refund, what's most important is that you treat the funds respectfully. This is money you earned. The government just held on to it for a while and is now is returning to you. So though it may feel like a slot machine ka-chinged in your favor, remember that it was really your labor that paid off.