Tax refunds can be a welcome relief for families each year, especially for those living from paycheck to paycheck. You might have big plans for that money already—a trip to warmer climates or a down-payment on a new car. But what about credit repair services? Sure, the alternatives might be more fun, but regaining control over your financial reputation is a long-term goal amidst short-term frills. Consider investing some of your return into the following areas. Your credit repair efforts will thank you.
1. Tackle debt. The majority of people have debt. It’s part of life, right? Maybe, but struggling under a mountain of unpaid bills is not. Take the opportunity to get ahead by tackling debt with your tax return. Remember: Paying down revolving credit is almost always rewarded with higher credit scores. Start by paying off credit cards with the highest interest rates, and work your way down. Not only will you likely improve your credit repair efforts by improving your credit scores, you’ll also reduce your monthly payments and free up cash each month to enjoy life. It’s a win-win-win.
2. Bulk up the emergency fund. Credit repair services can help you pick up the pieces after unexpected events. The roof caved in, you lost your job, or maybe your kid just needed braces—whatever the reason, you needed cash and perhaps fell short. Building an emergency fund can shield you when times get hard. Avoid credit repair problems in the future by sending some of your tax refund straight to the savings account.
3. Invest in education. Student loans are one of the highest causes of chronic indebtedness and bankruptcy in the U.S. The financial challenges that new grads face today are likely to continue despite any economic recovery or government reform. So don’t rely on the system to fix itself in time for Junior’s freshman year. Help your kids avoid their own need for credit repair by helping them save for school now. IRAs and 529 savings plans can help you build a college fund and reduce their dependence on federal or private aid. What better reason to invest your money?
4. Save for retirement. Here’s a worst-case scenario for you: You are 65 years old, married with three kids, and completely tired of working. You would love to retire, but you have only saved about 10 years’ worth of income. This scenario is a reality for many Americans who cannot afford to retire. Whatever your financial situation, saving for retirement is critical. The earlier you save, the more compounding interest will work for you instead of against you. Use your return to invest in a Roth IRA or other vehicle that will allow you to withdraw money tax-free. Your golden years may be decades away, but planning for them begins now.
5. Improve your “stuff.” No, not your TV or wardrobe. Think of the “stuff” that sustains your life and could actually improve it. What about the resale value of your home? Would an updated kitchen help you in the real estate market down the road? What about your car? Are you spending an arm and a leg commuting to work each week? Why not invest in an efficient model to save money and help the planet? Cost-cutting doesn’t always mean cutting back. Use your tax return to make lasting changes in your lifestyle. The opportunity is there—make sure you take it.