Are you expecting a tax refund this year? If so, what do you plan to do with it?
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If you’re like most Americans receiving a refund from Uncle Sam this year, you’ll use it to pay down some existing debt. That’s according to a recent survey by GOBankingRates.com.
When asked “What do you plan on doing with your tax refund?” 5,000 respondents provided the following answers.
- I do not receive a tax refund — 30%
- Pay off debt (loans, credit cards, etc.) — 27%
- Put in savings — 25%
- Put toward a vacation — 9%
- Make a major purchase (car, home, etc.) — 5%
- Splurge on a purchase (TV, shoes, etc.) — 4%
The data was derived from responses to a Google Consumer Survey conducted from Dec. 30, 2015, to Jan. 1, 2016 and is representative of the online U.S. population with a margin of error of 1.8%. GOBankingRates also found only one in five Americans plans to spend tax refund money with respondents ages 18 to 24 twice as likely as baby boomers to splurge or make a major purchase with their refunds.
“It’s really encouraging to see … that most people are planning to use a tax refund to better their financial situation by saving or paying off debt,” Elyssa Kirkham, the lead finance reporter on the study, said in a press release. “Using a tax refund this way will buy the taxpayer more financial security and peace of mind, instead of a one-off splurge that soon loses its value or is forgotten.”
Making Good on IOUs
While receiving a tax refund can be a nice bump up in cash flow, getting a big refund means you essentially gave the government an interest-free loan, when you could have put the money in a savings or retirement account to earn interest. You may see that money as a windfall, but you should really see it as the government making good on a year-long IOU.
If you do get a refund, paying down debt— especially high-interest credit card balances— is a great way to use the money. You could also look into a balance transfer credit card or debt consolidation loan to minimize the interest associated with credit cards. (You can go here to find more about the best transfer credit cards in America.)
Paying down debt can also improve your credit. As you work on making payments on time and keeping your credit card balances low relative to their limits (some of the most important factors in credit scoring), you can see how your score changes by viewing your free credit report card, updated each month, on Credit.com.
This article originally appeared on Credit.com.
Constance is an editor and writer at Credit.com. Prior to joining us, she worked as a Web producer for CNBC, NBC News, MSN.com and The Dallas Morning News. More by Constance Brinkley-Badgett