Majority of Canadians use their tax return to pay down debt and save
(TORONTO, ON) — Tax procrastinators might be finding themselves in a panic with the filing deadline approaching, but there are many wise and organized Canadians out there who have long since filed and received a tax refund. In early April, Revenue Canada announced that more than half of the Canadians who have filed their returns received an average refund of nearly $1,700.
Receiving that much money from the government might feel like a mini lottery win – and plenty of people plan to treat it as such. This week, TD Canada Trust released survey results showing that nearly one-third of Canadians plan to use their tax refund on big-ticket items or discretionary spending.
However, the majority of Canadians proved to be much more financially prudent:
- 25 per cent plan to pay off credit card debt
- 23 per cent will contribute to an RSP or TFSA
- 19 per cent will add the money to an emergency fund
Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, is encouraged by the survey results. He says that Canadians need to realize that it was actually their money all along.
“Your tax refund represents money that you over-paid to the government,” says Schwartz. “It’s not a gift from above – it’s money that you worked hard all year for, and you should treat it that way.”
Schwartz suggests that long-term thinking will help Canadians maximize their returns.
“Explore your options, make a plan, and your $1700 will yield a lot more value in the long run,” says Schwartz. “With some discipline, I guarantee the lasting effects of this money will be much greater than a big screen TV or a trip to Mexico.”
Schwartz and his team at Consolidated Credit put together the following list of suggested ways to get the most out of your tax refund:
- Pay down debt – One-quarter of Canadians have it right. If you are carrying a high-interest credit card balance, paying it down might be the best way to use your tax refund. Poking away at your credit card bills by making the minimum payments will draw out the length of your repayment and cost you dearly in interest. According to our credit card debt calculator, paying back a balance of $1700 with minimum payments could take you fourteen years and cost you an extra $2200. You could save yourself a lot of time and money by paying it off in one fell swoop with your tax refund. Repayment calculated at 19% APR with minimum monthly payments of 2.5% of the balance.
- Save for the future – Depending on your age or financial goals, you might want to consider investing in a Tax-Free Savings Account (TFSA) or an RRSP. Allowing your money to gain interest over time will add to its value and set yourself up for a better future. Adding to an RRSP will give you an added benefit because you will be able to claim it as a tax deduction on next year’s tax return.
- Build an emergency fund – Having money set aside to cover unexpected expenses has a two-fold benefit. For one, if your car breaks down, you won’t need to use your credit card (and pay the associated interest). Secondly, it helps you breathe easier. According to the Financial Planning Standard’s Council (FPSC), 42 per cent of Canadians say ‘money’ is the biggest stress in their lives, and it causes people to lose sleep and feel overwhelming stress and anxiety. Knowing that you have something to fall back on will help you relax.
- Save for your child’s education – If you’re not carrying debt and you feel secure in your savings, investing in an education fund is another smart way to use your 2014 return. Contributing to an RESP comes with a 20% federal matching grant on the first $2,500 per child, per year – why not take advantage of the free money?
- Be good to yourself – If you have already checked off many of these tips, then it probably means that you’ve been spending wisely and living within your means. If diets can have a ‘cheat’ day, then frugal living can deserve a pause every now and then. Reward yourself by using some of your tax return on a want instead of a need and it’ll help you remain motivated to continue on the path to financial fitness.
About Consolidated Credit Counseling Services of Canada, Inc.:
Consolidated Credit Counseling Services of Canada is a national non-profit credit counselling organization that teaches consumers about personal finance.
For more information or to request an interview with Jeffrey Schwartz, please contact: