It’s tax season, and many Canadians may be expecting a tax refund. It does not matter if you are getting a small amount or large amount of money: it makes good financial sense to decide wisely what to do with your tax refund.
According to a recent TD Bank survey, the average Canadian is expecting a refund up to $1,499. “It’s very tempting when you receive your income tax refund to go shopping on an impulsive shopping spree,” says Jeff Schwartz, executive director at Consolidated Credit.
“It is nice to treat yourself to something special,” he says. “However, it’s important to recognize the opportunity to make a real difference in your overall financial picture by using extra cash to attack debt or accumulate savings.”
Below are six smart ideas on what to do with your tax refund.
Use your Tax Refund to Pay Down Credit Cards
Is credit card debt affecting your life? Dedicating some of your tax refund to paying down your debt could be the jumpstart you need. The problem with paying minimum payments every month is that much of your payment goes to covering interest, and it’s hard to get traction to reduce the overall debt.
You are best served to pick one card at a time, and be aggressive in paying it off. Start with the card that has the highest interest rate first.
Pay into Your Emergency Savings Fund
Emergency spending is one of the major reasons that people find themselves having to turn to debt to cover costs. Everyone knows you should have an emergency fund, so take this year’s refund and get it going. You’ll be glad you have extra money on hand if an emergency arrives.
Take on Home Renovations
One way of improving your overall wealth is by taking on home renovations. Many renovations will add value to your house. You can expect to recoup some of your costs in kitchen, bathroom and master bedroom renovations when you resell your home. This is something to consider if you plan to move soon.
Add on to Your Retirement Savings
Even though retirement may seem a long way off, there is no time like the present to start accumulating your retirement savings, so that your golden years can be very golden.
Put your Refund Toward a Down Payment
Home ownership is becoming a challenge for many, given the high price of housing in several Canadian cities. Home buyers are finding themselves having to take out large mortgages just to own a house.
You can reduce your debt load by increasing your down payment, and your tax refund could be a good lump sum amount to pad those savings.
Save for the Sporting Life
If you have children who participate in sports or after-school activities, you know that these adventures can be very expensive. Rather than relying on credit, or having your child sit on the sidelines because of the costs, put your tax refund away for when the season or activity starts.
After you figure out what to do with your tax refund, are you trying to come up with creative ways to get rid of that debt once and for all? We can help you plan to become debt-free. Call one of our trained credit counsellors 1-888-294-3130 or check out our debt analysis calculator below.