It is tax season, which means 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 wisely decide what to do with your tax refund.
According to a recent TD Bank survey the average Canadian is expecting a refund, of up to $1499.
“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 the Consolidated Credit Counseling Services of Canada.
“It is nice to treat yourself to something special. 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,” explains Schwartz.
Pay down credit cards
Is credit card debt affecting your life? Dedicating some of your tax refund to paying down your debt could be just the jump start you need. The problem with paying minimum payments every month means 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. Start with the highest interest bearing one first.
Below are 6 smart ideas on what to do with your tax refund:
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, but do you have one at all? Take this year’s refund and get it going. You’ll be glad you have extra money on hand if an emergency arrives.
One way of improving your overall wealth is by taking on some home renovations. Some renovations will add value to your house. You can expect to recoup much 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 in the near future.
Even though retirement may seem a long time off, there is no time like the present to start accumulating your retirement savings, so that your golden years can be really golden.
Down payment for house
Home ownership is becoming a challenge for many, given the high price of housing in a number of Canadian cities. Home buyers are finding themselves having to take out large mortgages just to own a house.
A big mortgage is never a good financial move. 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.
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.
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 or check out our free online debt analysis tool to get started.