12 Smart Things to do with Your Tax Refund

In 2004 the average American tax refund was over $2,000. Instead of blowing this free money the weekend after you get it, consider any of the following 12 smart things to do with your tax refund.

1. Pay down your credit card debt

Credit card lenders typically charge very high interest rates, so this year consider using your refund to pay down all, or at least part of, your credit card debt. If you have multiple credit cards it is also a good idea to pay off those with the highest APR (annual percentage rate) first.

2. Save it for a rainy day

A good rule of thumb is to have at least 3 to 6 months worth of living expenses saved in case of an emergency. You never know what will happen tomorrow, so you should always be prepared.

3. Make an extra mortgage payment

If you use your tax refund to pay an extra mortgage payment every year you can drastically reduce the total amount you pay on your loan. By making one extra payment each year you can reduce the life of your loan by as many as six years.

4. Open an IRA

Investing in a retirement account is always a smart way to spend your tax refund, especially for younger taxpayers. If you already have one you can always contribute extra to your funds.

5. Invest in the market

By investing your refund in stocks or mutual fund, you can put your money to work for you. Money invested typically provides a much better return in the end then a savings account or retirement plan.

6. Prepay major bills

If you have any big bills coming up then you might want to consider prepaying them with your refund. These bills range from annual insurance premiums to orthodontist bills, but can cause problems for anyone living on a monthly budget.

7. Upgrade faulty appliances

By upgrading to energy efficient applicants such as air conditioners or refrigerators, you can actually save money on your energy costs. Additionally, these improvements can also increase the value of your house.

8. Open a college fund

If you have kids, or if you are planning to, it may be a good idea to put your refund away to their future college expenses. Tuition and book prices rise more each year and it is never too early to start saving.

9. Service your car

For many people their vehicle is their only way to get back and forth from their job. If it has been a while since you have had your car serviced it is probably a good idea to take it in.

10. Invest in yourself

By attending a professional conference, learning a new language, or even taking a class at a community college, you can put your refund to good use by investing in yourself.

11. Prepay a future vacation

There is nothing more relaxing than taking a well-deserved vacation. If you worked hard last year then odds are you will have a sizeable refund to show for it. Why not take a vacation with friends or family with part of that refund?

12. Donate it to charity

Making a charitable contribution is always a smart way to spend your tax refund. By helping others in need you can do a great thing and lower your taxable income.