38.8% of Iowans Surveyed Plan to Pay Down Their Debt with Their Tax Refunds
CONSIDER THIS: Tax refund time is just around the corner, and many Iowans are eager to pay down their debt. Last year, the IRS issued more than 104 million refunds totaling $282 billion. For many Americans, their tax refund represents one of the most substantial debt payments they will make all year.
According to a survey of 890 Iowa credit union members conducted by the Iowa Credit Union League (ICUL), 38.8% of respondents plan to use their refund to pay down existing debt in 2013. Similarly, 36.8% of respondents said they plan to save their tax refunds in 2013. Only 4.1% of Iowans are using their tax returns for large purchases, while a small number have designated the funds to start a new business (0.7%).
Many financial experts suggest using a tax refund to establish an "emergency fund" for those who do not already have one. Keeping these funds separate from a regular checking account will discourage spending, and a savings component allows individuals to access funds that can help them avoid going into debt.
The IRS has made it easier to save your tax refund for a "rainy day" by allowing recipients to have the refund split up and deposited in up to three different accounts. This gives consumers the option to earmark portions of their refund for spending and/or saving.
ICUL suggests using a tax refund for one or more of the following:
- Start a "rainy day" fund. Save for unexpected financial woes that occur including car repairs, home maintenance and health expenses. Putting money aside helps you manage the unimaginable.
- Invest it long term. The further away you are from retirement, the more your refund can benefit you. Talk to a credit union about long term investment options, and watch your money grow.
- Invest it short term. While returns on short term investments, such as certificates of deposit, are at record lows, they are still safe and earn interest. If you are looking to make a major purchase within the year, investing short term can grow your refund into a down payment.
- Start a college savings plan. If your children have college aspirations, consider using your refund to start an education savings plan. The cost of attending college is forecasted to rise significantly over the next decade, so saving for higher education now is a smart investment.
- Pay down a credit card or loan balance. Nothing hampers a budget like interest-laden monthly loan payments. Whether in the form of a credit card minimum amount due, or repaying a home equity line, shrinking your balance due can minimize your payment and shorten the life on the loan
