Lots of people look forward to receiving a big tax refund each year. According to the IRS, the average tax refund will be $2,800 this year. That is over $230 a month that everyone is lending to the government interest free. If you are following Dave Ramsey’s plan like I am, that is a lot of money that could be going towards your debt snowball or emergency fund.
If you are still in debt and looking to get out, an extra $230 a month can really help. I know I can’t wait to scream “I’M DEBT FREE” and if I can do that even a few weeks sooner I will do it. I got married last year, so I wasn’t entirely sure how my taxes were going to be affected. After I filed my taxes and realized we were getting about $2,500 back, I changed my withholding so that I won’t loan Uncle Sam as much money this year. The extra money each month is going straight to my wife’s college loans, and we plan on being debt free in June!
But I’ll Just Blow the Extra Money
Some people say they can’t be trusted with the extra money each month. They will just blow it and not have anything to show for it. So they loan it to Uncle Sam and then when they get it back in one big chunk they can pay off debt then, fix up the house, or go on vacation. If you want to be debt free, you have to be more disciplined than that. You need to spend every dollar on paper on purpose with your budget before it happens each month. Then you have to actually follow through with it. If you are having trouble budgeting and actually sticking to it, try using the envelope system.
If you don’t think you could save the money and you’d rather have it come out automatically, you can do that yourself. You can set up automatic transfers to happen each month, or even have your HR direct deposit it for you. It is better to have the money taken from your check yourself and put into a separate savings account rather than giving it to the government to hold for you. That way you can earn interest on it, pay off your debt as soon as possible.
If you still have debt, the interest you pay each month is a huge drain. Take the extra money that you are sending to the government and pay it directly on that credit card you are trying to pay down. The extra money will all go directly to the principal saving you significant amounts of interest in the long run. You’ll be glad you did.
What do you think? Are you for or against having a large tax refund?
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