What Do I Do With My Tax Refund?

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What Do I Do With My Tax Refund?

It’s that time of year when all that "free" money starts rolling in. I’m talking about the bonus money– you know, the fun money (otherwise known as our tax refund)! That is the way so many of us think of a tax refund and, five minutes after we spend this year’s tax refund, we are already thinking about what we are going to do with next year’s refund money.

Many of us look at getting a tax refund almost as if we have won the lottery. We are going to do so much with it and it seems to have such amazing powers. I mean a $1000 tax return can buy a car, furniture, a big screen TV or a family vacation all in one fell swoop. There is almost nothing it can’t do; no problem it can’t solve. It’s our mad money– our fun money.


If you have debt, a tax refund is none of the above. It is not mad money. It is the opportunity to move closer to getting out of the debt you have already committed to pay. If you have credit card debt, use your tax return to pay off that credit debt rather than to buy that big screen TV or the couch you have wanted.

Use common sense and wise thinking when it comes to spending that tax return. It is no different than a regular paycheck. In fact, when you look at the fact that you make so much money a year, the tax refund is actually part of the salary that you say you make.

Stop looking at it as a bonus and instead think of it as more income available to pay your debts. Once you pay off those debts, a tax refund can be a great opportunity to start a savings account.

We get so many questions from people who are panicking and asking what we do for an emergency fund. Instead of throwing away that tax refund check on something that gives you instant pleasure, set aside that tax refund money for an emergency (keeping in mind that even most "emergencies" are not true emergencies).

Once your debts are paid and you have enough savings, then use your refund for fun. We live in a society where we always put the cart before the horse. People used to get married and then have children but now it is common to have children and then get married. We used to carefully save our money and buy what we wanted from our stockpile but now we charge what we want and later try to figure out how to get the money to pay for it.

Because of how we think about credit, many of us don’t give any serious thought to paying for something until it is worn out and we want to buy the next one. Once the item is worn out, how do most of us feel about still paying for it? "It’s not fair that I have to pay for this and I don’t even have it anymore…" Avoid the stress later — Pay off what you owe now and stop buying things on credit.

If you are behind on your credit payments or if you’re not making the payments at all, use your tax refund as an opportunity to get current. When we buy an item on credit or with our credit card we are saying "If you let me have this product now I promise (vow) to give you money for it later". When we don’t pay our credit card bills it is no different than walking into a store, filling a basket with whatever we want and walking out with it. To my knowledge that is still called stealing. (I’ll have to check because they change the meaning of words so often to make them more politically correct. I mean who knows, maybe it’s not stealing anymore but just "temporarily using it until it is repossessed").

When you literally put the cart before the horse, (kids before marriage, buying and then trying to save money to pay for something, etc.) it will cause extra stress in your life and will make it much harder to get where you are going.

Re-think not only how to use your tax refunds more wisely but give the same consideration to any other "extra" money that comes into your life. Once you get a handle on your debt and your spending habits, you will be surprised how far your money will go. Start by making a wise decision about your tax refund.

One other thought– Make sure you have your withholding set up with your employer to not take out so much money. Set up a direct deposit into your savings account and save it yourself instead. Considering the fact that many states are on the verge of bankruptcy do you really want to give over all that money so the government can just "save" it for you? You may not get it back one day.

For more ideas to help you get out of debt, check out Dig Out of Debt!



  1. says

    Good post! We put ours entirely towards the debt snowball we were working on, and that along with some overtime, completely paid off the debt :)

  2. Lori says

    We always use our refund to fix everything that needs fixed. Since we don’t carry any debt, this helps keep us out of debt. This year, we managed to replace our stove (over 20 years old), our refrigerator (we had to use fans to keep it working in the summer), and replace our well, which suddenly quit. The well was so old, that none of the workers had seen one like it, and the supervisor that brought parts to them hadn’t seen one like it in over 30 years. Hopefully, the new one lasts as long.

  3. says

    We used our refund to get out of debt this year. It feels great to finally be out of debt! My husband co-owns a small furniture delivery business so he got some great deals on some things we needed. And last but not least we are building a much needed privacy fence to keep the neighbors 2year old from continuously climbing into our yard. We get a small pool for our kids in the summer so I feel like it’s safe to have the higher fence to prevent anything tragic from happening. It’s also truly sad that we had to spend $1300 to do this when all that is really needed is some parental supervision.
    All in all I am very pleased with how we spent our tax return. We plan to never use our cards again! We only have our house left, and are starting to chip away at that.

    • says

      Congrats Angela. I get so excited when a reader lets us know they are out of debt because I know how hard you probably had to work to do it. Feels soooo good doesn’t it.You will probably find your house going down quickly now that you don’t have to put all of your extra towards other debt. Good job!!!!

  4. Jolene says

    We used ours to purchase a new to us vehicle. This will help us get out of debt because we no longer have a 400/month car payment +repair. The first vehicle was bought from a buy here/pay here and I got a really poor deal. Lesson learned. But the car is a nesecity for hubby to go to work.

  5. Susan says

    I’m glad you added the last to your newsletter–you really shouldn’t be getting a refund if your withholding is set up correctly. I just sent a check for $19.00 to the IRS–my taxes and withholding balance just about right!

  6. Rachel says

    My husband combined our refund with some overtime pay and paid off his motorcycle. That leaves us only owing on our home. Yes, you should owe very little or recieve a very little refund.

  7. Judith says

    I use my tax refund to pay the OTHER absurdly large tax we have here in NY—Property tax. I have a very very modest home and one acre of country land and pay the equivalent of ONE MONTHS SALARY PRE-TAX to be “allowed” to live on it. Now the ONLY reason we can “afford” to even be here is because we bought the house foreclosed and it is PAID FOR. No real “kudos” to me on that one we re-habbed another house and paid the endless mortgage and made the decision to NEVER do that again and when we sold it we bought a smaller house (with three growing kids!) and now we have 7 people living here —-I sometimes think I need my head examined! But the thing is—with the last kid OUT of college this past Dec we no longer received a “Tuition Credit” or similar—in fact, neither the kid NOR us was actually able to CLAIM it. If the kid claimed it he would have LOST ALL OF HIS TAX REFUND and might have OWED the IRS besides. And we just couldn’t see the sense in that since he worked for that money.
    And without claiming him as a dependent we lost the “right” to take the “credit” even though WE paid big $$$$ to the school for tuition! This does not seem a bit “fair” but a Tax Guy (CPA) assured me that this was the way it is and several other parents I have spoken too ALSO lost out on the last school year of credits. Was counting on that to help pay the property taxes but guess it will have to be “found” somewhere else. Grrrr!

    But anyways—we have NEVER had the “luxury” of being able to use the IRS refund for ANYTHING other than property taxes. And often we have to supplement this even tho we make a fairly small amount of money. Another reason we are looking into moving OUT of NY as soon as we can now that the “baby” is done with school.

    And altho I do “get” the point about “Emergencies not always being true emergencies” there are circumstances where you do need to use credit; I had to pay for a completely un-expected trip when my mother died unexpectedly and of course you pay the highest fare for the short notice. I did eventually get a “voucher” for air fare but due to an injury sustained on that trip I am really hesitant to fly as I have heard dreadful tales of amputees being humiliated and searched well beyond even the “norm” so it is doubtful I will ever use it. But this was one time where I was fortunate to have even the modest credit card I do have for just such emergencies. I actually would have not been SEEN in the ER for my injury if I didn’t have that credit card as the Arizona hospital would not allow treatment until I ponied up–cash or credit! Right then and there!–$100.00. Gee I wonder if they asked for $100 when their Congresswoman was brought in? Hmmm……Well don’t get sick or injured in AZ is all I have to say!!!!

    Please do not get all hypercritical on me for the Congresswoman comment—but if you travel out there or have friends they can tell you that the most heartbreaking thing is to see billboards asking for donations to “Give Bill a new kidney” and know that the State has shut off funding to kidney and other transplant patients; and many other health related issues are to be found there. Is this REALLY the future of “health CARE”???? Maybe Congresswoman Gifford will–if she is able—-help finally put this sort of thing in perspective for us.

    But use the refund for bills and expenses not for entertainment—THAT I agree 100% on!!!!!!

  8. Kathy says

    If you are a homeowner, you know that if you repay your mortgage over the entire time of your contracted mortgage, you’ll spend about 3x the original money borrowed. One GREAT way to save TONS of money is to use the time/interest principle to work FOR you! The idea is to repay your mortgage IN THE BEGINNING in large amounts as often as possible, as soon as possible.
    Think about it! As long as you’re allowed to pre-pay your mortgage (and most of us ARE….), why not put that $1000 tax refund on the principle of your HOME???? It’s tax deductible, and shaves YEARS off your having to pay the mortgage, especially if applied at the beginning of your mortgage! In fact, I figured (with the help of an Internet site) that the home I bought for $75,xxx in 2002 would be PAID OFF in 13 years if I only put $2000 of my tax refund on it annually, and added $50 to the mortgage payment monthly. Believe me, as an older mother (the age of most grandmothers today), this gives me HOPE! 😉
    The tax refund was larger because of our family’s difficult circumstances at the time, however this strategy really worked for me…and it might work for you as well! Blessings!

  9. Tanya says

    I look forward to mine and use it to replenish my emergency fund every year … because there are always those unexpected things that pop up and having a little extra cushion in the budget is a good thing!

  10. Grizzly Bear Mom says

    If you receive a tax refund it is because you are lending your money to the government interest free to 18 months. Why not have that amount directly deposited in a savings account across town (so you can’t spend it) or pay it toward a bill?

  11. says

    I used mine to pay my bills for the year. Now I have a back up plan and we live debt free. No credit card debt, no bills. Life is better with out stress.

  12. Maggie says

    Our tax debt this year was $36.50. My husband and I have never gotten a big check back from Federal because we could use the money every week, not leave it with the gov’t without earning any interest. Now, we did get a refund from the state this year but in the past, we have come in right on target – we owe a little or the state owes us a little. Never more than $200. I used to be jealous of friends who always got a big refund because they did fun stuff with the refund but looking back, I can see that they always had debt and would say later, “We should have spent the refund on bills but …(fill in your own excuse here). Now, we don’t have a mortgage payment, no car payments and I just paid off my credit card. So, no debt and that is wonderful.

  13. Susan Norman says

    Hi Jill and Tawra
    After 36 years (soon to be 37) My husband and I are completly debt free. Our home is paid for as are our old cars and we have no credit card debt. When we got married many years ago people saved for what they wanted and paid cash. We have a card that is only for emergenceys or some places that just will not take checks anymore. We have been saving our tax refund for the last few years as well as adding to our savings and we will soon have enough to buy a car and pay cash for it. although it will not be new,it will be new to us. People say saving is hard but it can be done. Have a blessed day!

  14. getforfree says

    I treat my tax refund as an extra paycheck. It is very important for me to do the tax planning to make sure we qualify for all the tax credits we can get. Like Earned Income Tax credit, child credit and whatever else you might qualify for. Check what income you need to qualify for those and plan accordingly. I try to remind my self-employed husband to write down miles and file the receipts for write-offs to make sure we don’t loose anything. I work very hard on that, so I feel like I EARNED my tax refund every time I do my taxes.

  15. Melanie says

    Each spring I use mine to buy another townhouse for rental properties. I am just getting ready to retire and would like to be settled by age 50. I have 9 rentals now and the government taxes this income at a very low rate compared to earned income. I do not pay any taxes up front for the rentals so I get to use all the income when I choose to. So I do get back all the taxes I paid on my earned income plus any extra from the houses. I like this set up as I know I am not obligated to go to work……I ended up taking on a large debt with a separation so it put me behind 3 years or I would be lounging now…..I still have a bit of the debt to pay but that is a tax write off until it is gone due to the rental properties. So the only other debt I have to clear off that is not tax deductible is at zero % interest…..I am on my way and cant wait till my feet are up and relaxing with the residual income of the rentals and my pension…..

  16. joe says

    I just received my tax refund. I have no idea what to do with it? im 48 yrs old and divorced, I rent so no mortgage, all my credit cards have a zero balance, I have a defered comp at work, no saving or emergency fund.

    • says

      If you have all of your ducks in a row and your finances under control then there is nothing wrong to spend your money on some things you want or need. Now if you are a Christian I personally feel that if God has blessed me with extra I should use it to help others who are in need. The funny thing about this is often I start giving it to others and I have the right attitude, I end up getting even more so I turn around and give more and get more.

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