Yesterday, I shared part one of what to do with your tax refund. Today, I would like to offer another suggestion of what to do with your tax refund. One of the most important things following the first suggestion of opening an emergency fund is paying off debt.
If you are carrying high-rate debt, reducing or eliminating your balance can save you a bundle in the long run. It makes no sense to save money at 3-4% when you are paying anything above 8-10% or more in interest on your debt.
What are the benefits of paying off debt? For one, you are able to sleep better because you are not worrying about how to pay your bills. Second, your credit score should improve. Third, the money your are not sending to the credit card companies makes it alot easier to "pay yourself first."
How much money can you save by paying off debt? Take a look at this example:
- Credit Card Balance: $2000
- Interest Rate: $18%
- Monthly Payment: $50
Follow this link for a great list of debt calculators to figure out how long and at what amount you need to get out of debt.
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